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M/s United Phosphorous Ltd, Shri Kanubhai Mohanlal Desai, Shri Hasmukhbhai N. Desai, Shri Arun C. Ashar And Commissioner, Central Excise & Service Tax, Vapi Versus Commissioner, Central Excise & Service Tax, Vapi And M/s United Phosphorous Ltd.

Under-valuation of the goods - “place of removal” under Section 4 of the Central Excise Act 1944 - Held that:- The finding of the Adjudicating Authority that the appellant is required to pay duty on such goods sold from the depot at a higher price over and above price as declared in their declaration, is contrary to provision of Section 4(1)(a) of the Act, 1944 and the case laws. It is not in dispute that the appellant cleared the goods from their factory, at the price prevalent at the depot and .....

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t the time clearance /Sale Price (S.P.)”. It is observed that S.P. is inclusive of duty. The appellant in their reply to show cause notice categorically stated that the duty element is required to be excluded in the invoice value of the depot. The appellant also submitted some of the copies of invoices to show that the price it depot is cum-duty price. It is noticed that as per Section 4 (3) (d) of the Act, 1944, value in relation to any excisable goods does not include excise duty, sales tax et .....

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Court allowed cash discount even after introduction of Transaction Value for the reason the cash discount for prompt payment as agreed by the buyer at the time of clearance of goods is a contractual price and it would be deducted from the sale price. It may be noted that the present case is prior to July 2000 and therefore, the appellant is eligible for deduction of cash discount from the assessable value. - Appeal No. E/683-686/2008-DB And Appeal No. E/892/2008-DB - Order No.A/11631-11635/2015 .....

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riff Act, 1985. The Assessee was selling the excisable goods through their depots situated at various places of the country. The Assessee was filing the Declaration in Proforma-II declaring therein the price at which the excisable goods were sold from the depots at the time of removal of the goods from the factory. On 22.12.1998, the Central Excise officers HPIU-I, Surat-II, headed by the Superintendent of Central Excise, visited the Assessee s factory premises and found that RG23A Part II regis .....

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essee, for the period from September 1995 to March 1999. It has also proposed to impose penalty on the Director and employees of the Assessee. It has been alleged that the Assessee had contravened the provisions of Section 4 of the Central Excise Act, 1944 read with Rule 5 of Central Excise (Valuation) Rules, 1975 and other rules of erstwhile Central Excise Rules, 1994, in as much as they have not determined the correct assessable value of their product for discharging the Central Excise duty, a .....

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d also imposed penalty of equal amount of duty under Section 11AC of the Act, 1944. It has dropped demand of duty of ₹ 9,34,690.00 involved on excess transportation charges. It has further imposed penalty on various persons as under:- i) Shri Hasmukhbhai Nagjibhai Desai, Senior Executive-cum-Authorised Signatory of the Assessee Company. Rs.2 lakhs ii) Shri Kanubhai Mohanlal Desai, General Manager (Admn) of the Assessee Company Rs.2 lakhs iii) Shri Arun C. Ashar, Acting Director of the Asse .....

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the various depots as per the Declaration in Proforma-II filed by them. It is submitted that as per Section 4 of the Act 1944, the Assessee was liable to pay duty at the factory gate on the price prevailing at depot. It is submitted that the subsequent revision of price at depot has no effect. It is further submitted that the varying rate of discount offered by the Assessee depending upon the utilization of free credit period, which is known as prompt payment discount offered to all. It is well .....

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nsportation charges following the decision of Hon'ble Supreme Court. So, the appeals filed by the Assessee and others are liable to be allowed and the appeal of the Revenue should be dismissed. The Learned Advocate submitted written submission and compilation of case laws. 5. On the other hand, the learned Authorised Representative for the Revenue reiterates the findings of the Adjudicating authority. He submits that it is a clear case of under-valuation of the goods. It is submitted that th .....

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not entitled for abatement on cash discounts as claimed by them. Hence, the appeals filed by the Assessee and the others are liable to be rejected. Regarding the appeal filed by the Revenue, it is submitted that there is no provision to extend the cum-duty benefit. It is further submitted that the Assessee claimed the excess transportation charges over and above the actual cost of transportation charges, which is contrary to the Valuation Rules. As per Section 4 of the Central Excise Act read wi .....

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ing Authority bifurcated the demand of duty into two spells i.e., from Sept. 1995 to 27.9.1996 and from 28.9.1996 to March 1999. The reason for bifurcation is that with effect from 28.9.1996 the definition of place of removal under Section 4 of the Central Excise Act 1944 has been changed. For the purpose of the proper appreciation of the case, the relevant portion of Section 4 prior and after 28.9.1996 is reproduced below: Section 4. Valuation of excisable goods for purposes of charging of duty .....

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: xxxx xxxx xxxx xxxx xxxx (4) For the purpose of this section, - (a) assessee means the person who is liable to pay the duty of excise under this Act and includes his agent; (b) place of removal means - (i) a factory or any other place or premises of production or manufacture of the excisable goods; or (ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty, from where such goods are removed. By section 74 of the Fi .....

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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 sold consideration for the sale: xxxx xxxxx xxxx xxxxx (4) For the purpose of this section, - (a) assessee means the person who is liable to pay the duty of excise under this Act and includes his agent; (b) place of removal means - (i) a factory or any other place or premises of production or manufacture of the excisable goods; (ii) a warehouse or any other place or prem .....

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or delivery at the time and place of removal . In other words, the normal price would ordinarily be determined the price at which goods are sold at the time of delivery and place of removal. The expressions the price at which such goods are ordinarily sold by the assessee , if read with for delivery at the time and place of removal in section 4(1) (a) make it clear that the value of the goods has to be determined only at the time of clearance of goods from the place of removal. By the amendment .....

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ce would be, the price of such goods ordinarily sold by the assessee at depots, at the time of delivery of the goods from factory. Where there is no ex-factory sale and the entire stock transferred to depots even prior to 28.08.1996, the assessable value would be determined on the basis of depot sales price, at the time of clearance of goods at factory. In the present case, as there is no ex-factory sale, the appellant is required to pay duty on the basis of the depot price prevalent, at the tim .....

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epot could not affect liability to the excise duty. The goods are cleared on payment of duty at the price prevalent at depot at the time of clearance from the factory. After clearance of the said goods from factory, may be sold from the depot at a higher or lower price, the assessee is not entitled to claim the refund for lower price and the Dept also cannot demand the duty of higher price at depot. In this context, some of the decisions are discussed below: a) In the case of MRF Ltd vs Collecto .....

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vel and it is on account of this roll back of price, they claimed refund of duty of differential amount. The Tribunal rejected the refund claim and came to the conclusion that under Rule 9A and Rule 173C(2)(vi) of the Central Excise Rules 1944, the duty was chargeable on the excisable goods at the rate and on the price prevailing of the date of actual removal as shown by the assessee from the factory and the subsequent reduction in the price even at the behest of Govt. could not create a right i .....

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time and subsequent reduction in prices for whatever reason cannot be a matter of concern to the Central Excise Department insofar as the liability to payment of excise duty was concerned. This is the view which was taken by the Tribunal in the case of Indo Hacks Ltd. v. Collector of Central Excise, Hyderabad - (Tribunal) and it seems to us that the Tribunal's view that the duty is chargeable at the rate and price when the commodity is cleared at the factory gate and not on the price reduce .....

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aim a refund on the price differential unless it is shown that there was some agreement in this behalf with the Government and the latter had agreed to refund the excise duty to the extent of the reduced price. That being so, we see no merit in this appeal brought by the assessee and dismiss the same with no order as to costs. b) In the case of Shri Bhagwati SSK Ltd vs CCE., Pune - 2000 (115)ELT(120)(Tri), the assessee was a manufacturer of Sugar. After clearance of goods from the factory, the p .....

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ods were cleared and not the price now determined. c) In the case of Lipi Data Systems Ltd vs CCE, Jaipur - 2001(130)ELT.91 (Tri.) the assessee was engaged in the manufacture of 'computer line printers'. They have their factory at Udaipur and depot at Mumbai. They were clearing the goods from their factory on payment of duty at the price prevailing at the depot on the date of clearance. The goods were ultimately sold at the depot at the same, higher or lower price. The Adjudicating Autho .....

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udicating authority, in his order, observed "I therefore, cannot persuade myself to agree with the assessee's contention that CBEC Circular date 14-10-1996 is applicable in their case". From this, it appears, he is not happy with the provision contained in the Circular and he wants to take a view contrary to the provisions contained in it. The provision contained in the Circular is in conformity with the law stated by this Tribunal in Castrol India Ltd. v. Commissioner of Central E .....

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depot, such goods are to be valued with reference to the time when it was removed from the factory". As per this decision, whenever the goods manufactured by the appellants at their factory at Udaipur were removed for subsequent clearances from Mumbai, they have to be assessed at the price prevalent on that date of removal from the factory. Instead of assessing the goods on this basis, the adjudicating authority and the appellate authority resorted to the method of fixing the value of the g .....

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he orders passed by the adjudicating authority and the appellate authority. Appeals are allowed and the impugned orders are set aside. d) After amendment of Section 4 as on 18.9.1996 CBEC vide Circular No.251/85/96-CX, dt.14.10.1996, clarified as under:- Assessments need not be kept provisional till the actual sale price of the excisable goods cleared from places of removal other than factory gate is known. The assessee may be asked to declare and pay duty at the price prevailing at such other p .....

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t January. If this consignment cleared on 1st January is sold, say on the 1st March from Ahmedabad Depot at a lower or higher price, such a price will be the basis for valuation of clearances on 1st March and so on. This will apply mutatis mutandis to cases of provisional assessments also where at the time of clearance on 1st January the sale price from the depot on 1st January is not known. 9. It is clear from the above that where no ex-factory price is available and the entire goods sold throu .....

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s at higher rate than Sale Price declared in their declaration, which resulted in undervaluation and thereby short payment of Central Excise duty. They have collected extra amounts from their customers over and above the sale price. 10. The appellant in their reply to the show cause notice categorically stated that they have filed Price Declaration in Proforma-II declaring therein the price at which the excisable goods were sold from the depot at the time of removal of goods from the factory gat .....

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s from the factory gate, which is in conformity with provision of Section 4(1)(a) of the Act , 1944 and case laws as referred above. The finding of the Adjudicating Authority that the appellant is required to pay duty on such goods sold from the depot at a higher price over and above price as declared in their declaration, is contrary to provision of Section 4(1)(a) of the Act, 1944 and the case laws. It is not in dispute that the appellant cleared the goods from their factory, at the price prev .....

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price prevalent at the depot at the time of clearance from the factory. In this context, the Adjudicating Authority observed on the basis table as mentioned in the impugned order, that there was difference in price between the columns Rate Charged from Customer from Depot and Declared Price of Goods in the factory at which duty paid at the time clearance /Sale Price (S.P.) . It is observed that S.P. is inclusive of duty. The appellant in their reply to show cause notice categorically stated tha .....

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efit of cash discounts from assessable value.The Adjudicating authority observed that the nature of discount appears to be conditional and not uniformly given to all customers. The Assessee had also failed to produce any evidence to establish that they have passed on the said discount to the customers. Therefore, they are not entitled for abatement of cash discount. It is submitted by the learned Advocate that varying rate of discount offered by the Assessee depending upon the utilisation of fre .....

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mers like concessional sales of goods on festivals like Diwali or Christmas etc. It may be that such general concessions are given on such occasions to all customers but it cannot be said that if a special trade discount is given to such an esteemed customer who is a buyer of 90 per cent of goods, it would amount to trade practice which would not be a normal trade practice but would be in any way an impermissible trade practice. In fact such type of concessions are usually given by manufacturers .....

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ited has not refunded such discount on any account. Therefore, it satisfies the requirement of clause (ii) of Section 4(4)(d) of the Act. Learned counsel for the appellant in this connection invited our attention to the decision of the Gujarat High Court in Gujarat State Fertilizers Co. Limited v. Union of India & Ors. - 1980 (6) Excise Law Times 397. The Division Bench of the Gujarat High Court consisting of P.D. Desai and G.T. Nanavati, JJ., interpreting the scope of Section 4 of the Act l .....

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at different rates to different purchasers, it cannot by itself disqualify if from being excluded for arriving at the assessable value so long as the lack of uniformity is not founded on any extra-commercial considerations. To ignore the deduction of trade discount would amount to adding a non-existent fraction to the manufacturing profit which will artificially inflate the net assessable value for the levy of excise duty which is not legally permissible having regard to the basic concept of ex .....

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the Tribunal will stand confirmed insofar as period of limitation applicable herein and reloading of the purchase price by the notional value of interest on advances made by wholesale buyer Ponds (I) Limited to the assessee is concerned and to that extent Assistant Collectors order will stand untouched. However, to the extent of the disallowance of the trade discount offered to the wholesale buyers Ponds (I) Limited by the assessee, the decision of the Tribunal is set aside and accordingly the .....

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2000 after introduction of transaction value , which was upheld by the Tribunal. It is not in dispute that the duty has been demanded in respect of cash discount, which was not actually passed on to the customer. The Hon ble Supreme Court set aside demand of duty on cash discount issue. The Hon ble Supreme Court in the case of Purolator India Ltd (supra) held as under : 18. It can be seen that Section 4 as amended introduces the concept of transaction value so that on each removal of excisable .....

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isable goods even on the basis of transaction value has only to be at the time of removal, that is, the time of clearance of the goods from the appellant s factory or depot as the case may be. The expression actually paid or payable for the goods, when sold only means that whatever is agreed to as the price for the goods forms the basis of value, whether such price has been paid, has been paid in part, or has not been paid at all. The basis of transaction value is therefore the agreed contractua .....

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ted from the sale price in order to arrive at the value of excisable goods at the time of removal. The Hon ble Supreme Court allowed cash discount even after introduction of Transaction Value for the reason the cash discount for prompt payment as agreed by the buyer at the time of clearance of goods is a contractual price and it would be deducted from the sale price. It may be noted that the present case is prior to July 2000 and therefore, the appellant is eligible for deduction of cash discou .....

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ppeal against the impugned order, as the demand of duty was dropped on excess transportation charges. The learned Authorised Representative for the Revenue has relied upon the decision of the Tribunal in the case of Auto Control Pvt. Ltd Vs CCE - 1993 (63) ELT 166 (Tri). It has been held that the freight charges are allowable subject to production of evidence regarding its expenses, and subject to verification. He also relied upon CBEC Manual Part III (Valuation) Para 3.2. It has been clarified .....

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thereof is determined with reference to the price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery shall be excluded from such price. So, it is clear that the cost of transportation from the place of removal to the place of delivery would be excluded from the price. The contention of the Revenue is that the Appellant has claimed the excess transportation charges. The Commissioner of Central Excise dropped the d .....

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