TMI Blog2010 (8) TMI 316X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that for assessment of duty on BIBs manufactured and cleared by DKDBL, it is the price charged by CKD, PKD & RSPL from their buyers after permissible deductions, if any, which will be the assessable value of the goods and not the price at which DKDBL are showing the sale of BIBs to CKD, PKD & RSPL. , Commissioner’s order accepting the DKDBL’s price to PKD & CKD as the correct assessable value, and dropping the duty demand of Rs. 7,98,27,724/-, even though not challenged by the Department, is not correct and the same cannot be the basis for accepting DKDBL’s price to PKD, CKD and RSPL in respect of BIBs as the correct assessable value. As regards, the extent of deduction to be allowed in respect of PMX machines rental & repair/maintenance charges, while the same has to be allowed on actual basis, the evidence regarding, the quantum of deduction claimed and its correctness has to be produced by the appellant. With regard to correctness of the amount claimed as PMX machine rental, we are of the view that the same must be comparable with amortised value per BIB of the PMX machine plus reasonable profit margin of the machine owner renting the machine. Period of limitation - sinc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oated by them, the central excise officers visited their factory premises at Phillaur and business premises at 1146, Sector 44, Chandigarh on 31-8-1994 and resumed certain records considered necessary for investigation. 1.2 During initial enquiry, it appeared that entire sales of BIBs and aerated waters were through M/s. Punjab Kool Drinks, Phillaur (hereinafter referred to as PKD), M/s. Chandigarh Kool Drinks, Chandigarh (hereinafter referred to as CKD) and M/s. Ranjitgarh Sales Pvt. Ltd., Chandigarh (hereinafter referred to as RSPL), and there is huge difference between the prices at which DKDBL were selling the aerated waters BIBs to PKD, CKD and RSPL and on which duty was being paid by DKDBL and the price at which PKD, CKD and RSPL were selling the goods to dealers. Investigation by the Department revealed the following facts : (i) Proprietor of PKD was one Shri Hari Singh while the proprietor of CKD was Shri Partap Singh, son of Shri Hari Singh. Subsequently after death of Shri Hari Singh, his elder son Shri Avtar Singh was shown as proprietor of PKD. Shri Partap Singh and Shri Avtar Singh were the Directors of RSPL. Shri Hari Singh and his sons Shri Avtar Singh and P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... have been sold to PKD, CKD and RSPL, directly to the customers. (x) Scrutiny of books of accounts of DKDBL, PKD, CKD and RSPL revealed that there was transfer of funds between DKDBL and PKD/ CKD/ RSPL. Bank account of DKDBL showed amounts deposited by PKD in the bank account of DKDBL on account of fund transfer . There are a number of entries in the books of both PKD/ CKD/RSPL on one hand and DKDBL and on the other hand, showing huge amounts transferred from PKD/CKD/RSPL to DKDBL. (xi) Sale of aerated water and soda by DKDBL to PKD during 4/94 to 12/94 period was Rs. 12,58,23,266/- but the amount received from PKD during this period was Rs. 13,74,551,365/-. (xii) There was no written agreement between DKDBL and PKD/CKD/RSPL. 1.3 Inquiry was made with Shri Avtar Singh, proprietor of PKD and Director of RSPL; Shri Partap Singh, Proprietor of CKD and a Director of RSPL, Shri Hari Singh, Proprietor of PKD during certain period; S.K. Aggarwal, Accounts Manager of PKD; Shri Sachinder, Manager, Accounts, DKDBL; Shri Rajesh Khurana, GM (Finance) of DKDBL; Shri R.P. Singh, GM of DKDBL; Shri Sunil Sawhney, CEO, DKDBL; Shri Akhilesh Chauhan, Accounts Officer of PKD; Shri Sand ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry, 2000 to June, 2000; July, 2000 to January, 2001, March, 2001 to November, 2001 and December, 2001 to October, 2002 respectively for - (a) demand of allegedly short paid duty amounting to Rs. 31,48,604/-, Rs. 1,31,54,616/-, Rs. 34,12,923/-, Rs. 51,70,725/- and Rs. 8,43,317/- and Rs. 69,39,386/- and Rs. 45,09,195/- respectively in respect of clearances of BIBs from DKDBL alongwith interest on the duty under Section 11AB of the Excise Act; (b) imposition of penalty on DKDBL under Section 11AC of the Excise Act, and (c) imposition of penalty on S/Shri Avtar Singh, Partap Singh, Directors of DKDBL; Kewal Dhillon, Chairman, DKDBL; Sajjan Singh and B.S.Ghuman, Directors of DKDBL and Deepak Rai Walia, Executive Director, DKDBL, under Rule 209A of the Central Excise Rules, 1944/Rule 26 of the Central Excise Rules, 2001/2002. Total duty demanded under these SCNs was Rs. 3,71,78,766/-. 1.4.3 SCN dated 5-12-03 was issued to DKDBL for recovery of allegedly short paid duty amounting to Rs. 18,46,589/- in respect of clearance of BIBs by DKDBL during the period from November, 2002 to October, 2003, alongwith interest on this duty at the applicable rate under Section 11AB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ise, Jalandhar vide order-in-original No. 130-136/CE/JAL/03 dated 17-12-03. The Commissioner, while holding that RSPL was a dummy unit floated by DKDBL and price to charged by RSPL from its customers would be the assessable value, also accepted the DKDBL s contention that the duty demanded in the seven SCNs are based on the price list price for BIBs, while assessable value has to be determined by deducting from that price, the sales tax, octroi central excise duty, cash and quantity discounts, freight and cartage from the premises of RSPL and salary and wages towards distribution of BIBs. After permitting these deductions and treating the price difference between DKDBL s price to RSPL and RSPL s price to dealers/Agents as cum duty price and permitting abatement of central excise duty from the same, he - (a) confirmed duty demand of Rs. 1,15,70,406/- against DKDBL alongwith interest; and (b) imposed penalty of equal amount on DKDBL under Section 11AC. The penal proceedings against S/Shri Avtar Singh, Partap Singh, Kewal Dhillon, Sajjan Singh Dhillon, B.S. Singh Ghuman and Shri Deepak Rai Walia were dropped. The Commissioner while quantifying the duty demand had disallowe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... finding that the sale to independent buyers were genuine. As regards the sale of BIBs, the assessable value was determined by permitting deduction of - (a) cash and quantity discount, (b) outward freight from the premises of CKD PKD, (c) sale tax/octroi and (d) salary wages towards distribution, from the CKD PKD s price to their customers. The Commissioner did not allow the deduction of PMX machine rental and repair/maintenance charges. However, he treated the price difference between PKD/CKD s price and DKDBL s price to PKD/CKD as the cum duty value and allowed the abatement of central excise duty. On this basis, out of total duty demand of Rs. 8,37,92,536/- duty demand of only Rs. 21,78,833/- was confirmed and the remaining duty demand was dropped. The Commissioner also demanded interest on duty under Section 11AB and imposed penalty of Rs. l0 lakhs on DKDBL under Section 11AC and penalty of Rs. 5 lakhs on them under Rule 173Q(1) of the Central Excise Rules, 1944. The land, building, plant and machinery of DKDBL was ordered to be confiscated under Rule 173Q(2) with an option to be redeemed on redemption fine of Rs. 10 lakhs. 1.6 Against the Commissioner s order-in-origina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l charges for vending machine are deductible from the price and to what extent. Accordingly, Civil Appeals stand allowed with no order as to costs. We request the Tribunal to expeditiously hear and dispose of the appeals, preferably with nine months. 1.9 In accordance with the above directions, the Appeal No. E/3931/03-NB(A) and Appeal No. E/1280-1286/04-NB(A) have been taken up for decision de novo alongwith the linked Departmental Appeals No. E/1509/08-EX (Br) and No. 5530/04-NB(A) pending before the Tribunal. 2. Heard both the sides. 2.1 Shri B.L. Narsimhan, Advocate, the learned Counsel for the appellants, made the following submissions :- (1) PKD, CKD and RSPL are not dummy units as they were separately assessed under Income-tax Act and Sales Tax Act. The transaction between DKDBL and PKD, CKD and RSPL were on principal to principal basis based purely on commercial considerations. There is no concrete evidence to prove that the DKDBL were controlling the selling activity of PKD, CKD and RSPL. There is no finding by Commissioner that DKDBL and PKD/CKD/RSPL were related persons within the meaning of this term, as defined in Section 4 of the Excise Act. In view of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the proprietor of PKD and CKD had investment of only Rs. 20,000/- each, the two Directors of RSPL Shri Avtar Singh and Partap Singh had investment of Rs. 75,000/- each from which it is impossible to generate turnover running into crores. (3) While PKD, GKD and RSPL were taking cash security even upto Rs. 1,00,000/- depending upon the volume of business from their dealers, no security whatever had been taken by DKDBL from PKD, CKD and RSPL while there were no written arguments (sic) (agreements) between DKDBL and PKD/CKD/RSPL. (4) Goods shown to have been sold to PKD, CKD and RSPL were, in fact, being directly despatched to the customers of PKD, CKD and RSPL. Verification of production register at the plant of DKDBL at Phillaur revealed that vehicle Nos. and name of places such as Ludhiana, Gurgaon, Amritsar, Jalandhar, Hoshiarpur, Moga, etc. had been mentioned in respect of the goods shown to have been sold to PKD, CKD and RSPL, which showed that entire marketing of PKD, CKD and RSPL was being controlled by DKDBL. (5) There are numerous instances of financial accommodation between DKDBL and PKD, CKD and RSPL DKDBL supplied all empty bottles and crates to PKD, CKD and RSPL wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the product and the money which is spent for installation, maintenance and repairs has to form part of the assessable value of BIBs, as the machines are owned by the manufacturing company - DKDBL and are necessary for the marketing of the product. 3. We have carefully considered the submissions from both the sides and perused the records. The Appellant-DKDBL manufacture aerated waters of various flavours sold under brand names - Lehar Pepsi, Miranda, Teem, soda etc. and soft drink concentrate syrup, packed in a packing called Bags in Box (BIBs). The BIBs are put in post mix dispenser machines (PMX machines) in the vender s premises which dispense a measured quantity of aerated waters by dilution and carbonation of the concentrate. The dispute in these appeals is about the valuation of BIBs. According to the Department, entire quantity of BIBs manufactured by DKDBL is sold to PKD, CKD RSPL who, in turn sell the same to their customers - soft drink vendors. DKDBL have installed PMX machine at the vendor s premises. The price at which PKD, CKD RSPL sell the BIBs to their customers is 90% to 120% higher than the price at which the same are purchased by PKD, CKD RSPL from DK ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their assessable value and if the PKD, CKD and RSPL are dummy units, whether DKDBL s price to PKD, CKD and RSPL is to be taken as the assessable value or the price at which PKD, CKD and RSPL sell the BIBs to independent buyers is to be adopted the basis for determining the assessable value? (2) Whether deduction of rental on PMX machine charges for maintenance/repair of these machines admissible for determining the assessable value of BIBs and if so, to what extent? (3) Whether deduction of salary wages towards distribution is admissible for determining the assessable value of BIBs? (4) Whether extended limitation period under proviso to Section 11A(1) is available to the Department for recovery of short paid duty, if any recoverable. (5) How the duty demand are to be quantified. 3.1.1 In Appeal No. E/5530/04-NB(A) filed by the Department, the point of dispute is regarding deduction of salary wages towards distribution and in the Appeal No. E/1509/06-EX(BR) filed by the Department, the points of dispute are regarding the deduction of (a) salary wages towards distribution , (b) PMX machines rental and their repair maintenance charages and (c) outward freigh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence indicating that these persons were in control of PKD, CKD and RSPL and were running the business of these marketing firms/company. In fact the following evidence on record indicates to contrary - (1) Shri Partap Singh in his statement dated 7-9-98 has stated that as per his knowledge all the work of RSPL was being looked after and controlled by DKDBL. (2) All empty bottles crates were being supplied by DKDBL to PKD, CKD and RSPL without any security or advance deposit. While PKD. CKS and RSPL were taking security from their buyers ranging from Rs. 5000/- to Rs. 1,00,000/- depending upon the quantum of their sales to their dealers, no security deposit was taken by DKDVL from PKD, CKD RSPL, who market their goods worth crores of rupees and that too when there is no formal legally binding agreement between DKDBL and PKD/CKD/RSPL (3) Sundry Debtors of RSPL made payment to DKDBL on their behalf. RSPL paid cash to DKDBL at frequent intervals for meeting day to day expenses. (4) While DKDBL as per their franchise agreement with Pepsi Foods Ltd. were required to incur certain quantum of advertisement expenses for promotion of various brand names of Pepsi; t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ucts and that too, without any formal legally binding agreements and without taking any security from them. From the above facts, it is clear that it is the DKDBL who are the real persons behind PKD, CKD and RSPL. 4.2 In view of the above, we hold that CKD, PKD RSPL do not have independent existence but are mere extensions of DKDBL and transactions between DKDBL and CKD, PKD RSPL are not on principal to principal basis. As there is huge difference between the price at which DKDBL sell the goods to CKD, PKD RSPL and on which duty is paid by DKDBL and the price at which CKD, PKD RSPL sell the goods to independent buyers, it is clear that these firms/company have been created by DKDBL to depress their assessable value. We, therefore, hold that for assessment of duty on BIBs manufactured and cleared by DKDBL, it is the price charged by CKD, PKD RSPL from their buyers after permissible deductions, if any, which will be the assessable value of the goods and not the price at which DKDBL are showing the sale of BIBs to CKD, PKD RSPL. 4.3 It has been pleaded that since in respect of clearances of aerated waters by DKDBL, their price to CKD PKD has been accepted as the corr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... spect of BIBs as the correct assessable value. 5. Whether deduction of (i) rental on PMX machines installed by DKDBL at retailer s premises and charges for repair and maintenance of these machines and (ii) expenses incurred by PKD, CKD RSPL or salary wages towards distribution are admissible for determining the assessable value of BIBs. 5.1 It has been pleaded by DKDBL that if the assessable value of the BIBs manufactured and cleared by them to PKD, CKD and RSPL, is determined by the Department on the basis of the price charged by PKD, CKD and RSPL from their customers, from this price, the expenses on account of outward freight, cash quantity discounts, salary wages towards distribution, taxes and rental repair/maintenance expenses of PMX machines installed by DKDBL at retailer s premises must be deducted to arrive at the assessable value, as price charged by PKD, CKD and RSPL from their customers includes all these expenses. While the Commissioner has disallowed the deduction of PMX rental repair/maintenance expenses, which has been challenged by the appellant- DKDBL, he has allowed the deduction of taxes, cash quantity discounts, outward freight from PKD/ CKD/R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ines), in which the concentrate syrup is diluted, carbonated and a measured quantity of the aerated water generated is dispensed. The PMX machines have been installed by DKDBL at the retailer s premises for which they charge rental maintenance charges. The manufacture and sale of soft drink concentrate syrup and leasing of PMX machines are two separate activities having no link with each other. A retailer of aerated waters purchasing concentrate syrup in BIBs from a manufacturer can either purchase his own PMX machine or can take the machine on lease from the concentrate manufacturer or from some other person. Just because the concentrate syrup cannot be used without PMX machine, it does not mean that PMX machine performs some function, ancillary or incidental to the manufacture of concentrate syrup, as manufacture of concentrate syrup chargeable to duty under Heading 21.08 is complete when it is packed in a marketable packing - BIB and what is generated in PMX machine at retainer s machine is aerated waters chargeable to duty under Heading 22.02 and making aerated waters from the concentrate syrup in the dispensing machine, cannot be said to be a process ancillary or incidental ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d (iv) salary wages towards distribution from the price charged for the BIBs by PKD, CKD RSPL from their customers and the deduction of rental and repair/maintenance charges of PMX machines installed by DKDBL at retailer s premises has been disallowed. However, as discussed above, while the deduction of salary wages towards distribution is not permissible, the PMX machine rental and their repair/maintenance expenses, have to be excluded from the assessable value of BIBs. W also find that the Commissioner instead of confining the deduction of excise duty only to the duty paid by DKDBL on their sale price to PKD/CKD/RSPL, has treated the entire differential value, on which duty is being demanded as cum duty value and on this basis has permitted the abatement of excise duty from the differential value by following Hon ble Supreme Court s judgement in case of Assistant Collector of Central Excise Others v. MRF Ltd. (supra). But in the judgement relied upon by the Commissioner, the price was cum duty price, for which assessable value was to be determined by applying the formula Assessable value = cum duty price 1+ rate of excise duty This formula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtment, the period of dispute in respect of this appeal is from November, 2002 to October, 2003 when DKDBL were clearing the concentrate syrup in BIBs to their depots from where the same were being sold. While in the respect of their clearances, they, as per provisions of Rule 7 of the Central Excise Valuation Rules, 2000, were required to pay duty on the price of the goods at the depot at the time of removal from the factory, the duty was being paid by them on the factory gate price. It is on this basis, that duty demand of Rs. 18,46,589/- was confirmed against them by the Joint Commissioner. However, Commissioner (Appeals), accepting DKDBL s plea that the depot price of BIBs includes sales tax, octroi, cash quantity discount, freight expenses, salary wages towards distribution and rental and repair/maintenance charges in respect of PMX machines, allowed the deduction of these expenses and directed the Joint Commissioner to re-determine the assessable value. The Department is in appeal against the CCE(Appeals) order permitting the deduction of salary .wages towards distribution, PMX machines rental and repair/maintenance charges and outward freight for the period prior t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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