TMI Blog2018 (1) TMI 679X X X X Extracts X X X X X X X X Extracts X X X X ..... nil Choudhary, Member (Judicial) And Mr. Anil G. Shakkarwar, Member (Technical) Shri R. Santhanam, Advocate, for Appellant Shri Pradeep Kumar Dubey, Superintendent (AR), for Respondent ORDER Per: Anil Choudhary The issue in this appeal relates to valuation of free supplies made by the appellant-assessee along with chargeable supplies. 2. The brief facts of the case are that the appellant-assessee is a manufacturer having one of its factory situated at Kanpur carrying on the business of manufacture of Catalyst Refractory Insulator. The appellant is liable to pay duty on finished goods under Section 4 of the Act on ad-valorem basis. The brief facts as per the Show Cause Notice dated 17/07/2006 are that it appeared to Revenue that the appellant was suppressing the production of the excisable goods and removing the same clandestinely from the factory premises. There was a search in the factory on 06/01/2005. The officers conducted the physical stock verification of finished goods as well as of the raw materials in the presence of Shri Rajeev Malaviya, Authorized Signatory and along with two independent witnesses. The stock verification of finished goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeared to Revenue that at the point of removal of the subject goods, the value was not known since the goods were shown as sold at Nil value. It further appeared that under Rule 4 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, the value of such excisable goods shall be based on the value of such goods sold by the assessee for delivery at any other time nearest to the time of the removal of such goods under assessment, subject, if necessary, to such adjustment on account of the difference in the dates of delivery of such goods and of the excisable goods under assessment, as may appear reasonable. It further appeared from the scrutiny of minutes of the meeting dated 02/07/2003 between Southern Petrochemicals Industries Corporation Ltd. (SPIC), Tuticorin and the appellant and suppliers, namely M/s Johnson Matthey Chemicals India Pvt. Ltd., it was observed that the said suppliers, on behalf of the appellant, reduced the cost of Catalyst to ₹ 800/- per liter and also agreed that 7325 Liters of Catalyst will be supplied at Nil cost, but claimed service charges against above supplies, being ₹ 55,00,000/- lump sum and it has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wing the subject goods as having been sold at Nil value and by not paying duty on such suppressed value. Further, the transaction value of such goods cleared at Nil value at the point of removal appear to be determinable as per Rule 4 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules 2000, which reads:- The value of excisable goods shall be based on the value of such goods sold by the assessee for delivery at any other time nearest to the time of the removal of goods under assessment, subject, if necessary, to such adjustment on account of the difference in the dates of delivery of such goods and of the excisable goods under assessment, as may appear reasonable. 7. Accordingly, the value of clearance and the duty payable was worked out as follows:- Sl. No. Invoice No. Dated Description of goods sold Quantity sold at Nil value as per relevant invoice (in Ltrs.) Rate per unit as per relevant invoice (in Rs.) Total price of goods as per relevant invoice Assessable value worked out on prorate basis variety ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37 dt. 25.09.03 425600 11 1 06.04.06 RC 46-6 2800 800 0 22,40,000/- 37 dt. 25.09.03 358400 12 2 06.04.06 RC 46-3 1100 750 0 8,25,000/- 2 dt. 06.04.04 132000 13 2 06.04.06 RC 46-6 2700 800 0 21,60,000/- 37 dt. 25.09.03 345600 Grand Total 2,36,54,200/- 37,84,672/- It appeared that the appellant have cleared the aforementioned goods valued at ₹ 2,36,54,200/- involving Central Excise duty to the tune of ₹ 37,84,672/- by suppressing the value with intent to evade payment of duty. Accordingly they were required to show cause as to why the duty amount so calculated be not demanded under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty of Catalyst of different quantity without charging for the same or at nil rate, hence, called free supply, but the price paid by the buyer is attributable to the price of both the goods that is cleared at a price and cleared at nil rate. The quantity cleared at nil rate is in the nature of quantity discount and nothing effectively is supplied free. The duty of Excise on the transactions value as per the price agreed at the applicable rates in force had been duly paid and the entire price must be spread over the total quantity of Catalyst supplied including those alleged by the Revenue as free supplies. Effectively, this is nothing but a case of quantity discount which is due to the nature of the business as the appellant can sell its finished products only to a few buyers can be counted on fingers as herein above mentioned; such big buyers, being big industrial establishments are able to bargain because the appellant manufacturer is unable to find any other buyers. If the goods were not produced and supplied, the factory of the appellant would be closed and they shall go out of business. The Catalysts of different varieties supplied by the appellants as free supplies have price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contract cannot be carried out without the production of other Catalysts (joint product or by product) supplied as free material as both arise in the course of production simultaneously, and both are to be sold/cleared virtually to the same parties who are the few buyers of the product and only have usage of the same in the factories producing chemicals, fertilizers, petrochemicals, etc. in the Petrochemical Industries. The appellant s counsel further relies on the ruling in the case of Swadeshi Polytex Ltd. Versus CCE (1989) 44 E.L.T. 794 , wherein the Apex Court have taken into account such technical production process and exigencies as the basis to grant relief to the assessee. Further, there is no case made out by the Revenue that the appellant had received any extra consideration, which is not accounted for. The transactions are on principal to principal basis, and services at arms length. The buyers are Government Public Undertakings and no extra commercial activity is invoked. The buyers and sellers are not related persons. The price is the sole consideration for the transaction in question. The bargaining power and size of the commercial organization of the buyers is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , or as quantity discount as there is no uniformity in the discount. Further he contended that in the appellant's case, there was no fixity nor rationality about free supplies as it was found to vary from 30% to 150%. It was also submitted that the trade discount can be allowed a deduction/reduction for valuation purposes and the trade discount would mean discount usually expressed as a percentage of deduction/reduction given to the buyer. It was also contended that there is a case of suppression in as much as in the returns filed with the Department. The appellant had filed returns which had not brought out the facts that certain portion of the goods cleared were cleared as free supplies although the contracts clearly show them. Accordingly, it was argued that the demand is sustainable and the extended period has been rightly invoked. 14. Having considered the rival contentions and on perusal of the facts on record, we find that the nature of business of the appellant is very different, inasmuch as they are manufacturing Catalysts for which there are only about five buyers available in the country. In the manufacture of the Catalysts some other Catalysts are also necessaril ..... X X X X Extracts X X X X X X X X Extracts X X X X
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