TMI Blog1994 (3) TMI 222X X X X Extracts X X X X X X X X Extracts X X X X ..... pellants were collecting administrative charges on freight from their whole- sale dealers through Debit notes in respect of these goods. On a visit to the Unit at Munger in response to the queries from the Department in its letter dated 13-8-1986, it was informed that administrative charges were being realised. By a letter dated 29-8-1986, the appellants informed that for making necessary arrangements for transportation, they had to deploy men, material and stationery and also assets of substantial value like computer system. They have also to incur expenses on account of freight payable by the Company s customers and that, therefore, such activities resulted in additional cost to the appellants. It was contended that the totality of these costs represented the administrative expenses and that the appellants recovered such expenses from the customers on a pro rata basis in addition to the actual freight paid by the company to the transporters as a necessary incidence of the cost of transport. It was the appellants contention, the administrative charges are to be treated as part and parcel of the cost of transportation. The Patna Collectorate obtained a statement from the Commerc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llants were liable for penalty under Rules 173Q and 209 of Central Excise Rules. He confirmed the demand for differential duty in respect of Bombay and Bangalore Units of the Company and gave direction to the concerned Assistant Collectors at Saharanpur, Patna and Calcutta to finalise the demand on the basis of his findings in the order: A penalty of Rs. 50/- lakhs was imposed on the appellants. The present appeals arise out of the above order of the Collector of Central Excise, Delhi. 2. Shri Anil B. Divan, Sr. Counsel appeared alongwith the learned Counsel Shri Ravinder Narain, Shri Sashidharan, Shri Ashok Sagar and Ms. Punita Singh for the appellants. Shri M. Chandrasekharan, Senior Counsel alongwith the learned Counsel Ms. Savita Sharma represented the Department. Shri Anil Divan referred to the background to the demand and submitted the question is whether Freight Administrative Charges can be held to be additional consideration and if so whether it is to be added to the original price and worked back or whether it is to be added to the assessable value as held by the Collector. The learned Counsel submitted that even assuming without admitting that the freight administrativ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4(1)(a) has to be construed as a total consideration or the gross realisation collected by the manufacturer from the buyer from the sale of the goods and that by virtue of Section 4(4)(d)(ii) of the Act, the element of duty imposed be taken out to arrive at the value in terms of Section 4. The learned Senior Counsel further referred to the decision of the Tribunal in the case of Eddy Current Controls (India) Ltd. v. Collector of Central Excise, Cochin, reported in 1989 (39) E.L.T. 147 (Tribunal) where also after noting the citation of R. Gac Electrodes (P) Ltd., Bangalore, the Tribunal held that the money value of the additional consideration has to be ascertained and added to the sale price for determining assessable value of the goods. This direction was given by the Tribunal in this case after referring to the provisions of Rule 5 of the Valuation Rules. The learned Senior Counsel urged that in the R. Gac Electrodes (P) Ltd., Bangalore case there was no discussion about the method of adding the additional consideration whether to the wholesale price or to the assessable value. This was not in fact a question which came up for determination before the Tribunal in that case. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The learned Senior Counsel also contended that a freight administrative charges are relatable to transport cost and contended that in terms of Para 49 of the Supreme Court decision in the case of Union of India Ors. Etc., Etc. v. Bombay Tyre International Ltd., reported in 1983 (14) E.L.T. 1896 (S.C.) wherein it has been laid down that cost of transport will include the cost of insurance on the freight for transportation and on the same analogy the freight administrative charges have to be considered as part of transportation cost for deduction of assessable value. As regards the personal penalty, the learned Senior Counsel pleaded that the controversy relates to the period upto the end of February, 1983 which was prior to the period when the several assessments relating to valuation under Section 4 of Central Excises and Salt Act, 1944 came to be settled by the Supreme Court in its decision in the case of Union of India Ors. v. Bombay Tyres International Ltd. Etc., Etc., reported in 1983 (14) E.L.T. 1896 (SC). The law at that time was in favour of not including freight charges as given by the High Court in the case of appellants themselves. Their conduct, therefore, was in acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e considered because the freight administrative charges were all actuals. The learned Senior Counsel further urged that where there is Cum-duty price, the assessable value has to be worked backwards from the price. In the present case this is not the exercise called for because the appellants have charged the actual freight administrative charges without any element of duty. It was further submitted in this context that the examples taken in Para 25 of the VST Industries Ltd. case (Supra) by the Tribunal, is not appropriate as it is always possible for an assessee knowing his tax liabilities to cover it in the price charged. This decision of the Tribunal according to the Department has erred in following the ratio of Hindustan Polymers case of the Supreme Court because in the case considered by the Supreme Court, there is nothing in it to say that to include the additional consideration which does not have element of duty in it even in such a case the ratio should be followed. For similar reasons, the Tribunal decision in M/s. Jindal Aluminium Ltd. case is also distinguishable wherein the appellants had included branch, overhead charges having an element of duty and the CEGAT had f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat none of the High Court decisions are specific on freight administrative charges. Regarding the penalty on the appellants, the learned Senior Counsel argued that the appellants cannot say that they did not include freight administrative charges relying upon the then existing judicial pronouncement under Section 4 prior to Supreme Court decision on Bombay Tyre International case. No decisions existed specifically even at that period on freight administrative charges. In the same context, the physical control of clearances would only mean that clearances were granted by the officers on AR-I presented by the appellants. The learned Senior Counsel also submitted that though Rule 209 of Central Excise Rules for imposing penalty was not in existence at the time of offence, yet it was in force at the time of issue of show cause notice and the law applicable at that time can be invoked. The learned Senior Counsel relied upon the Larger Bench decision in the case of Atma Steels Pvt. Ltd. and Others v. Collector of Central Excise, Chandigarh and Others reported in 1984 (17) E.L.T. 331 (Tribunal). He also relied upon 1983 (13) E.L.T. 1277 (SC) = AIR 1953 Sup. Court 221 - M/s. Hoosein Kasam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of an article is related to its value and into that value several components are poured including those which have enriched its value and given to the article its marketability. Therefore, the expenses incurred on several factors which have contributed to its value upto the date of sale which would be the date of delivery are to be included in the value of the goods. We further find that in their reply to show cause notice also, there is an indication that its administrative charges are additional costs incurred by the appellants. In the circumstances discussed above in the facts of the case, it is held that the Collector has come to a reasonable conclusion that the price declared was not the sole consideration in this case for the sale of the goods and the freight administrative charges were in the nature of additional consideration. The nature and purpose of these charges from the records would also show that they cannot be treated as transport charges simpliciter for being deducted and criteria laid down by the Supreme Court in the Bomaby Tyre International Ltd. (Supra) case for exclusion of such charges are not attracted in the facts of this case to the freight administrative ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the goods and there is some additional consideration may be in cash or in any other form. It may be separately ascertainable or it may be part of some payment made or to be made by the buyer to the assessee. (b) Where the additional consideration is not in the form of money, but is in kind or in the form of services, the money value of the additional consideration will have to be determined and added to the price to determine the `normal price under this rule. (c) As stated earlier, the additional consideration need not be a direct payment from the buyer to the assessee. It may be a payment to some other person who receives it on behalf of the assessee or the additional consideration may reach the assessee through an intermediary. In all such cases, the additional consideration can be added to the price declared by the assessee for determining the `normal price of the goods." The decision of the Tribunal in the R. Gac Electrodes (P) Ltd. case did not address itself to a detailed interpretation of Section 4 of the Central Excises and Salt Act read with Rule 5 in the manner dealt with by VST Industries decision nor did the question of the point of addition of the additional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t may also be relevant in this context to refer to the Supreme Court decision in the case of Bombay Tyre Interntional Ltd. In Para 15 thereof the Supreme Court observed that in both the Old Section 4 and the New Section 4, the price charged by the manufacturer on a sale by him represents the measures of assessing the levy. Price and sale are related concepts and the price has a definite connotation. The value of excisable articles, the Court observed has to be computed with reference to the price charged by the manufacturer, the computation being made in accordance with the terms of Section 4. 6. In respect of the penalty imposed on the appellants under Rule 209, it is seen that this Rule was not on the Statute Book at the material time when the offence alleged had taken place. It is however, seen that the Finance Ministry in its Circular No. 5/86, dated 18-2-1986 have clarified that the Rule 209 is to be invoked only for offences committed on or after 30-1-1986. This was on the basis that Article 20(1) of the Constitution lays down that no person can be subjected to penalty for an offence greater than that which might have been inflicted under the law in force at the time of com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cannot hold back any particulars relating to the elements which go into the price while presenting the price list. It is also seen from the records that the appellants were realising additional consideration which is in dispute only through freight debit notes and were not showing it even in Trading Invoices. It is also observed that the practice of recovery of freight administrative charges continued in the case of smoking mixture even after the judgment of the Supreme Court in Bombay Tyre International Ltd. etc., etc. case. In such circumstances, imposition of penalty under Rule 9(2) read with Section 11A of the Central Excises and Salt Act, 1944, is sustainable. It is further seen that the cigarettes are not covered by self-removal procedure but under physical control procedure. Assessment under Rule 52 of Central Excise Rules was followed with the modification that the requirement of price list was continued even under Rule 52. Accordingly, there is need for Department to enquire into the correctness or otherwise of the measure of duty with reference to actual transactions in the course of assessment for the purposes of levying duty. Therefore, the penalty under Rule 9(2) b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ideration flowing back to the appellants has to be added to the wholesale price and assessable value worked back after allowing admissible deductions. The penalty on the appellants though sustainable is, however, reduced for the reasons cited above. The appeals are disposed of in the above terms and are partly allowed. Sd/- Sd/- (K.S. Venkataramani) (Harish Chander) Dated : Member (T) President 9. [Partial Dissent per : P.C. Jain, Member (T) on the question of quantum of penalty]. - I have carefully gone through the order proposed by my learned brother, Shri K.S. Venkataramani, Technical Member and concurred in by the Hon ble President of the Tribunal. I would, however, like to add as follows :- 9.1 I agree with the findings of the learned brother that so-called `freight administrative charges (FAC) do not pertain to the transportation charges of cigarettes and smoking mixture recovered by the appellants, in the absence of any adequate evidence furnished by them, as held by the adjudicating authority. Accordingly, FAC collected by the appellants would have to be treated as additional consideration received by the appellants. 9.2 I also agree with the finding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of exemption could be known by examining the goods and other declared particulars in A.R. 1 and it is in that context that the Apex Court held that there being no clandestine removal, Rule 9(2) could not be attracted. Position in the present case is, however, different. Here, it is a question of correct declaration of price - its various elements as charged by the appellant from its customers. We have already held that FAC forms an additional consideration collected by the appellants. Non-declaration of collection of FAC by the appellants either in A.R. 1 or in quarterly price-lists required to be submitted by them under physical control under departmental practice would ex facie attract the mischief of Rule 9(2). (b) At this stage learned counsel for the appellants has urged that they had no mens rea in not declaring FAC. They were under a bona fide belief on the authority of various Courts judgments, in their own cases, that post-manufacturing expenses or non-manufacturing expenses did not form part of the assessable value. In this connection, appellants rely on the following case laws :- (i) 1979 (4) E.L.T. (J 483) (Kar.), (ii) 1979 (4) E.L.T. (J 476) (Bom.) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e notice regarding the number of removals made by the appellants. Case of the Revenue for penalty on the appellants rests solely on Rule 209 on the ground that the provisions as they exist on the date of issue of show cause notice would be applicable. No new case can be made at this stage. 11.4 I observe that the learned counsel for the Revenue also did not react to the question from the Bench. He has only supported the findings of the adjudicating authority on the basis of applicability of Rule 209 of the Central Excise Rules, 1944. I also find that the show cause notice does not make any such allegation on such an interpretation of Rule 9(2) nor does it set out any material for imposition of penalty on the basis of each removal of the excisable goods. In the aforesaid facts and circumstances, I am of the view that it would not be correct to support the level of penalty arrived at by the adjudicating authority or reached by the leanred Brother on grounds other than set out in the show cause notice or held by the adjudicating authority. 12.1 I am also doubtful whether on a proper interpretation of Rule 9 (2), penalty could be imposed for each removal, I would take the analogy o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the two sections (Sections 31 220) of the Criminal Procedure Code do not profess to modify any part of this Section (S. 71 I.P.C.) 12.4 Applying the above principle to the factual position in this case, it is observed that the appellants could be imputed with the suppression of collection of additional consideration so as to lower the price of the excisable goods and thereby causing evasion of duty on each occasion. The commission of the main offence is suppression of the collection of additional consideration. It is perpetrated at the time of each removal of excisable goods. Taking illustrations given under Section 71, each of the 50 blows separately could be termed an offence and punished, but the person is liable to punishment for one beating as a whole for all the 50 blows. Similarly, in the instant case, each removal of excisable goods could be punishable with the maximum punishment, but it has to be limited to one punishment for all the removals. Although Section 71 is applicable to offences under the Indian Penal Code, to me, it appears to be a general principle of criminal jurisprudence in this country for grant of punishments because even Criminal Procedure Code also ..... X X X X Extracts X X X X X X X X Extracts X X X X
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