TMI Blog2018 (3) TMI 257X X X X Extracts X X X X X X X X Extracts X X X X ..... ellant in all their units should have been considered in a holistic manner - there were glaring omissions in noting certain factual details by the Original Authority. Some of the crucial submissions on facts made by the appellant were not even discussed. These are with reference to escalation in the cost due to various factors beyond the control of the appellant and also sale of same model of cars both in profit as well as in loss in the same financial year. Similarly, we also note that the appellant’s plea regarding various decisions of the Apex court on valuation and provisions of Section 4 (1) (a) were also not examined with required analysis. The appellant strongly contested the finding with specific reference to amendment to Section 4 (1) w.e.f. 14/05/2003 readwith provisions of Rule 6 and the valuation rules. This also requires clear finding. Erosion of capital - Held that: - net worth of the company is different from the capital of the company. There was no reduction in the share capital of the appellant during the material period. We note that the finding by the lower authority on erosion of capital appears to be not based on Standard accounting and commercial principles ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8377; 5,93,51,543/- in respect of these two units. All these notices were decided by the Original Authority though in different proceedings. The Original Authorities held that wherever the cars were sold below the manufacturing cost, the assessable value has to be re- determined in terms of Section 4 (1)(b) read with Rule 11 of the Valuation Rules, 2000. The confirmation of differential duty in respect of the demand notices was restricted to normal period. The Original Authority held that there is no deliberate suppression of any facts with intent to evade payment of duty on the part of the appellant/assessee and hence, provisions of sub- section (4) of Section 11A are not applicable to the present case and accordingly, the demand for extended period as well as penalties proposed were dropped. No penalty was imposed with reference to any of the demand notices issued to the appellant/assessee. The appellant/assessee filed three appeals against the orders of the Original Authority, contesting the rejection of transaction value and the findings of the Original Authority for re-determining the assessable value in terms of Section 4(1)(b) read with Valuation Rules, 2000. The Revenue fil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... covered by the ratio of the Supreme Court in Guru Nanak Refrigeration Corporation - 2003 (153) ELT 249 (SC). The said decision has been distinguished in Fiat case and not over-ruled and as such, the same is a good law applicable. (d) The Department never contested the fact that the goods were sold to un-related persons in a normal commercial transactions and there is no additional monetary considerations flowing from the buyer to the appellant/assessee. (e) The amendment made to Section 4(1) of the Act w.e.f. 14.05.2003 read with provisions of Rule 6 of the Valuation Rules settled the issue in favour of the appellant. The decision in Fiat case covered the period prior to the said amendment. Explanation inserted in Section 4, by Finance act, 2003 is as below:- Explanation : For the removal of doubts, it is hereby declared that the price-cum-duty of the excisable goods sold by the assessee shall be the price actually paid to him for the goods sold and the money value of the additional consideration, if any, flowing directly or indirectly from the buyer to the assessee in connection with the sale of such goods, and such price-cum-duty, excluding sales tax and other taxes, if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... horities on merit. He submitted that the impugned order examined the decision of the Hon ble Supreme Court in Fiat case and after scrutiny of the cost construction for the cars manufactured and cleared by the appellant, came to conclusion that wherever the cars were sold below the cost, the valuation under Section 4(1)(b) read with Rule 11 of the Valuation Rules has to be done. The impugned order examined the defence submissions of the appellant and the same cannot be contested on the merit. 5. We have heard both the sides extensively and perused the appeal record. The dispute in the present case is acceptance of transaction value for sale of various metals of cars manufactured by the appellant, in terms of Section 4 (1) (a) of the Central Excise Act, 1944. During the relevant period in terms of the said section, where the duty of excise is chargeable on any excisable goods with reference to their value, then, on each removal of the goods, such value of the goods shall, in a case where the goods are sold by the assessee for delivery at the time and place of removal, the assessee and the buyers of the goods are not related and price is sole consideration for sale, be the transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is does not flow from the buyer to the seller and the whole transaction is bona fide. 5.7 I find that the Noticee has been selling their cars below the cost of production. The loss making price cannot be accepted as the normal price of the goods and that too when it is spread over a period of more than five years i.e. with effect from January, 2008 and it could be inferred that the consideration could only be to compete with other manufacturers who are also engaged in the manufacture of the similar goods falling under the same chapter heading of CETA 1985, the existence of extra commercial consideration while fixing the price would not be the normal price as specifically pronounced by Hon ble Supreme Court in the case of M/s Xenographic Ltd. The Supreme Court has held in the case In Metal Box India Ltd v. CCE, (1995) that normal price would be price which must be the sole consideration for the sale of goods and there could not be other consideration except the price for the sale of the goods and only under such a situation sub- section (1) (a) would come into play. Since the price charged to the distributors is doubtful in as much as and that same has been not disputed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be arrived as per provisions of Section 4 (1) (b) and the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 . 7. Proceeding further and examining the applicability of Board s circular dated 15/01/2014 regarding implementation of the decision of Hon ble Supreme Court in Fiat case, the Original Authority observed as below :- 5.13.1 On perusal of the above table, I find that the Noticee is making loss while selling the cars below the cost of production. During the year 2011-12 the loss was ₹ 604 crore which is 19% of the total value of sale of cars and similarly in the year 2012-13, they have made loss of ₹ 1110 crore which is 28.8% of the value of sale of cars. If the percentage of loss is compared with the cost of manufacture it is around 40% (approx). Further the facts in Fiat case is that 29000 number of cars were sold below the cost of production and in the instant case the Noticee has sold 52016 cars below the cost of production during the period January, 2012 to November, 2012. Further as per data submitted by the Noticee, duly certified by Chartered Accountant, I find that the Noticee is selling their cars at a loss since 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ich, the share capital increased from ₹ 360 crore to ₹ 570 crore and further the premium amount of ₹ 990 crore has been credited to the Security premium account. Similarly, during the FY 2012-13, the company issued and allotted 204,402,515 equity shares of face value of ₹ 10/- each at a price of ₹ 63/30 per share including premium of ₹ 53.30 per share for an aggregate amount of ₹ 1300 crore on right basis, consequently the share capital increased from ₹ 570 crore to ₹ 774 crore and further the premium amount of ₹ 1096 crore has been credited to the Security premium account. Therefore, the Net worth of the company increased from ₹ 705 crore to ₹ 13.01 crore in the FY 2011-12 and further ₹ 1491 crore in the FY 2012-13 only due to issuance of fresh capital with premium. Due to constant loss and increase in share capital (with premium) earnings per share is in negative year after year. Whenever there is a loss, the reserve of the company depletes resulting in erosion of capital to the extent of loss incurred by the company. I therefore held that that Hon ble Supreme Court decision in the Fiat case is applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd the ratio of the said decision. The most crucial aspect is that in the said case Fiat was selling all their cars for more than 5 years constantly at a huge loss of 145%. Cost of production was ₹ 4,53,739/- and the sale price was ₹ 1,85,400/-. The appellant therein categorically admitted that they have adopted the said pricing strategy to penetrate the Indian market. The Hon ble Supreme Court was examining such set of specific facts. It will be pertinent to note that the Board vide its Circular dated 15/01/2014 elaborately discussed the scope of the Apex court decision in Fiat India Ltd. and issued guidelines for the field formations to be followed in this regard. The said circular is reproduced as below :- Valuation (Central Excise) - Transaction value below manufacturing cost and profit - Implementation of Supreme Court decision - Clarification Circular No. 979/3/2014-CX., dated 15-1-2014 F. No. 6/7/2012-CX. 1 Government of India Ministry of Finance (Department of Revenue) Central Board of Excise Customs, New Delhi Subject : Implementation of decision of Hon ble Supreme Court in case of M/s. Fiat India Ltd. - Regarding. Attent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on ble Court has further held that these examples are not exhaustive. Therefore, mere sale of goods below the manufacturing cost and profit cannot be taken as the sole basis for rejecting the transaction value. Verification of payment of duty 3. The second issue is regarding the procedure to be adopted by the field officers to identify cases where the ratio of the judgment would apply. It may be noted that, under the self-assessment procedure, there is a legal obligation on the assessee to correctly assess and pay the duty in terms of the Central Excise Act, 1944 read with the Valuation Rules, 2000. Verification of this aspect may be conducted by the Central Excise officer during the audit of units. Aspects such as the percentage of loss at which sale has taken place, the period for which such loss making price has prevailed, reasons for sale at such loss making price, whether such sales are contrary to the standard and accepted business practices, and whether such sale is leading to erosion of capital of the company, may be looked into. In addition, due care may be taken at the level of the Commissioner to see whether the case at hand is similar to the facts and circumst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction value can be rejected in all cases where such value is lower than manufacturing cost and profit. In fact, we note that specific reference has been made to para 50 of the Fiat decision. The Hon ble Supreme Court observed as below :- 50. .. There could be instances where a manufacturer may sell his goods at a price less than the cost of manufacturing and manufacturing profit, when the company wants to switch over its business for any other manufacturing activity, it could also be where the manufacturer has goods which could not be sold within a reasonable time. These instances are not exhaustive but only illustrative. In the instant cases, since the price charged for the sale of cars is exceptional, we cannot accept the submission of the learned counsel to give a meaning which does not fit into the meaning of the expression ordinarily sold . In other words, in the transaction under consideration, the goods are sold below the manufacturing cost and manufacturing profit. Therefore, in our view, such sales may be disregarded as not being done in the ordinary course of sale or trade .. .. 12. The lower authority was silent on certain crucial submissions made by the appe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofit during 2012-2013, the appellant sold 87,359 cars in profit in the next financial year. The sale of cars below cost for the same period was 55,921 and 55725 respectively. 14. We have perused the data submitted by the appellant with reference to total number of cars sold. The data pertaining to financial year 2008-2009 to July 2014 is relevant and the same is reproduced below :- 15. A perusal of the above chart will show that for the whole of financial year 2009-2010, the appellant sold all their cars in profit only. For the next financial year only 6 Brio cars were sold at loss with 3041 Jass cars also sold at a lost of 1.38%. Interestingly when a car is sold even at a loss of 0.75% or 1%, the transaction value was rejected and value was fixed at 110% of the cost of manufacture for excise duty purposes. When the car is sold even with 1 or 2% of profit, no re-valuation is done. In other words if the cost of manufacture is ₹ 100/- if the sale is at ₹ 99/-, the value for excise duty is re-fixed at ₹ 110/-. If the sale price is ₹ 101/- the same is accepted. This is only to show that the Original Authority did not examine the true legal implication ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not based on Standard accounting and commercial principles. 19. On careful consideration of the submissions made by the assessee/appellant and the findings recorded in the impugned orders, we note that the impugned orders cannot be sustained in their present form. Accordingly, these orders are set aside with direction to the Original Authority to take up all the issues afresh, keeping in view the above observation. The appellant shall be given adequate opportunity to submit their side of the case and all the submission shall be dealt with, after due analysis, before a finding is recorded by the Original Authority. 20. On the appeal by the Revenue, we note that out of 2 show cause notice proceedings for extended period, the Original Authority dropped demand in both of them stating that the ingredients for invoking extended period were not present and, as such, the differential duty demand shall have to be restricted to the normal period only. Revenue is in appeal against one proceeding only. Penalties were also not imposed on the same reason. On careful consideration of the finding, we note there is nothing in the present appeal by the Revenue to interfere with such finding. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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