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CASE NO.: Appeal (civil)  5317-5318 of 2002

PETITIONER: Paper Products Ltd

RESPONDENT: Commnr. of Central Excise, Mumbai

DATE OF JUDGMENT: 12/07/2007

BENCH: Dr. ARIJIT PASAYAT & LOKESHWAR SINGH PANTA

JUDGMENT: J U D G M E N T  

(With Civil Appeal No.7098 of 2005)

Dr. ARIJIT PASAYAT, J.

1.      Challenge in these  appeals is to the orders passed by the  Customs, Excise and Gold (Control) Appellate Tribunal, West  Regional Bench at Mumbai (in short the ’CEGAT’) and  Customs, Excise and Service Tax Appellate Tribunal, West  Zonal Bench at Mumbai (in short the ’CESTAT’).  

2.      As common points are involved, they are taken up  together for disposal.           3.      So far as Appeal Nos.5317-5318/2002 are concerned  they relate to order passed by CEGAT in Appeal No.E/566/02- Bom. Appeal No.5318 of 2002 relates to rejection of the  application for rectification filed. Appeal No.7098 of 2005  relates to Appeal No.E/3617/04-MUM. For convenience the  factual position in Civil Appeal Nos.5317-18 is noted:

4.      Paper Products Ltd. the appellant was engaged in the  manufacture of printed flexible packaging laminates and  pouches. The printing of these goods is done by means of  printing cylinders. These cylinders were being manufactured  by Helio Gravure, Thane, a division of Paper Products Ltd. The  Department investigation led it to believe that the charges for  making printing cylinders were recovered by the appellant  separately from the buyers of that product and did not include  these charges in the assessable value of the laminates  pouches etc. Notice dated 1.2.1994 was issued demanding  duty of Rs.43.59 lakhs which was alleged to have been short  levied. The Collector passed orders in December 1994  confirming the demand and imposed penalty. The assessee  challenged the order to the Tribunal. The Tribunal in its order  reported in Paper Products Ltd. v. Collector of Central Excise,  Bombay (1999 (110) ELT 671) held that the charges that were  paid for printing cylinders were includible in the value of the  pouches and other such goods. It also held with regard to the  service charges that the appellant recovered from its buyers  "the activity for which the charges recovered must be regarded  as an activity essential to enable the appellant to print the  laminated cartons which are the appellant’s final products and  in this view also, the charges collected would be part of the

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assessable value."  The Tribunal also noted that the appellant  before it "had no case before the Adjudicating Authority that  the cost of cylinders had been amortized to any extent" by the  appellant. A further contention was raised before the Tribunal  that duty chargeable on the finished product during a  substantial part of the disputed period was nil either on  account of the order of the Board dated 5.5.1999 or exemption  notification 49/87 dated 1.3.1987. The Tribunal noted that  those contentions had not been raised before the adjudicating  authority observed that these stands would require factual  investigation and felt that the controversy should be decided  by the adjudicating authority and, therefore, remanded the  case to the adjudicating authority for deciding on the two  issues what is the correct rate of duty chargeable and correct  amount of differential duty payable and the correct amount of  penalty imposable. The Commissioner passed orders with  regard to the remand proceedings by order dated 31.10.2001.  The said order was challenged before CEGAT.

5.      In his order, the Commissioner took the stand that the  order of the Tribunal, and the order passed by the bench on a  subsequent application for rectification of mistake in that  order, made it clear that the question of amortization was not  to be considered by him in the remand proceedings. He  examined the applicability of notification 49/87 and the order  of the Board dated 5.5.1989 and found that neither of them  would apply. The assessee had not been shown fulfillment of  the condition subject to which the exemption of notification  49/87 was available and the circular of the Board did not  relate to the disputed period.

6.      The contention of the counsel for the appellant before  CEGAT was that the Commissioner should have taken into  account the plea that the casting had been amortized. He  relied upon the decision of the Tribunal in Flex Industries Ltd.  v. Commissioner of Central Excise, Meerut (1997 (91) ELT  120). According to CEGAT, that was not of any assistance to  the appellant. The decision of the Tribunal which remanded  the matter was clear and specific as to the terms of the  remand. The Tribunal noted in paragraph 6 that the stand  now taken before it, that the cost of the cylinder had been  amortized in the price of the packing material was totally  contradictory to the stand taken before the adjudicating  authority, in the absence of any material placed before him to  support the present stand. It said "in these circumstances, it  follows that the amount collected under separate invoices  represented, as admitted before the Adjudicating Authority, a  part of the cost of printing cylinder".  While it noted in  paragraph 8 in accordance with the view taken in Flex  Industries case (supra) that the cost of Cylinder must be  reflected in the assessable value of the final product over a  considerable period by amortizing the most, it stressed again  that the appellant before it had no case before the adjudicating  authority and the costing of cylinder had been amortized. It  specifically stated in paragraph 12 the matter was being  remanded to the adjudicating authority for passing a fresh  order after deciding the two aspect, what is the correct rate of  duty, if any, chargeable, the correct amount of differential  duty, if any payable, and the correct amount of penalty.  

7.      The CEGAT found that the terms of remand were specific.  The order of remand so far as relevant reads as follows:

       "The last contention urged is that during  a substantial part of the disputed period, duty

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chargeable on the finished products of the  appellant was nil rate of duty either on  account of Board order, dated 5.5.1989 or on  account of exemption Notification No.49/87,  dated 1.3.1987. These contentions have not  been raised before the Adjudicating Authority  who, therefore, did not have the opportunity to  apply his mind in this regard. Though these  contentions have not been raised before the  lower authority, we are inclined to grant the  appellant permission to raise these  contentions at this stage. Consideration of  these contentions would require reference to  the approved classification lists and the  description of the goods covered by the Board’s  order and the notification and also require  factual investigation. In this view, this  controversy should be decided by the  Adjudicating Authority."                   

8.      Learned counsel for the appellant submitted that the  remand was an open one and not a limited one. Therefore, the  view expressed is not correct.  It was submitted that the  penalties imposed were higher.  

9.      Learned counsel for the respondents supported the  impugned orders.       10.     A bare reading of para 10 makes the position clear that it  only related to the particular plea and no other plea which was  covered by para 8. The scope of limited remand has been  highlighted by this Court in Mohan Lal v. Anandibai and Ors.  (AIR 1971 SC 2177). It was observed at para 9 as follows:

"9. Lastly, counsel urged that now the suit has  been remanded to the trial Court for  reconsidering the plea of res judicata, the  appellant should have been given an  opportunity to amend the written statement so  as to include pleadings in respect of the  fraudulent nature and antedating of the gift  deed Ext. P-3. These questions having been  decided by the High Court could not  appropriately be made the subject-matter of a  fresh trial. Further, as pointed out by the High  Court, any suit on such pleas is already time- barred and it would be unfair to the plaintiff- respondents to allow these pleas to be raised  by amendment of the written statement at this  late stage. In the order, the High Court has  stated that the judgments and decrees and  findings of both the lower courts were being  set aside and the case was being remanded to  the trial Court for a fresh decision on merits  with advertence to the remarks in the  judgment of the High Court. It was argued by  learned counsel that, in making this order, the  High Court has set aside all findings recorded  on all issues by the trial Court and the first  appellate Court. This is not a correct  interpretation of the order. Obviously, in  directing that findings of both courts are set  aside, the High Court was referring to the  points which the High Court considered and

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on which the High Court differed from the  lower courts. Findings on other issues, which  the High Court was not called upon to  consider, cannot be deemed to be set aside by  this order. Similarly, in permitting  amendments, the High Court has given liberty  to the present appellant to amend his written  statement by setting out all the requisite  particulars and details of his plea of res  judicata, and has added that the trial Court  may also consider his prayer for allowing any  other amendments. On the face of it, those  other amendments, which could be allowed,  must relate to this very plea of res judicata. It  cannot be interpreted as giving liberty to the  appellant to raise any new pleas altogether  which were not raised at the initial stage. The  other amendments have to be those which are  consequential to the amendment in respect of  the plea of res judicata."

11.     Above being the position, there is no merit in these  appeals which are dismissed, so far as levy of duty is  concerned. However, considering the factual scenario the  penalty is reduced to Rs.5 lakhs from Rs.10 lakhs.  

12.     So far as appeal No.7098 of 2005 is concerned, the  primary stand is that the Commissioner at Hyderabad has  accepted the stand of the assessee-appellant. But it appears in  the instant case the admitted position was that there is a  separate charge. CESTAT’s order makes the position clear. The  relevant portion of CESTAT order reads as follows:

ii) With reference to show cause notice dated  23.6.1994, the reply vide letter dated 26 July  1994 (Page 159). It was stated that the printing  cylinders are manufactured by them in their  factory i.e. M/S. Hello Gravure out of different  materials and are incorporated with their  various customers’ motifs or designs. The  printing cylinders cannot be considered as an  input of flexible packaging laminate and its  value cannot be included in the value of the  flexible packaging laminate.

iii) In respect of show cause notice dated  5.10.1994 vide their letter dated  14.11.1994  (Page 164) it was stated that the charges for  making printed cylinders are collected  by  them for M/s. Helio Gravure to whom these  charges accrue and are shown in their books.  They cannot obviously collect these charges in  their invoices as these charges do not form  part of cost of flexible packaging but they are  part of cost of printing cylinders. They further  stated the costs for artwork design and  development of cylinders, which were  reimbursed to them by their customers and  accrue in the books of M/s. Helio and are  incurred by their customers and not by them  and therefore these costs are not to be  included in the manufacturing cost.                  xx              xx              xx              xx

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vi) In respect of show cause notice dated  8.9.1995, vide reply dated 26th September,  1995 (Page 173) they submitted that cost of  making printed cylinder is divided into two  types of costing:

a) Cylinder per se, which is made of  metal i.e. copper, is the property of  M/s Helio Gravure. The cost of the  metal cylinder is amortized in the  flexible packaging laminate products.

b) Amortization is also done for the  Artwork and the design work that are  incorporated in the Cylinder."

13.     It is to be noted that the Commissioner had adjudicated   23 show cause notices covering the period from 7.9.1993 to  31.3.2000. Earlier these notices were adjudicated vide Order  in Original No.31/2001 Commr.M VI dated 3.10.2001 against  which Appeal No.E/568/02 Mum was filed. The appeal was  disposed of by the CEGAT with the following observations:

"The counsel of the appellant contends that  identical issue, the inclusion in the cost of  manufacture of finished goods i.e. printed  plastic sheets, the cost of cylinders and a part  recovery from the buyers, has already been  considered by the Tribunal in Flex Industries  Limited Vs. CCE (1997 (91) ELT 120). He says  that the Commissioner has not considered the  cost sheets duly attested by the cost  accountant, which was produced in support of  its contention. We have seen copies of these  cost sheets. While the Commissioner has  concluded in his order that no evidence of  amortization was furnished before him, it  appears that he has not considered these cost  sheets. We therefore propose to remand the  matter to him for this purpose. In this process,  the appellant shall be entitled to address the  Commissioner on the issues raised in the  notices and advance arguments in support.  The department is also at liberty to advance  submissions before the Commissioner. The  Commissioner shall thereafter pass orders on  the issues raised in the notices in accordance  with law."  

14.     The stand seems to be that separate charge was made  after Flex Industries case. The finding of CESTAT  is to the  following effect:

       "From the perusal of various replies to  the show cause notice submitted by the  appellant, as pointed out by the Jt. CDR, it is  apparent that the appellant has changed its  stand from time to time. At times a plea has  been taken these charges are not includible  due to the fact these are reimbursed by the  customers being the printing cylinder cost,  and at times plea has been taken that those  charges are not towards cost of the cylinders  but for maintenance of printing cylinder."         

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15.     That being so, the demand as levied does not suffer from  any infirmity. But so far as penalty under Rule 173Q is  concerned the same appears to be on the higher side.  Considering the background facts the quantum of penalty is  reduced from Rs.1 crore to Rs.50 lakhs.

16.     The appeals are disposed of accordingly.