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2019 (8) TMI 382

..... manufacturing expenses claimed by the appellant in assessable value - extended period of limitation - demand of differential duty alongwith interest - imposition of penalties. Whether the assessees are eligible for exemption notification No. 3/2006 (S.No. 19) issued under Section 5A claimed by them which is sought to be denied by the Revenue? - HELD THAT:- A plain reading of the exemption notification does not show that it is intended to cover all products covered by the tariff heading 1905 3290 or wafers (coated or uncoated) falling under tariff heading. It specifically includes only wafer biscuits falling under tariff heading. If the intention of the notification was to exempt ‘wafers’ also, it would have said so. The assessees’ products are not described as ‘wafer biscuits’ by the assessee themselves either to the department or in any of the documents or to the ultimate consumers on their wrappers. Thus, we find nobody in the chain of trade from the manufacturer to the ultimate consumer know the products as ‘wafer biscuits’ but know them only called as coated wafers - It is not for this Tribunal to enlarge the scope of an exemption notif .....

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..... was not sure about it. Therefore, the demand of extended period of limitation cannot be sustained. Whether penalties are imposable upon the appellants? - HELD THAT:- Penalties under section 11AC can be imposed where there is fraud, collusion, wilful misstatement, suppression of facts or contravention of any provisions of the Act or the rules made there under with an intent to evade payment of duty - In the present case, we have already held with respect to the invocation of the extended period on limitation that these factors have not been established. Clearly, this is only a question of interpretation regarding the exemption notification and value - the penalties imposed under Section 11AC need to be set aside. Penalty under Rule 26 upon Mondelez - HELD THAT:- The elements of fraud, collusion, wilful misstatement, suppression of facts or violation of act of Rules with an intent to evade payment of duty, have not been established - penalty do not sustain. Appeal filed by Little Star are partly allowed as above by way of remand for the limited purpose of verification of nature of post manufacturing expenses and re-determining the duty and interest excluding any demand for extended p .....

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..... at Little Star manufactures Cadbury perk with glucose energy and supplies them to Mondelez on job work basis. The products are, thereafter, sold by Mondelez from their depots through their marketing chain. Mondelez is the brand owner of the products. The entire manufacture by Little Star is as per the specifications and directions of Mondelez in their agreement. Being the manufacturers of the products, Little Star discharges Central Excise duty. Little Star claimed the classification of their products under 1905 3290 of Central Excise tariff. The relevant entry is as follows: 1905 BREAD, PASTRY, CAKES, BISCUITS AND OTHER BAKERS WARES, WHETHER OR NOT CONTAINING COCOA; COMMUNION WAFERS, EMPTY CACHETS OF A KIND SUITABLE FOR PHARMACEUTICAL USE, SEALING WAFERS, RICE PAPER AND SIMILAR PRODUCTS Kg Nil 1905 10 00 Crispbread Kg Nil 1905 20 00 -Gingerbread and the like -Sweet biscuits; waffles and wafers: Kg Nil 1905 31 00 Sweet biscuits Kg 6% 1905 32 -Waffles and wafers -Communion wafers: 1905 32 11 Coated with chocolate or containing chocolate Kg 12.5% 1905 32 19 Other Kg 12.5% 1905 32 90 Other Kg 12.5% 1905 40 00 Rusks, toasted bread and similar toasted products Kg Nil 1905 90 Other: Kg N .....

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..... ntentions made on both sides, it will be necessary to set out the relevant legal provisions. (a) Excise duty on tobacco and other goods manufactured in India except alcoholic liquor for human consumption, opium and other narcotic drugs are included in the union list in the Constitution of India (list-1 of Seventh Schedule of the Constitution). The relevant statute for levy of these excise duties is as the Central Excise Act, 1944. Section 3 of this Act is the charging section which states there shall be levied and collected in such a manner as may be prescribed a duty of excise to be called Central Value Added Tax on excisable goods which are produced or manufactured in India as, and at the rates, set forth in Schedule-I of the Central Excise Tariff Act ………. . (b) The term Excisable goods has been defined as goods specified in the first schedule and the second schedule to the central Excise Tariff Act as being subject to a duty of excise and includes salt (Section 2(d) of the Act). The duty of excise is leviable either based on quantity (specific rate of duty) or value (ad valorem rate of duty) as specified in the tariff. However, in respect of the goods which .....

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..... posable upon the appellants. 8. On the question of exemption notification, Ld. Counsel for the appellants submits that it is undisputed that Little Star are manufacturing Cadbury Perk with Glucose Energy which has been described by them as chocolate coated wafers for some period and subsequently as coated wafers. He produces before us a sample copy of the product, the label of which also describes the product as coated wafers . He explains that in the coating, they have been using only coco powder but not coco butter and therefore the same cannot be called as chocolate coating and hence they described the product as coated wafers. The relevant entry (Sl.No. 19) in exemption notification 3/2006 reads as follows: EFFECTIVE RATES OF DUTY FOR GOODS OF VARIOUS CHAPTERS GENERAL EXEMPTION No. 46 Exemption and effective rate of duty for specified goods of Chapters 1 to 24 - in exercise of the powers conferred by Sub Section (1) of Section 5A of the Central Excise Act, 1944 (1 of 1944), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts excisable goods of the description specified in column (3) of the Table below and falling withi .....

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..... often sweetened and flavoured. (2) A thin disk of unleavened bread, used in the Eucharist, as in the Roman Catholic Church. (3) A thin disk of dried paste, gelatin, adhesive paper, or the like, used for sealing letters, attaching papers etc. (4) Medicine/Medical. A thin sheet of dry paste or the like, used to enclose a powder to be swallowed. (5) Any small, thin disk, as a washer or piece of insulation. He also cites the Oxford dictionary s meaning of wafer as under: A thin, light, crisp biscuit, especially one of a kind eaten with ice cream. A thin piece of something. wafers of smoked salmon Synonyms 1. A thin disc of unleavened bread used in the Eucharist. 2. Electronics A very thin slice of a semiconductor crystal used as the substrate for solid-state circuitry. Synonyms 3. (also wafer seal) a disc of red paper stuck on a legal document as a seal. 4. historical A small disc of dried paste used for fastening letters or holding papers together. VERB [WITH OBJECT] archaic Fasten or seal (a letter or document) with a wafer. Derivatives wafery adjective. Origin Late Middle English from an Anglo-Norman French variant of Old French gaufre (see goffer), from Middle Low German wāfel .....

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..... n fixed under sub-section (2) of section 3. (3) For the purposes 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) persons shall be deemed to be related if- (i) they are inter-connected undertakings; (ii) they are relatives; (iii) amongst them the buyer is a relative and distributor of the assessee, or a sub-distributor of such distributor; or (iv) they are so associated that they have interest, directly or indirectly, in the business of each other. Explanation.-In this clause- (i) inter-connected undertakings shall have the meaning assigned to it in clause (g) of section 2 of the Monopolies and Restrictive Trade Practices Act, 1969 (64 of 1969); and (ii) relative shall have the meaning assigned to it in clause (41) of section 2 of the Companies Act, 1956 (1 of 1956); (c) 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 on premises wherein the excisable goods have been permitted to be deposited without payment of duty; (iii) a depot, premises of a consignment agent or any other place or premise .....

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..... all be the normal transaction value of such goods sold from such other place at or about the same time and, where such goods are not sold at or about the same time, at the time nearest to the time of removal of said goods from the factory of job-worker; iii. in a case not covered under clause (i) or (ii), the provisions of foregoing rules, wherever applicable, shall mutatis mutandis apply for determination of the value of the excisable goods : Provided that the cost of transportation, if any, from the premises, wherefrom the goods are sold, to the place of delivery shall not be included in the value of excisable goods. Explanation. - For the purposes of this rule, job-worker means a person engaged in the manufacture or production of goods on behalf of a principal manufacturer, from any inputs or goods supplied by the said principal manufacturer or by any other person authorised by him. 12. Little Star have, indeed, paid the duty on the value at which the principal manufacturer Mondelez has sold the goods to their buyers. Since Mondelez gets such goods manufactured by a large number of firms across the country, they have a uniform method of pricing the goods which is set out in the .....

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..... oncerned, Ld. Counsel would submit that the post manufacturing expenses are actually nothing but cheque discounting charges which they paid to their banks. He would submit that the cheque discounting charges have been held by the Tribunal in their own case (Cadbury India Limited) to be admissible deduction as reported at [2015(323) ELT 606 (Tri.-Del.)]. He also produces copies of agreements which they had with their re-distributors in support of his contention that they indeed had re-distributors who were given a margin. 14. As far as the first period covering October 2009 to September 2010 is concerned, he would submit that the first show cause notice issued by the Department on 08.11.2010 and the second one on 08.11.2011 invoking the extended period of limitation under section 11A. Section 11A of Central Excise Act permits invocation of extended period only if the elements necessary for invoking the extended period namely fraud, collusion, wilful misstatement, suppression of facts or violation of the provisions of the Act or Rules with an intent to evade payment of duty are present. It is on record that all facts are presented before the department. The returns were filed periodi .....

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..... scation under the Act or these rules, shall be liable to a penalty not exceeding the duty on such goods or rupees [two thousand rupees,] whichever is greater.] [Provided that where any proceeding for the person liable to pay duty have been concluded under clause (a) or clause (d) of sub-section (1) of section 11AC of the Act in respect of duty, interest and penalty, all proceedings in respect of penalty against other persons, if any, in the said proceedings shall also be deemed to be concluded.] [(2) Any person, who issues- (i) an excise duty invoice without delivery of the goods specified therein or abets in making such invoice; or (ii) any other document or abetsin making such document, on the basis of which the user of said invoice or document is likely to take or has taken any ineligible benefit under the Act or the rules made there under like claiming of CENVAT credit under the CENVAT Credit Rules, 2004 or refund, shall be liable to a penalty not exceeding the amount of such benefit or five thousand rupees, whichever is greater.] 16. Ld. Counsel would submit that none of the elements necessary for invocation of Rule 26 as above have been proved or established in their case, th .....

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..... oods are liable for confiscation (which is not being done for want of seizure of the goods) and consequently, CIL would be liable for penalty as provided under the said Rule. 17. He would assert that the only dispute is regarding the interpretation by the department as opposed to the interpretation of the appellants and therefore no penalty can be imposed under Rule 26 of Central Excise Rules, 2002. 18. Ld. DR reiterates the statements and arguments made in the impugned order. He agrees that the only two points of dispute on merit are (a) whether the appellants are entitled to the benefit of exemption notification 3/2006 (Sl.No. 19) for Cadbury perk with glucose energy manufactured by them and (b) whether the dealer s margin, re-distributors margin, post manufacturing expenses have to be included in the assessable value or otherwise. There is no dispute regarding the classification of the product or that it deserves to be asserted under section 4 and Rule 10A of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. On the first point of availability of exemption notification, he asserts that a plain reading of the exemption notification shows that it is .....

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..... gments were not in the context of the new Central Excise tariff which is a detailed and elaborate one nor is it in the context of interpreting the exemption notification. He further argues that exemption notifications were interpreted in a number of ways, some strictly and some liberally by various judicial fora including by the Hon ble Apex Court. In view of the conflicting decisions, the matters were referred to the Constitutional Bench of Hon ble Apex Court in the case of Commissioner of Customs (Import) Mumbai vs. Dilip Kumar & Company & others as reported in [2018-TIOL-302-SC-CUS-CB)] in which the Hon ble Apex Court held as follows: To sum up, we answer the reference holding as under: (1) Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case comes within the parameters of the exemption clause or exemption notification. (2) When there is ambiguity in exemption which is subject to strict interpretation, the benefit of such ambiguity cannot be claimed by the subject/assessee and it must be interpreted in favour of the revenue. (3) The ratio in Sun Export case (supra) is not correct and all .....

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..... iving the benefit of any ambiguity in the exemption notification to the Revenue and against the assessee as has now been laid down by the Constitutional Bench of Hon ble Apex Court in the case of Dilip Kumar & Company and others (supra). A plain reading of the exemption notification does not show that it is intended to cover all products covered by the tariff heading 1905 3290 or wafers (coated or uncoated) falling under tariff heading. It specifically includes only wafer biscuits falling under tariff heading. If the intention of the notification was to exempt wafers also, it would have said so. The assessees products are not described as wafer biscuits by the assessee themselves either to the department or in any of the documents or to the ultimate consumers on their wrappers. Thus, we find nobody in the chain of trade from the manufacturer to the ultimate consumer know the products as wafer biscuits but know them only called as coated wafers. It is not for this Tribunal to enlarge the scope of an exemption notification meant for wafer biscuits to cover coated wafers as well. Even if it is held that wafers could possibly be broadly considered as wafer biscuits, the matter is d .....

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..... principal manufacturer or by any other person authorised by him. 23. It is also not in dispute that the Little Star paid duty based on the values declared by Mondelez. These values are reflected in the price list discussed above. The only point of dispute are the three elements which the Ld. Adjudicating Authority sought to include in the assessable value i.e. the Dealer s margin, RD Markup and Post Manufacturing expenses. As far as the dealer s margin is concerned, the Ld. Adjudicating authroity felt that there is no dealer and the dealer s premises are the assessee s own premises. From the sample contract with the dealer produced by the Ld. Counsel for the appellant before us, we are convinced that there are indeed dealers. Therefore the dealer s margin cannot be included in the assessable value. We further find that in a commodity which costs ₹ 2/- per piece, it is inconceivable that M/s Mondelez was selling these goods directly to individual retailers across the country. Therefore, there is no room for disallowing dealer s margin as a deduction. 24. As far as the RD Mark up is concerned, the Ld. Commissioner considered this to be an R&D cost and Ld. Counsel for the a .....

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..... etation regarding the exemption notification and value. Therefore, the penalties imposed under Section 11AC need to be set aside and we do so. 28. As far as penalty under Rule 26 upon Mondelez is concerned, on a plain reading of this Rule (supra), we do not find any grounds to uphold the penalties imposed upon them (Mondelez), as we have already held that the elements of fraud, collusion, wilful misstatement, suppression of facts or violation of act of Rules with an intent to evade payment of duty, have not been established. In view of the above, the appeals are disposed of as under: ORDER (I) The benefit of Exemption Notification No. 3/2006 (Sl.No. 19) meant for wafer biscuits is not available to the appellant (Little Star) as their products are not wafer biscuits. (II) The dealer s margin and RD Mark up are not includable in the assessable value of the products manufactured by the assessee (Little Star). (III) As far as the post manufacturing expenses are concerned, the matter is remanded to the original authority to enable the assessee (Little Star) to establish that these pertain to the cheque discount charges as asserted by them or any other expenses not covered by Section 4. .....

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