TMI Blog2007 (8) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... unal, hence this civil appeal. 3. The assessee is engaged in manufacture of paper falling under Chapter 48 of the Central Excise Tariff. The assessee is availing the benefit of MODVAT Scheme under Rule 57A of the Central Excise Rules, 1944 (for short, "1944 Rules"). The assessee is also manufacturing pulp falling under Chapter 47 of the Central Excise Tariff, which is chargeable to nil rate of duty. The said pulp is captively consumed for the manufacture of paper. According to the assessee, a small portion of the pulp is sent to the sister unit of the assessee at Asthi. According to the assessee, there was no sale of pulp as alleged by the Department. According to the assessee, a small quantity of pulp manufactured by the assessee was stock transferred to its sister unit at Asthi. 4. In this civil appeal, we are concerned with the period September, 1996 to March, 1999. During this period, the assessee had transferred approximately 41000 MT of pulp to its sister unit and had paid duty at the rate of eight per cent of the cost price declared by them. 5. Three show cause notices were issued by the Department dated 21.5.1999, 30.9.1999 and 18.11.1999 in which it was alleged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... notice dated 21.5.1999, the Department has invoked the extended period of limitation, whereas the second and the third show cause notices dated 30.9.1999 and 18.11.1999 were for the periods April, 1999 to June, 1999 and July, 1999 to September, 1999 respectively, which were within limitation. 8. Value is the function of price. In every case in which there is an allegation of evasion, a show cause notice constitutes the foundation on which the demand made by the Department could stand or fall. Rule 57CC deals with adjustment of credit on inputs used in the manufacture of exempted final products. It applies in cases where a manufacturer is engaged in the manufacture of any final product which is chargeable to duty as well as any other final product which is exempted from payment of duty or chargeable to nil rate of duty and the manufacturer takes credit of the specified duty on any inputs, which is used in manufacture of both the above categories of final products. In such a case, the manufacturer is required to pay a presumptive amount equal to eight per cent of the price of the exempted final product charged by the manufacturer for the sale of such goods at the time of their c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plied) 10. For the sake of convenience, we also quote hereinbelow Section 4(1) and (2) of the Central Excise Act, 1944 (for short, "1944 Act") as it stood at the relevant time:"Section 4. Valuation of excisable goods for purposes of charging of duty of excise.- (1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value, shall, subject to the other provisions of this section, be deemed to be (a) the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal where the buyer is not a related person and the price is the sole consideration for the sale : Provided that (i) where, in accordance with the normal practice of the wholesale trade in such goods, such goods are sold by the assessee at different prices to different classes of buyers (not being related persons) each such price shall, subject to the existence of the other circumstances specified in clause (a), be deemed to be the normal price of such goods in relation to each such class of buyers; (1a) Where the price at which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re uses inputs which are common to both dutiable goods as well as exempted goods, the manufacturer is required to debit the amount equal to 8% of the value of the exempted goods when they are cleared from the factory. 2. In some cases, the exempted goods cleared by one manufacturer are used as inputs by another manufacturer. The manufacture of exempted goods indicates the amount of Modvat credit reversed on the invoices issued by him for such exempted goods. In this context, some doubts have been raised whether the amount of Modvat credit so reversed is available as Modvat credit to the user of such exempted goods when he uses them as inputs in his factory. 3. In this context, it is clarified that the amount reversed is not by way of payment of excise duty. Accordingly, the amount of Modvat credit reversed and shown in the invoice by the manufacturer of exempted goods cannot be taken as credit by the user of exempted goods." (emphasis supplied) 12. Rule 57CC was placed on statute book by Notification No. 14/96-CE dated 23.7.1996. It was issued under Section 37 of the 1944 Act. Sub-rule (1) refers to a manufacturer who manufactures excisable goods which are chargeable to du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on such common inputs. Rule 57CC sought, therefore, to recover a presumptive sum equal to eight per cent of the price of exempted goods at the time of their removal where the manufacturer did not undertake maintenance of inventory/accounts of the clearance of exempted final products. Even sub-rule (7) of rule 57CC was based on "deemed price" if read with rule 57CC(1). Sub-rule (7) read with sub-rule (1) prevented an assessee from contending that he was not liable to pay the presumptive sum of eight per cent of the price of exempted goods on the ground that the said exempted goods were wholly manufactured out of inputs on which no credit of duty had been taken under rule 57A. The amount required to be paid at the time of removal of exempted goods under rule 57CC(1) had to be done in the same manner as was the case with any other excisable goods as the rate of duty stood determined at the rate of eight per cent in the rule itself. The said presumptive amount was required to be paid by debiting in PLA register or by payment in cash. As stated above, there was an alternative provided under sub-rule (9) which relieved the manufacturer of the liability to pay eight per cent of the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpted final product charged for the sale of such goods. This amount is a presumptive sum calculated at eight per cent of the price charged. The rate of eight per cent is the measure to calculate the presumptive sum. Further, reading rule 57CC(1) with rule 57CC(8) one finds that entire rule is based on "deemed price" and "recovery of presumptive amount" and, therefore, in our view, the words "price charged at the time of sale" must be read as "eight per cent of the value of the exempted goods". Our interpretation stands supported by the Instructions issued by the Central Board of Excise and Customs based on the circular No. B-42/1/96-TRU dated 27.9.1996. This is where section 4 and the Valuation Rules, 1975 come into play. In the light of the above discussion, the adjudicating authority was required to adjudicate upon applicability of rule 6(b)(i) and rule 6(b)(ii). However, it has been held by the adjudicating authority that rule 6(b)(i) is not applicable, hence, in our view the only issue which remains to be decided is whether all the requisite elements of costing like wages, profits etc. have been taken into account by the assessee herein as required under rule 6(b)(ii). 16. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owledge that the statement made was not correct. 19. Applying the above tests to the facts of the present case, we hold that the Department was not entitled to invoke the extended period of limitation vide the first show cause notice dated 21.5.99. However, the second and third show cause notices dated 30.9.1999 for the period April, 1999 to June, 1999 and 18.11.1999 for the period July, 1999 to September, 1999 respectively are within time. Therefore, we strike down only the first show cause notice dated 21.5.1999. However, we hereby set aside the impugned judgment of the Tribunal which has held that rule 57CC of the 1944 Rules is not applicable to this case as there was no "sale". In cases where the manufacturer does not comply with rule 57CC(9), he shall debit the presumptive sum equal to eight per cent of the value of the exempted goods at the time of clearance from the factory gate. This rule would apply to stock transfers also. 20. In the light of our aforestated interpretation of rule 57CC of the 1944 Rules, we set aside the impugned judgment of the CEGAT and remit the aforesaid second and third show cause notices to the Commissioner of Central Excise, who will de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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