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TMI Blog2001 (11) TMI 105X X X X Extracts X X X X X X X X Extracts X X X X ..... money value of additional consideration is required to be added to the assessable value of cigarettes manufactured by the appellants, as held by the Member (Technical) ? or Whether the money value of additional consideration is required to be added to the price declared in the price list and assessable value determined by working backwards, as held by the Member (Judicial) ? (2) Whether total margins are required to be added to assessable value, as held by the Member (Technical) ? or Whether only the expenses actually incurred by wholesale dealers on account of advertisement and sale promotion must be added to the price, as held by the Member (Judicial) ? (3) Whether deduction claimed on account of PME disallowed by the adjudicating authority has rightly been ordered to be added to assessable value, as held by the Member (Technical) or Whether disallowed PME must be added back to the price and not to the assessable value, as held by the Member (Judicial) ? 3.The relevant facts for appreciating the contentions raised by both sides on the above issues are as follows : M/s. ITC Ltd. which has its Head office at Calcutta is engaged in the manufacture of cigarettes of different br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isions of Rule 5 of the Central Excise (Valuation) Rules, 1975. (Para 13.1). (d) for the purpose of determining the value under the said Rule 5 - (i) freight element (whether actual or equalised) cannot be added, (Para 14.3). (ii) similarly, cost of CFC cannot be added, (Para 14.3.2). (iii) advertisements and sales promotion expenses incurred by the WDs shall be added, and (Para 14.3.3). (iv) similarly, interest including that on the security deposits made by the WDs shall be added (Paras 14.3.6, 14.3.8 and 14.3.11). (e) no deduction whatsoever on account of the supposed duty shall be made from the advertisement and sales promotion expenses and interest, while adding these to the price (15.2). (f) the company is liable for penal action under Rule 173Q of the Central Excise Rules, 1944. (Para 16.3). (g) principles of natural justice are not viol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ue and not to the factory gate price as claimed by the appellant. He also added the margin given by ITC for interest, freight, and marketing and distribution instead of the expenses incurred by the wholesale dealers on behalf of ITC. ITC challenged this order before the Allahabad High Court contending that redetermination of higher value was without jurisdiction. When the writ petition was dismissed, ITC took up the matter before the Supreme Court by filing Special Leave Petition. While disposing of the above SLP on 22-8-90 the Supreme Court permitted ITC to file an appeal before the Collector (Appeals) raising all the contentions put forward before the High Court and the Collector (Appeals) was directed to go into all the questions raised before him uninfluenced by the observations made by the High Court. Pursuant thereto, ITC filed appeal before the Collector (Appeals) Ghaziabad. After referring to the arguments put forward by both sides, the Collector (Appeals) held as follows : I"14.(b) note that order-in-original dated 10-4-86 of Director General has reached the finality as no appeal has been preferred against the same by M/s. ITC. Hence the submissions made by the appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. When the price is not the sole consideration for the sale, one has to proceed under Section 4(1)(b), which provides that where the normal price of such goods is not ascertainable for the reason that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof shall be determined in such manner as may be prescribed. The prescription is under Rule 5 of Valuation Rules, 1975, which reads as below :- "5.Where the excisable goods are sold in the circumstances specified in clause (a) of sub-section (1) of Section 4 of the Act except that the price is not the sole consideration, the value of such goods shall be based on the aggregate of such price and the amount of the money value of any additional consideration flowing directly or indirectly from the buyer to the assessee". Interpretation of Rule 5 has been subject matter of departmental clarification vide M.F. (DRI) F. No. 312/1/7- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otherwise. But according to the learned Counsel for the Revenue the issues raised in this appeal cannot be decided on the basis of the language of the rule or the authorities referred to above. He submits that D.G. has taken a different view on interpretation of Rule 5 namely that the additional consideration has to be added to the assessable value and not to the price. According to the learned Counsel this view was taken by the D.G. as early as in April, 1986 when the interpretation of Rule 5 by several orders and decisions were not available and the law was not clear. According to the learned Counsel for the Revenue the view was taken by the DG in his order dated 10-4-86 is binding on the appellant since it has not challenged the above order at any point of time. 10.On the other hand, learned Counsel for the assessee would contend that on a proper reading of the order passed by the D.G. it will be clear that he has not gone against the interpretation placed by the authoritative decision on Rule 5. He has correctly found that the additional consideration are to be added to the price and not to the assessable value. Learned Counsels appearing on both sides took us through relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Patna v. ITC Ltd. [1994 (71) E.L.T. 324]. While disposing of the matter the Apex Court noted the fact that pursuant to the remand made by the High Court proceedings were continuing before the Collector. The appeal was disposed of agreeing with the finding of the High Court that there was violation of principle of natural justice as no show cause notice was issued before the amount in demand was enhanced. Certain observation in the above judgment which are relevant for the purpose of the present appeal are quoted below :- "Learned Counsel appearing for the first respondent says and which submission is recorded herewith that the first respondent does not challenge the correctness and validity of the Order-in-Original No. 1/86, dated April 10, 1986 passed by Shri B.K. Aggarwal, Director General of Inspection (Customs & Central Excise). The Counsel however says that it should be open to the first respondent to question the interpretation placed upon the said order by the Revenue. It is made clear that while the interpretation of the said order shall be open in the proceedings taken herein, its correctness or its validity shall not be questioned by the first respondent." 13.During the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CE, New Delhi - 1994 (72) E.L.T. 315. The Revenue took up the matter in appeal before the Supreme Court (Civil Appeal No. 9286-90 of 1995 which was dismissed on merits on 29-3-96 [1997 (91) E.L.T. A88 (S.C.)]. Review petition was also dismissed on 1-8-96. 16.It is in this background we have to consider the issues referred to us. At the risk of repetition we may emphasize the position that the issues are to be decided not on the basis of interpretation of Rule 5 going by its language or the precedents but on the interpretation given by the D.G. in his order dated 10-4-86. Learned Counsel for the assessee places great emphasis on the finding as summed up in Paragraph 18.1 of the order dated 10-4-86. He submits that clause (c) of 18.1 specifically holds that the assessable value(s) of the cigarettes has to be determined in accordance with the provisions of Rule 5 of the Central Excise (Valuation) Rules, 1975 (13.1). According to him so long as no different interpretation has been given by the D.G. to Rule 5 when he holds that assessable value has to be determined in accordance with Rule 5, there can be only one meaning to the direction namely the meaning obtained from the clear langu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rightly, this decision was not followed by the Tribunal as an authority on this issue as can be seen from 1991 (52) E.L.T. 59 - CCE v. VST Industries where it was being held that the additional consideration has to be added to the price. This decision was approved by the Supreme Court. A similar view was taken by the Tribunal in 1994 (72) E.L.T. 315 - ITC Ltd. v. CCE, New Delhi which was also affirmed by the Apex Court. Law has been thus settled by the Supreme Court. It is in this background, the appellant contended that the Tribunal shall not give an interpretation to the order dated 10-4-1986 which would militate against the legal principle. In support of the above contention the learned Counsel for the appellant placed reliance on a decision of the Supreme Court - [1995 (75) E.L.T. 24 (S.C.) = 1995 (1) SCC 251] Ravinder Singh v. Phool Singh and Another. It was held therein that the order of the Supreme Court cannot and should not be construed in a manner inconsistent with the provisions of the statute. The Court could not have contemplated passing an order contrary to the provisions of the statute. 18.According to the appellant, the department also understood the scope of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edings. 20.When we go through the order dated 10-4-86 we find that at no place the D.G. has posed specifically an issue whether the additional consideration has to be added to the assessable value or to the price. On the other hand, the tenor of the discussion all through the order is that the assessable value has to be arrived at strictly in accordance with Rule 5. There is also no finding by the D.G. that on an interpretation of Rule 5 the additional consideration has to be added to the assessable value and not to the price. In Paragraph 18.1 of the order where the D.G. has entered specific findings on the different issues, there is no direction that the additional consideration has to be added to the assessable value. On the other hand, clear indication is to the effect that additional consideration has to be added to the price. In this background we have to examine the contention of the Revenue that in the light of certain observations in the discussion portion of the order one has to come to the conclusion that the D.G. has taken the view that the additional consideration has to be added to the assessable value and not to the price. 21.In clause (c) of Para 18.1 the D.G. hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ; Bank charges and interest (including normal interest earned on the security deposits)." The above would show that in the show cause notice itself the proposal of the Department was to add the expenses incurred by the WDs to the price to arrive at the assessable value of the cigarettes. Paragraph 45 of the show cause notice dated 8-12-78 reads as follows : "45. M/s. ITC should, therefore, also show cause to Collector, Central Excise, Sarvodaya Nagar, Kanpur, as to why the deductions claimed by them in the price lists referred to above towards the alleged post manufacturing expenses should not be disallowed and further, why the elements/money value of additional consideration as discussed above, should not be added to their said ex-factory prices for arriving at the assessable value under Section 4 of the Act read with Rules 5 and 7 of the Valuation Rules. In Paragraph 46 of the corrigendum issued by the Department on 13-9-85 show cause notices dated 8-12-78 and 29-1-79, also the assessee was directed to show cause as to why the deductions claimed by them in their price lists relating to the period from 1-10-75 to 28-2-83 should not be disallowed and further why the elements a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e DG observed that in the light of the legal position expounded by the Supreme Court in the Bombay Tyres International Ltd. interest charges are required to be added to the assessable value. But in Para 14.3.8 while discussing the decision of the Supreme Court in Punjab Distilling Industries v. C.I.T. - AIR 1959 SC 346, the DG refers to the principle that security deposit was actually a part of the consideration for sale and, therefore, part of the price of what was sold. In the same paragraph at one place he uses sale value for meaning sale price and ultimately he holds that the interest earned on the security deposits shall be added for computing the correct assessable value. There is no direction here also to add interest to the assessable value for computing the correct assessable value. 27.In Paragraph 14.3.9 discussion is relating to the rate of interest which is to be considered appropriate for the purpose of determining income from the security deposits. After referring to the argument of the Company that if at all the price is to be loaded by the amount of interest, it shall be only at the rate of 4½%, the DG holds that 12% per annum proposed in the show cause notice was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be equal to that price. To illustrate, if the flowback or the money consideration was Re. 1.00 and the excise duty was 300%, the additional excise which could be claimed under Rule 5 at the most would be 75 paise. But the department has made a claim of Rs. 3.00 @ 300% of Re. 1.00. This is four times the maximum permitted and has resulted in an absurd position. For instance, in the above example, the sale price of cigarettes was Rs. 4.00, the company had already paid Rs. 3.00 as excise duty on the basis of assessable value of Re. 1.00. The allegation now is that they have received Rs. 4.00 as the price as also the monetary advantage of Re. 1.00 spent by the WD for and on behalf of the company. The Revenue now demands that on the extra amount of Re. 1.00 allegedly spent by the WD, the company must pay Rs. 3.00 as excise. On this basis, the company has received Rs. 4.00 in cash and the alleged benefit of Re. 1.00 totalling Rs. 5.00. But it is asked to pay excise duty of Rs. 3.00 (on the alleged flowback of Re. 1.00) in addition to the already assessed excise duty of Rs. 3.00 totalling Rs. 6.00 on an admitted consideration of Rs. 4.00 and on alleged consideration of an additional Re. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessable value. According to the Revenue, the concluding sentence of Para 15.2 would show that the finding of the DG is that the additional money value consideration has to be added to the assessable value. 30.We find it difficult to accept the above contention. According to us the word value has been used by the D.G. in the concluding sentence of the paragraph to mean price. On the other hand, if the word value is to be taken as assessable value, then the conclusion is totally against the reasoning and discussion in the entire paragraph. It is also against the final direction given in sub clause (e). 31.Apart from the above, we are of the view that in the light of the settled position regarding interpretation of Rule 5, it requires much more than certain stray observations in the order of the D.G. to persuade us to hold that he had, as a matter of fact, held that the additional consideration has to be added not to the price but to the assessable value. This is so especially in view of the direction in the show cause notice to the assessee, namely to show cause why additional consideration shall not be added to the price in order to arrive at the assessable value. 32.A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Calcutta meeting. According to him the Principle as determined in the order dated 10-4-86 by the D.G. was 'vividly discussed' in the meeting held in Calcutta under the Chairmanship of Principal Collector of Central Excise and on the basis of the discussions at that meeting the mode of working out the demand was deliberated "in depth". It was on that basic, according to him, the demand of Rs. 80,30,20,263.55 was worked out and served on the appellant. This statement would clearly show that the Collector (Appeals) had also taken the discussions at Calcutta meeting as one binding on all parties in the light of the order dated 10-4-86. The only mistake committed by him was the one relating to the quantum of the amount demanded. Pursuant to the Calcutta meeting the demand was only to the extent of Rs. 1.88 crore. 34.In view of the stand taken by the Revenue before us that it is not contending that on a proper interpretation of Rule 5 additional consideration flowing back to the assessee had to be added to the assessable value and not to the price, we are not referring to all the decisions relied on by the appellant in support of its contention. But a reference to the assessee's own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncerned, the finding of the D.G. was that the expenditure incurred by the wholesale dealer on the advertisement and sale promotion shall be added for computing the assessable value. So also the interest including that on security deposit made by the wholesale dealers. So long as a portion of the margin is found not liable to be added we cannot countenance the argument of the Revenue that as per order passed by the D.G. the entire margin has to be added. The legal position is also not in favour of the contention raised by the Revenue - 1988 (33) E.L.T. 485 (T) - CCE, Bangalroe v. R. GAC Electrodes (P) Ltd. 37.Coming to the third question referred we find that no direction had been given by the D.G. in his order dated 10-4-86 in the matter of disallowance of PME claimed by the assessee In respect of the clearances between October 75 and February 83 the assessee had claimed certain PME incurred by it as deduction from exfactory price in its price lists. Subsequently, the law relating to claim for deduction of PME had been settled by the Supreme Court in Union of India v. Bombay Tyre International Ltd. - 1983 (14) E.L.T. 1896 (SC). Therefore, the assessee is not entitled to claim suc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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