REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 2694 OF 2006

Aurangabad Electricals (P) Ltd.                   ..….Appellant

Versus

The Commissioner of Central Excise and Customs,  Aurangabad       ..….Respondent

WITH

                  CIVIL APPEAL NOS.2420 OF 2006, 2693 OF 2006  AND 2691 OF 2006

J U D G M E N T

H.L. Dattu, J.

1) In this batch of civil appeals, the appellants have challenged the  

common order passed by the Customs, Excise and Service Tax  

Appellate  Tribunal,  West Zonal  Bench at Mumbai in Appeal  

No.A/2287-2290/WZB/MUM/2005/C-III/EB dated 20.12.2005.

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2) By consent of the learned counsel, we have taken Civil Appeal  

No.2694 of 2006 as the lead case.

3) M/s. Aurangabad Electricals Ltd. (for short ‘M/s. Aurangabad  

EL’) are appellants in this civil appeal.  They are engaged in the  

manufacture  of  Motor  Vehicle  Parts  namely  ‘Magneto  

Assembly’ in their factory at Aurangabad.  For manufacture of  

their final product, viz. Magneto Assembly, they purchase some  

of the inputs, namely, ‘Pick-up Coil’, com bush, charging coil  

etc. from M/s. Bajaj Auto Ltd. (for short ‘M/s. Bajaj’) on which  

appropriate  duty  is  paid  by  M/s.  Bajaj.   The  appellants  had  

submitted price declarations applicable to Magneto Assembly,  

which were accepted by the department.  

4) The main issue involved in these appeals  is  the valuation of  

Magneto  Assemblies  cleared  by  the  appellants  –  M/s.  

Aurangabad EL to M/s. Bajaj and consequent short payment of  

duty thereon  on account  of  not  taking into  account  the  total  

landed cost of the inputs supplied by M/s. Bajaj.

5) The Commissioner, Central Excise and Customs, Aurangabad  

(for  short  ‘the  Commissioner’),  issued  a  show  cause  notice  

dated  27.04.2001,  inter-alia  alleging  that  the  appellants  have  

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undervalued  the  Magneto  Assemblies  supplied  to  M/s.  Bajaj  

during  the  period  from  April  1996  to  December  2000.  

Accordingly, the appellant, M/s. Bajaj, Mr. Anil Mali, CEO of  

M/s.  Aurangabad  EL  and  Mr.  Ranjit  Gupta,  Vice-President  

(Materials) of M/s. Bajaj were called upon to show cause as to  

why the differential duty specified in the notice should not be  

demanded  and  recovered  under  Section  11A  of  the  Central  

Excise  Act,  1944 (for  short  ‘the  Act’)  and why interest  and  

penalty should not be imposed under Sections 11AB and 11AC  

of the Act.  The show cause notice was also issued to Mr. Anil  

Mali, Chief Executive Officer of the appellant, M/s. Bajaj and  

Mr. Ranjit Gupta of M/s Bajaj were asked to show cause as to  

why penalty should not be imposed under Rule 209 A of the  

Central Excise Rules, 1944 (for short ‘the Rules’).

6) The  appellants  had  replied  the  show cause  notice,  inter-alia,  

contending that they have not undervalued their final products  

namely,  Magneto  Assembly,  since  the  same  are  cleared  in  

wholesale  trade  in  accordance  with  proviso  (i)  to  Section  

4(1)(a)  of  the  Act.   They  had  also  contended  that  they  had  

cleared the Magneto Assemblies in accordance with approved  

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price declarations and finalization of RT 12 return assessment.  

Therefore,  show  cause  notice  and  the  demands  raised  were  

barred by limitation under Section 11A(1) of the Act.  The co-

noticee, more or less on the same lines as the appellants, had  

objected to the show cause  notice  and had further  submitted  

that  the  department  has not  produced any proof  that  the  co-

noticee was anyway connected with the alleged under-valuation  

of  inputs  which  were  cleared  by  M/s.  Bajaj  on  payment  of  

appropriate duty and it was also contended that the entire notice  

was  based  on  assumption  and presumption  and,  therefore,  it  

could not be established that the co-noticee was concerned with  

the exercisable  goods which he knew or had reason to believe  

were liable for confiscation.  It was further contended that since  

there  was  no  undervaluation  of  excisable  goods,  no  penalty  

could be imposed by invoking Rule 209A of the Rules.

7) After adjudication,  the Adjudicating Commissioner passed an  

Order-in-Original No.04/CEX/2002 dated 25.01.2002, inter-alia  

holding  that  the  inputs  supplied  to  appellants  by  M/s.  Bajaj  

were  under-valued,  and  consequently,  Magneto  Assemblies  

supplied  to  M/s.  Bajaj  have  been  under-valued  leading  to  

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evasion of duty.  It was also held that M/s. Bajaj was incurring  

expenditure on account of freight/insurance, loading/unloading  

and handling charges etc. which, along with profit margins, had  

not been included in the landed cost of the inputs supplied to  

appellants.  Further,  M/s.  Bajaj  were  supplying  

drawings/designs/specifications  free of  cost  to  appellants  and  

upto 20% of the production cost of goods manufactured which  

were sold back to M/s. Bajaj, was being incurred by M/s. Bajaj.  

The  Adjudicating  Commissioner,  accordingly,  confirmed  the  

differential duty demand of `84,27,889/- under Section 11A(2)  

of  the  Act  read with Rule 9(2)  of  the  Rules,  and penalty  of  

`69,72,104/- under Section 11AC of the Act.  The Adjudicating  

Commissioner  also imposed a penalty of  `5,00,000/- on M/s.  

Bajaj,  as  well  as  personal  penalty  of  `50,000/-  on  Mr.Ranjit  

Gupta, Vice-President of M/s. Bajaj and `25,000/- on Mr. A.R.  

Mali, Chief Executive Officer of M/s. Aurangabad EL, under  

Rule 209A of the Rules. The Adjudicating Commissioner also  

directed  the  Deputy  Commissioner,  Central  Excise,  

Aurangabad II division to quantify the interest  payable under  

Section 11AB of the Act and issue appropriate demand notice.  

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8) The appellants  and other co-noticees,  being aggrieved by the  

aforesaid order, preferred appeals before the Customs, Excise  

and Gold (Control) Appellate Tribunal (for short ‘the Tribunal’)  

under Section 35B of the Act. The Tribunal, by its order dated  

20.12.2005  has  remanded  the  matter  to  the  Adjudicating  

Commissioner for re-computation of excise duty to be levied in  

the light of the decision of this Court in the case of  CCE, Pune  

v. Dai Ichi Karkaria Ltd., 1999 (84) ECR 4 (SC).  In so far as  

the penalties imposed on the appellants, the Tribunal being of  

the view that  the same is  excessive,  has reduced the penalty  

from  `69,72,104/- to  `10 lakhs, and in so far as the penalties  

imposed  on  M/s.  Bajaj  and  the  other  two  appellants,  the  

Tribunal has confirmed the same.  

9) We have heard Mr. Joseph Vellapally, learned senior counsel  

for the appellants and Mr. V. Shekhar, learned senior counsel  

for the Revenue.  We do not propose to notice the submissions  

made by the learned senior counsel in view of the final order  

that we intend to pass in these appeals.  

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10) The main allegation against the appellants  in the show cause  

notice issued was that the appellants are the manufacturers of  

Magneto Assemblies and are receiving inputs from M/s. Bajaj,  

which is the primary consumer of their goods at under-valued  

landed  cost  by  not  including  the  element  of  landed  cost  of  

inputs  incurred  on  account  of  Sales  Tax,  Octroi,  Freight,  

Insurance,  loading,  unloading  and  handling  charges.  The  

appellants are further undervaluing the clearances effected by  

them to M/s. Bajaj since the appellants are already receiving the  

price compensation in terms of inputs at reduced landed cost  

and  thereby  they  are  aiding  each  other  for  mutual  business  

interest  so  that  the  production  cost  by  both  of  them kept  at  

minimum and central excise duty is discharged at a lower value.

11) The learned senior counsel for the assessee would submit that  

the adjudicating commissioner and the Tribunal has non-suited  

the appellants mainly on the ground that the appellants and M/s.  

Bajaj have neither supplied the details of final product and the  

landed cost of the material supplied during investigation nor in  

their reply to the show cause notice.  It is also observed that the  

appellants  did  not  produce  any  material/data  as  to  actual  

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expenses  incurred  on  account  of  freight,  loading,  unloading  

charges, profit margin etc.  The learned senior counsel would  

submit that the appellants could have supported their defence  

pleaded in their objections filed to the show cause notice by  

producing relevant  documents  including the certificate  issued  

by  its  chartered  accountant  but  due  to  unavoidable  and  

unforeseen circumstances, they could not produce the same. It  

is  submitted  that  this  lapse  should  not  be  put  against  the  

appellants and non-suit them only on this ground.  In support of  

his submission, he would draw our attention to the Certificate  

issued by the Chartered Accountant in respect of valuation of  

normal price of Magneto Assemblies manufactured and sold by  

M/s. Aurangabad EL to M/s Bajaj in wholesale, which was in  

support  of  costing.  The  said  Certificate  issued  by  Mukund  

Mankar  and  Co.,  Chartered  Accountant,  points  out  freight  

charges incurred by M/s. Aurangabad EL for getting material  

from Bajaj  to  M/s.  Aurangabad  EL,  as  well  as  loading  and  

unloading charges, consumables overheads and profit. If such  

payment was made,  then the whole premises on which show  

cause notice issued pales into insignificance. The appellant had  

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produced the Certificate along with the other papers filed before  

the Tribunal, may be after the appeals were heard and reserved  

for  judgment.   In  the  normal  course,  we  would  not  have  

accepted either the submission of the learned senior counsel or  

we would have taken note of the Certificate.  Keeping in view  

the  well  settled  principles  laid  down  by  this  Court  that  

technicalities should not defeat rendering of complete justice to  

a litigant, we think it appropriate to remand the matter to the  

Tribunal to verify and consider whether the Certificate which is  

already placed on record by the appellant, would assist them in  

support of their defence.

12) In view of the above, we allow these appeals and set aside the  

order passed by the Tribunal and remand the matter back to the  

Tribunal to look into the certificate issued by Mukund Mankar  

and  Co.,  Chartered  Accountant  and  to  determine  if  M/s.  

Aurangabad  EL  had  actually  incurred  the  freight  charges,  

loading  and  unloading  charges,  consumable  overheads  profit  

etc. and whether in the light of this, any of the orders made by  

the  Adjudicating  Authority  would  stand.  Since  we  are  

remanding the matter for fresh disposal, we also permit both the  

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parties to urge such contentions which are available to them,  

including  the  submissions  made  before  us.   In  the  facts  and  

circumstances of the case, parties are directed to bear their own  

costs.    

        ……………………………J.                                                                             [ D.K. JAIN ]

……………………………J.                                                                        [ H.L. DATTU ]

New Delhi, November 12, 2010.

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