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TMI Blog1999 (4) TMI 368X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of cost structure in terms of Rule 6 (b) (ii) of the said rules. Accordingly, price list in Part VII was filed by the appellant claiming the assessable value on the basis of cost of raw material and the job charges received by them from the suppliers of the raw material. The appellants were issued a show cause notice dated 14-1-1992 alleging that the appellant had declared reduced assessable value inasmuch as the duty paid on the inputs have not been taken into account, while adding the cost of inputs in the value of the final product. Accordingly, notice proposed to enhance the assessable value and recover the differential duties, allegedly short paid on this count. 2.2 During the adjudication proceedings, the appellant explained that the aluminium ingots and the other input material is supplied to them by different suppliers for conversion of the same into aluminium sheets on job work basis in terms of contractual agreement with the supplier. As per the judgment of the Hon'ble Supreme Court in the case of Ujagar Prints v. Union of India and Others reported in 1989 (39) E.L.T. 493 (S.C.), the assessable value in such type of cases has to be arrived at by adding the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid on input in regard to which Modvat credit is availed of by a manufacturer is not includible in the assessable value of the final product under Section 4(1)(b) of the Act read with Rule 6 (b) (ii) of the Valuation Rules. The basis for arriving at the above finding have been summarised by the Tribunal in the case of Commissioner of Central Excise, Bangalore v. Narendra Company (P) Ltd. reported in 1998 (103) E.L.T. 330 (Tribunal) = 1998 (26) RLT 186 (Tribunal), as under :- (i) Letter dated 25-9-1976 of the Ministry of Finance, Department of Revenue on the effect of Rule 56A which granted the benefit of proforma credit. The Ministry while dealing with an objection taken by the Comptroller and Auditor General of India considered the opinion given by the Ministry of Law and clarified that "while arriving at the cost of assessable value of a finished product, credit in respect of duty paid materials/components availing the facility provided under Rule 56-A will have to be deducted. (ii) The speech of the Finance Minister delivered on 28-2-1986 (1986 Speech) regarding the purpose of Modvat Scheme. He stated that the vexatious problem of taxation of inputs and cascading e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this fact of taking of Modvat credit of duty paid on the raw material. On the contrary, by referring to the decision of the Tribunal in the case of Collector of Central Excise v. Incab Industries reported in 1990 (45) E.L.T. 343, he has observed that taking of Modvat credit, no doubt, would result in reduction of cost of final product to the extent of credit, but it does not automatically reduces the assessable value of the final product. Accordingly, we hold that Larger Bench decision in Karkaria' s case is fully applicable to the facts and circumstances of the instant appeal. Shri N.C. Roy Chowdhury has drawn our attention to the fact that the appeal against the said Larger Bench decision of the Tribunal has been admitted by the Supreme Court. On going through the Order, we find that the Hon'ble Supreme Court has not granted any stay of operation of the said Order. As such, following the same, we set aside the impugned Order and allow the appeal with consequential relief to the appellants. 6. As the issue is covered by the direct decision of the Larger Bench of the Tribunal, other material including the Board's instructions strongly relied upon by the appellant have not be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nput material viz, aluminium ingots. The A.C. did not, accept the plea and passed an order dated 31-7-1995 approving the 22 price lists by directing inclusion of central excise duty paid on the raw materials at the time of procurement. No quantification of duty was, however, made therein. 12. A notice dated 23-1-1996 was subsequently issued by the Supdt. demanding duty amounting to nearly Rs. 17 crore on the basis of the above adjudication order and inviting objection, if any, regarding quantification. 13. Appellants had in the meanwhile preferred an appeal against the A.C.'s aforesaid [order]dated 31-7-1995 before Commissioner (Appeals) and the Department had also filed an application before the Commissioner (Appeals) against the same order. 14. The Commissioner (Appeals) [dismissed] both i.e. appeal of the appellants as well as the application of the Department. Appellants have preferred the instant appeal against the aforesaid order of the Commissioner (Appeals) dated 12-5-1997. It was their submission that the period covered by the notice dated 23-1-1996 is from January, 1989 to December, 1995 whereas the period covered by the earlier show-cause notice dated 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble value has to be arrived on the basis of cost structure Rule 6(b)(ii). 20. Learned DR has drawn attention towards the Order-in-Original and Order-in-Appeal and reiterated the Department's view. He has stated, inter-alia, that the aluminium sheets were manufactured by the assessee out of aluminium ingot (and other input material) supplied by the supplier, namely, India Foils Ltd. and Bharat Aluminium Ltd. on job basis. While rejecting the Department's appeal, the ld. Commissioner has observed, inter alia, that the facts in issue are similar to that of the case before the Tribunal in Kandivali Metal Works and applying the ratio of the judgment, the Revenue's appeal does not stand to reason and the assessable value should be determined on the basis of the cost of raw materials, labour charges and profit as held by the Apex Court in Ujagar Print's case. 21. He has further submitted that the main point to be resolved is whether the quantum of central excise duty paid on raw material should be taken into account while determining assessable value of the final product. The appellants have advanced strong arguments citing judicial pronouncement and clarification given by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... about classification or any notification is apparently involved and none has been brought to our notice). The second notice dated 23-1-1996 is merely consequential to the above adjudication and is in the nature of implementation action solely for the purpose of quantification of duty due in terms of the aforesaid Order-in-Original (and not for independent adjudication proceedings). Hence at this stage, neither assessment could be considered as provisional nor the second notice could be considered as premature or time-barred or even otherwise it could not be claimed simultaneously (or even alternatively) as provisional as well as time-barred. 24. However, if some period was common between an earlier show-cause notice dated 26-11-1991 and the proceedings arising from show-cause notice dated 14-1-1992 therein, this was first required to be sorted out; And if in respect of the first show-cause notice, the matter was still pending before the ld. Commissioner, the A.C. was required to confine himself to be remaining period only. Ld. DR has not been able to clarify the position at this stage but it is required to be looked into by the proper officer. 25. The discussion in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sumes any other manufactured product as an input for manufacturing the end product, the cost of the product used as input enters the cost structure of the final product, which is prepared out of it. 29. It is also observed that in case of East End Paper Industries -1996 (88) E.L.T. 446 (T), it was held that the duty paid on wrapping paper was includible in the value of the paper so wrapped and the above judgment of the Gujarat High Court and Supreme Court judgment in Kirloskar Brothers Ltd. reported in 1992 (59) E.L.T. 3 (S.C.) was relied upon. 30. In the Supreme Court judgment in the case of Kirloskar Brothers Ltd. 1992 (59) E.L.T. 3 (S.C.), it has been held inter-alia, that abatement for excise duty allowable only for the duty payable on the article to be assessed and not for the duty paid on raw materials and components thereof. Therefore, while determining the assessable value of the pump which had electric motors, the excise duty already paid on the electric motors was to be taken into account and was not deductible while arriving at the value under Section 4 of the Act. 31. When the Supreme Court lays down that the assessable value of the excisable product i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al in the case of C.C.E. v. Narendra Company (P) Ltd. - 1998 (103) E.L.T. 330 (Tribunal) = 1998 (26) RLT 186 (Tribunal) which has noticed and distinguished Apex Court's judgment in Kirloskar Bros. (supra) relied upon by the learned Vice President. She has also relied on C.B.E.&C's circular issued in the context of Proforma credit procedure, which is pari materia Modvat procedure. She has also relied on Finance Minister's speech, referred in Dai Ichi Karkaria (supra) regarding the true nature of Modvat scheme introduced in 1986. 38. Learned Advocate, Shri S.K. Bagaria for the appellants has urged that the issue involved herein is directly covered in favour of the appellants by Tribunal's Larger Bench (Three Member) judgment in Dai Ichi (supra). This judgment is binding on all Division Benches (of two Members) of the Tribunal. Learned Vice President should not have, therefore, differed from, and distinguished that judgment, on the facile ground of Apex Court's and High Court's judgment mentioned in his judgment since they are not relevant to the controversy. 39. He further submits that Dai Ichi of Larger Bench of the Tribunal has been followed by five other judgments of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity on this issue in favour of the appellants herein. There are five subsequent judgments of Division Benches of this Tribunal, mentioned supra, following Dai-Ichi Karkaria. There is no contrary judgment of any Bench of the Tribunal directly on this issue in such a state of facts. Larger Bench judgment of the Tribunal is binding on all Benches of the Tribunal of lower strength unless there is contrary judgment of the Apex Court or of a High Court. 42. Learned Advocate for Revenue has relied on Ujagar Prints as also Kirloskar Bros. (supra) mentioned by the learned Vice President in his judgment. 43.1 Ujagar Prints delivered by Apex Court merely clarifies "that the assessable value of the processed fabric (final product manufactured by an independent processor, job-worker) would be the value of the grey cloth in the hands of the processor plus the value of the job work done plus manufacturing profit and manufacturing expenses whatever these may be, which will either be included in the price at the factory gate or deemed to be the price at the factory gate for the processed fabric." The Court went on to explain the position by giving an illustration as follows :- "If the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... factory alongwith the duty collected on fabric. The appellant while submitting the price list for sale of fabric deducted not only the duty payable on fabric but also the duty payable on yarn in terms of special rate prescribed under Rules 96V and 96W. This method of determining the assessable value of fabric from its wholesale price/normal price in terms of Section 4 was disapproved by the Court. The appellant in that case for deduction of duty payable on yarn relied on the special procedure under Rule 96V and 96W which permitted them to pay duty on yarn at the time of clearance of fabric alongwith Collection of duty on fabric. The Court held that the said Rules 96V and 96W merely deferred the payment of duty on yarn at a later stage i.e. at the time of clearance of fabric. But it does not mean that duty paid on yarn would not form part of the cost structure of fabric. In my opinion, this case has also no relevance to the controversy before us just like the case of Kirloskar Bros. 45.2 Although the Court entered into the controversy of "manufacturing cost" of the final product 'fabric' relying on "settled" legal position, then prevailing, that assessable value under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s reduced to the extent of duty paid on the inputs. 47.2 Taking of Modvat credit and utilisation thereof towards payment of duty on finished product achieves thereby a dual purpose - one it avoids payment of duty upon duty paid on inputs and secondly it avoids repeated payment of duty on input utilized in manufacture of finished product. 47.3 Revenue, in arguing as it does, is only looking at the second aspect of Modvat credit i.e. utilisation of credit towards payment of duty on finished product. Revenue is overlooking the first aspect of taking Modvat credit of duty paid on inputs. By allowing Modvat credit of duty paid on inputs, Govt. is re-imbursing the finished product manufacturer with the element of duty paid by him on the inputs received by him. It is as good as 'cash' re-imbursement of duty paid on input except the further condition that such "cash" can be utilised towards payment of duty on finished product. 47.4 Aforesaid reasoning can be best illustrated by taking a concrete example : Suppose a manufacturer of finished product liable to duty at (10% ad valarem.) purchased an input for Rs. 110/- inclusive of duty comprising Rs. 100/- as basic price of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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