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TMI Blog2012 (11) TMI 294X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant is manufacturer of seats falling under Chapter 94 of the first schedule to the Central Excise tariff Act, 1985. On the basis of a specific intelligence, the DGCEI visited the factory of the appellants and found that the appellants are engaged in the manufacture of seats and other interiors required for vehicles of M/s Mahindra & Mahindra Ltd. To manufacture these parts, M/s. Mahindra & Mahindra Ltd. had given tooling development cost, engineering and designing charges to the appellant. These costs were not amortized by the appellant in the assessable value of the seats and other parts manufactured by them. The appellant had also received certain inputs free of cost from M/s. Mahindra & Mahindra Ltd. and its value was not considered by the appellant for the purpose of determining assessable value under the provisions of the Central Excise Act, 1994 and the Rules thereunder. The appellant had also written off modvatable inputs totally from the stock without reversing MODVAT/CENVAT credit pertaining to such inputs. 4. During the course of investigation, records were scrutinized and statements were recorded. Thereafter a show-cause notice dated 26.10.2005 was issued for dema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s not received tools from the principal manufacturer for jobwork purpose, he received advance for those tools only. Therefore, the whole amount of advance received against the tools cannot be includable in the assessable value at one go as held by the adjudicating authority by invoking Rule 11 ibid. In fact, the advance received against the tools is to be amortizatized as per Rule 6 ibid in the assessable value. In this case the valuation has been done by invoking Rule 11 which is not the correct view and in the facts of this case appropriate rule may be Rule 6 ibid only. Therefore, when the adjudicating authority itself has not invoked the correct rule for valuation, suppression cannot be alleged. If there is no suppression, the extended period is not invokable. Admittedly in this case, the show-cause notice has been issued by invoking extended period of the limitation, therefore, demand is not sustainable. He further submitted that what duty the appellants pay, the same is available as credit to their principal manufacturer. Therefore, it is a revenue neutral situation. He also submitted that the appellants are ready for pay duty along with interest if allegation of suppression i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or not. 8.1 The learned Advocate for the appellants submitted that as in this, the appellants are the jobworker for M/s. M & M and the raw material has been supplied by M/s. M & M for further processing free of cost and the said raw material has been cleared by the appellants to their principal manufacturer i.e. M/s. M & M who further used the processed goods for manufacturing of their final product and paid duty at the time of clearance of their final product. In that case, the appellants are not required to include the value of inputs received free of cost from the principal manufacturer in the assessable value. To support his contention he placed reliance on International Auto Ltd. Vs. CCE - 2005 (183) ELT 239 (S.C.) and by this Tribunal in the case of Motherson Sumi Sytems Ltd. - 2002 (147) ELT 1121 (Tri.Del.) affirmed by Hon'ble Supreme Court in 2008 (228) ELT A64 (SC) following the decision of International Auto Ltd. (supra). He further relied on Orissa Industries Ltd. vs. CCE - 2007 (220) ELT 236 (Tri. - Kol.). 8.2 Shri K.M. Mondal, learned Consultant submitted that the case law relied upon by the learned Advocate are not applicable to the facts of this case in the light ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Admittedly in this case the seats supplied by the appellants are further used by their principal manufacturer i.e M/s. M & M in manufacturing of vehicles which were ultimately sold on payment of excise duty. On examination, we find that the facts of the case in hand are distinguishable from the facts in the case of Burn Standard Co. Ltd. (supra) and are similar to the facts in the case of International Auto (supra) and Orissa Inds. Ltd. (supra). Therefore, as held by the hon'ble apex court in the case of International Auto (supra) and the decision of this Tribunal in the case of Orissa Inds. Ltd. (supra) we hold that the demand on this issue is not sustainable. Accordingly, impugned order is set aside on this ground. 9. Issue No.3 Whether the duty is payable on the inputs written off by the appellants which were found short during physical verification or not. 9.1 The learned Advocate submitted that in case of Maruti Udyog Ltd. vs. CCE - 2004 (173) ELT 382 (Tri. Del.) wherein the Tribunal has held that in such case assessee is not required to reverse the credit on the inputs which were written off in the Books while taking physical stocks at the end of the year. He fairly admit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fund of duty and interest paid on account of tooling development cost. (Pronounced in open Court on) Per: Shri Sahab Singh I have gone through the proposed order made by ld. Member (J). However, I am not able to fully agree with the same and hence I am recording this separate order. 2. The brief facts of the case have been fairly stated in the proposed order. Still a few facts relevant for the present purpose need to be mentioned herein: 2.1 The appellant M/s. Lear Automotive India Pvt. Ltd. is an independent manufacturer of seats and interior fitments of motor vehicles. It has entered into an agreement dated 11.1.1998 followed by a supplemental agreement dated 12.10.2000 with M/s. Mahindra & Mahindra Ltd. (M/s. M & M Ltd. for short) for supply of its manufactured products to the latter. Accordingly, it sells its manufactured product to M/s. M&M Ltd. on payment of central excise duty. These products are required to the vehicles of M/s. M&M Ltd. 3 Based on intelligence, the officers of Directorate General of Central Excise Intelligence (DGCEI) visited the factory premises of the appellant in Feb.2004. On preliminary scrutiny of the relevant records and documents, the officers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ores as tooling advance for manufacture of tools. Duty on this amount was proposed to be recovered under the provisions of Sec. 4(3) (d) of the Central Excise Act, 1944 read with Rule 11 of the Central Excise Valuation Determination of Price of Excisable Goods) 5.3 Further from the show-cause notice as also from the findings of the Commissioner in para 81 of the adjudication order, I find that differential duty of Rs. 1,68,14,735/- has been demanded on differential value of Rs. 10,50,92,090/- out of the amount received for procuring tools during the period 2001-2004. According to the show-cause notice, this differential value was not considered by the appellant in arriving at the correct assessable value of the finished goods supplied to M/s. M&M Ltd. 5.4 According to the appellant, the tooling advance so received is in the nature of additional consideration for the finished product manufactured and supplied by it to M/s. M&M Ltd. and hence the applicable rule is Rule 6 of the Central Excise Valuation Rules 2000 and not the Rule 11 of the said Rules. Rejecting this contention, the Commissioner is her findings in para 81 of the impugned order has observed that the duty demanded is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... additional consideration, which is not the same as money. Thus the additional consideration by way of money cannot be aggregated with the transaction value under Rule 6. Secondly, in the facts of this case, the Rule 11 read with Section 4(3)(d) of the Central Excise Act,1944 seems to be more appropriate. In this connection, "transaction value" in Sec.4(3)(d) may also be noticed. Section 4(3)(d) reads as follows:- "Section 4(3)(d) transaction value" means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of the assessee, by reason of, or in connection with sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter, but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods." 5.7 From the above, it may be seen that any additional amount which the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st of free inputs was included in the assessable value of the final product but from 29.1.2003 this practice was stopped. The ld. Commissioner has, therefore, come to the conclusion that the appellant had deliberately avoided inclusion of the cost of such inputs supplied free of cost by the buyer with the sole intention to evade payment of duty. The finding recorded by the ld. Commissioner is quite justified inasmuch as the appellant has no explanation as to why it had stopped inclusion of the cost of free inputs in the assessable value of the goods. If it had no intention to evade the payment of duty, it could have added the cost of free inputs to the assessable value of the goods. Therefore, the contention of bona fide error cannot be accepted. In the facts of this case, the Commissioner has rightly invoked the extended period of limitation. 7.2 On behalf of the main appellant, the ld.Sr.Advocate relied on the judgement of Hon'ble Apex Court in the case of International Auto Ltd. vs. CCE - 2005 (183) ELT 239(SC) and also the Tribunal's decision in the case of Orissa Industries Ltd. vs. CCE - 2007(220)ELT 236(Tri-Kol) which essentially relied on the Apex Court's decision in Inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Shri Parag Dattatraya Kelkar, Asstt. Manager (Stores) and that of Shri Milind Jadhav, Manager (Finance). In his statement dated 4.2.2004. Shri P.D. Kelkar, interalia, stated that there is physical verification of the stock on 31 st March of every financial year and this physical stock is counted before the statutory auditors. He confirmed that while conducting the physical stock verification, the physical checking of the materials lying at different places in the factory is undertaken and thereafter actual shortages or excesses are worked out ant hen reflected in the accounts. In his statement dated 5.2.2004, Shri Milind Jadhav also confirmed the fact that the cycle count of physical verification of stocks with recorded stock showing effect of excesses or shortages in inventory are taken into account and then net effect is reflected in trial balance sheet. Thus from the stock verification, the Commissioner has also noted that in the Auditor's Reports for the financial year 31.3.99 to 31.3.2004 the Auditors have given their opinion that, the procedure of physical verification of the inventories followed by the management as reasonable and adequate in relation to the size of the co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period of limitation. Hence no further findings are required. 10. Penalty Since duty demand confirmed by the Commissioner has been upheld by me, penalty equal to the duty amount imposed by the Commissioner on the appellant company under Sec.11AC of the Central Excise Act, 1944 is justified inasmuch as the appellant company has evaded the payment of appropriate amount of central excise duty by suppression of relevant facts as already mentioned herein above. 11. In so far as the penalties imposed on Shri Ratinder K. Puri, Managing Director and Shri. S. Sunder, Plant Manager are concerned, I find that the Commissioner has recorded detailed findings about their role. Shri. R.K. Puri at the relevant time was handling all activities of the company relating to central excise matters. He was aware of the receipt of tooling advance and free inputs from M/s. M & M Ltd. He was also aware that the cenvatable inputs found short were written off. Despite that he did not taken any appropriate action to correct determination of the assessable value of goods. Findings of the Commissioner regarding Shri S.Sunder, Plant Manager are also to the similar effect. Shri Sunder was overall-in-charge of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uired to be included in the assessable value of the goods as held by Member (Judicial) relying on the decision of International Auto Ltd. (supra) and Orissa Industries Ltd. (supra). 3. (a) Whether the extended period is invokable for the demand of CENVAT credit taken in respect of the inputs found short but ultimately written off in the Books of Accounts which was required to be reversed in the light of the decision of the Hon'ble High Court of Bombay in the case of Greaves Cotton Ltd. (supra). (b) Whether the extended period is invokable to the facts of the case or not? (c) Whether the imposition of penalty on the appellant Company and on its employees is justified as held by Member (Technical) in the facts and circumstances of the case. (Pronounced in court on 17.11.2011) Order No:- A/339-341/12/EB/C-II dt. 27.4.12 Per. P.R. Chandrasekharan: Three points of difference have been referred to me for consideration and decision, I take them up serially. 2. The first point of reference relates to tooling advance received by the appellant from the buyer and reads as follows; (a) In facts and circumstances of the case, whether the correct assessable value has been arrived at b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... included in the assessable value, whether under Rule 6 of the Central Excise Valuation Rules as held by Member (Judicial) or under rule 11 of the said Rules read with section 4(3)(d) of the Central Excise Act, as held by Member (Technical). On perusal of the order recorded by the Member (Judicial), I find that the hon'ble Member (Judicial) referred to the buyer of the goods (M/s. Mahindra & Mahindra) as Principal Manufacturer and this is factually incorrect. The agreement between M/s. Mahindra and Mahindra, the buyer and M/s. Lear Automotive India Pvt. Ltd. (appellant in this case), the manufacturer and seller, is on principal basis. There is no principal - sub-ordinate relationship involved in these transactions. Ld. Member (Judicial) has come to the conclusion that since the advance has been used for making tools for the goods manufactured by them to be supplied to their principal manufacturer and hence, the appropriate rule for valuation is Rule 6. Since the demand has been made under Rule 11, there is no suppression. 2.3 Rule 6 of the Central Excise Valuation Rules, deals with a situation where the price is not the sole consideration for sale and there is additional considerat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this case should be treated as premium so as to ensure that the manufacturer-seller agrees to undertake the supply of goods to the buyer over a long period of time and, therefore, this advance will not constitute part of the price of goods but a payment made to guarantee or ensure supplies. I have perused the agreement made between the parties involved in the instant case. Nowhere in the agreement, is there any indication that the tool advance has been given as a premium to ensure supplies. In none of the statements recorded during the investigation, such a proposition is forthcoming. In view of the above, this new argument put forth now is only a figment of imagination and nothing to do with real facts involved in the present case and I reject this argument completely. 2.6 The ld. Counsel has also argued that the property in tools manufactured by the appellant's vendors lies with the buyer. The argument seems to have been made to buttress the point that the cost of tools need to be amortized and only the amortized cost can form part of the assessable under rule 6 of the Valuation Rules. This position seems to be contrary to the admissions made in the statement of the company off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rties shall mutually agree on the payment terms as well as other terms and conditions in respect of this amount. The parties shall discuss and mutually agree on any additional tooling cost to be incurred by Lear after the date of sign-off by M&M and which is over and above the tooling cost referred to in the preceding paragraph. 4. In clause 12(I) of the Main agreement, the Parties had agreed on total cost reduction of 17.5% which was to be granted by Lear to M&M. The said cost reduction was to be spread over a period of three years commencing from the date of commencement of supply of products by Lear as 13.5%, 2%& 2% respectively. At the request of the Lear, M&M has now agreed and the above figures shall stand revised, to 4%, 10%, 3.5% and in any case not below 3.5%, 4%, 1.25% and the balance in the fourth year." 2.8 The agreement no where states that the cost of tooling would be amortized and included in the cost of goods supplied. On the other hand, on account of the supplemental agreement, the cost reduction has to be spread over a period not exceeding 4 years. Further from the records it is seen that the entire amount of advance has not been taken into account for deman ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is not a case of job work. The International Auto case dealt with a situation where the goods (inputs) were sent by the Principal M/s Telco to the job-worker M/s International Auto for manufacture of intermediate products under Rule 57 F (2) (b) of the erstwhile Central Excise Rules, 1944 [which corresponds to Rule 4 (5)(a) of the Cenvat Credit Rules, 2004]. In that context, the hon'ble apex court held that the job worker was not required to include the value of inputs in the assessable value of intermediate goods to be used by Telco for manufacture of final product. In the present case the appellant is neither the job worker of M/s M&M Ltd. nor the manufacturer of intermediate goods. The appellant manufactured finished goods, namely, seats and interiors of motor vehicles and sold the same to M/s M&M as per the agreement dated 11/1/98 read with supplemental agreement dated 12/10/2010. Thus the transaction was not a job work covered under Rule 4 (5) (a) of the Cenvat Credit Rules. Hence the ratio of the International Auto and Orissa Industries case can not be applied to the facts of the present case. On the other hand the ratio of the judgment of the hon'ble apex court in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant conducts physical stock taking annually before the statutory auditors and thereafter adjustment of shortages and excesses are carried out and then reflected in the books of accounts. Thereafter the raw materials found short are written off in the books of accounts. While doing so, the appellant has not reversed the cenvat credit taken on the raw materials found short. It is not the case of the appellant that they have involved the central excise staff in the physical stock taking nor have they intimated the shortages noticed to the excise department. As per CBEC circular dated 22-2-95, when the assessee writes off the materials in their books of accounts, it is obligatory on the part of the assesses to straight away reverse the Modvat credit taken under intimation to the Range Officers concerned. This position was re-iterated in the circular dated 16-7-2002. Such instructions/circulars are brought to the notice of the trade by way of trade notices. Under section 37(2)(xx) of Central Excise Act, 1944, the CBE&C and the Commissioner of Central Excise are empowered to issue written instructions for enforcement of the provisions of the Act and the rules made thereunder. Such instru ..... X X X X Extracts X X X X X X X X Extracts X X X X
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