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CASE NO.: Appeal (civil)  4975 of 2002

PETITIONER: Commnr. of Central Excise, Allahabad

RESPONDENT: M/s Somaiya Organics (India) Ltd

DATE OF JUDGMENT: 12/11/2007

BENCH: Dr. ARIJIT PASAYAT & D.K. JAIN

JUDGMENT: J U D G M E N T

CIVIL APPEAL NO. 4975 OF 2002

Dr. ARIJIT PASAYAT, J.

1.      Challenge in this appeal is to the judgment of the  Customs, Excise, and Gold (Control) Appellate Tribunal, New  Delhi  (in short the ’CEGAT’) allowing the appeal filed by the  respondents (hereinafter referred to as the ’assessee’).  Before  the CEGAT challenge was to the order passed by the  Commissioner of Central Excise, Allahabad.  

2.      Factual background in a nutshell is as follows:

                The respondents are having two manufacturing units- a  distillery at Captainganj and a chemical factory at Barabanki.  In their distillery the respondents manufacture Ethyl Alcohol- Denatured (for short ’SDS’). The stock of SDS is transferred to  their Barabanki unit where it is wholly consumed in the  manufacture of specified chemicals. Under the order of the  adjudicating authority the differential duty demand of  Rs.14,89,61,104.00 was confirmed on the entire quantity of  SDS transferred from Captainganj unit to Barabanki unit  during the period  from April 1994 to December 1999.  Aggrieved by the above, the assessee filed the appeal before  CEGAT.   

       Show cause notices were issued for different periods as  follows:

S.No.   Show cause notice No. Dt. Period       Differential duty

1.      C.No.VI(MP) Demand(12) ADJ      April, 94       Rs.14,59,49,158.65         -116/98/3149 dt.26.3.99         to Feb., 99         -SCN No.12/Commnr.-AUD-         99/26.3.99

2.      C.No.20 CE/Somaiya/SBZ/99   March, 99 to        Rs.25,12,528/-         /550 dt. 31.8.99                         July, 99

3.      C.No.20-CE/Somaiya/SBZ/61       August, 99 to    Rs.4,99,417/-         dt. 18.1.2000                           Dec, 99

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3.      Excise duty was levied on SDS for industrial  consumption w.e.f. 1.3.94. The respondents were paying  excise duty at the time of transferring the stock of SDS to their  Barabanki unit and modvat credit of the duty paid was availed  in the Barabanki unit. The assessable value had been arrived  at by the respondents on costing basis in terms of Rule 6(b)(ii)  of the Central Excise Valuation Rules, 1975 (in short  ’Valuation Rules’) during the relevant period. In the show  cause notice, it was alleged that the assessable value has to be  fixed in terms of Rule 6(b)(i) and not under Rule 6(b)(ii). It was  then proposed to fix the assessable value on the basis of the  price at which SDS was sold by the following manufacturers  for different years:-

Period  Other manufacturers    Applicable date    Value                  Messrs                                                  per ltr./Bl.

1994-95 Saraya Distillery               13.6.1994               Rs.20.00                 Gorakhpur

1995-96  -do-                                   20.6.1995               Rs.12.90

1996-97  -do-                                   10.3.1997               Rs.14.00

1997-98  -do-                                   20.11.1997      Rs.14.75

4/98 to 2/99            Kisan Sahkari Chini                 Mills, Ghosi                    1.12.1998               Rs.15.50

3/99 to 7/99            -do-                                    20.3.1999               Rs.14.25

8/99 to 12/99   -do-                                    10/99           Rs.14.25

 4.      Thereafter, by a corrigendum dated 14.1.2000 sale price  fixed at Rs.14.25 was corrected as Rs.15/-. On this basis, the  differential duty demand, as mentioned, was made. The  respondents contended before the adjudicating authority that  the entire quantity of SDS manufactured at its distillery is  being consumed at Barabanki unit for manufacture of  specified articles Molasses which is the major raw material for  manufacture of SDS was obtained by the respondents at  controlled rate in terms of the provision of U.P. Molasses  Control Order, 1964 but other distilleries manufacturing Ethyl  Alcohol for non-specified purposes had to purchase molasses  at market determined prices.  Therefore, there could be no  comparison  between the cost of production of SDS by the  respondents and M/s. Saraiya Distillery, one of the  manufacturers whose selling price had been relied upon in the  show cause notice. Respondents determined the assessable  value of SDS for the purpose of Section 4(1)(b) of the Central  Excise Act, 1944 (in short the ’Act’) on costing basis as it had  no sale of SDS. The cost fixation was undertaken annually on  the basis of the previous year’s Balance Sheet for determining  the value and discharge duty since the Balance Sheets are  finalised only in the month of September for the year ending  on 31st March. On receipt of the finalised Balance Sheet in  September, the value determined on the basis of the earlier  Balance Sheet was being revised. If the revision was upward,  differential duty was discharged on the increased value. The

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price declarations filed effective from 1.3.1994 along with the  questionnaire was approved by the Central Excise authorities.  With effect from 1.4.1994, when Rule 173C of the Central  Excise Rules, 1944 (in short the ’Rules’) was amended the  respondents filed the declarations under Rule 173C also.

5.       The actual value on which the respondents cleared SDS  during the period in question is as under:

1994-95                         Rs.5.85 per ltr. 1995-96 Rs.5.50 per ltr. 1996-97 Rs.5.50 per ltr. 4/97 to 11/97   Rs.8.30 per ltr. 12/97 to 11/97  Rs.12.41 per ltr. 4/98 to 3/99    Rs.13.52 per ltr. 4/99 to 7/99      RS.17.43 per ltr. 8/99 to 12/99                   Rs.17.43 per ltr.

6.      The respondents further contended that proposal in the  show cause notice to fix the assessable value on the basis of  the highest price at which one of the manufacturers sold SDS  on particular date is totally illegal. It was further contended  that for the period from April 1999 to December 1999 the  respondents had paid on a higher assessable value than what  was proposed in the show cause notice. Therefore, there is no  basis for demanding differential duty during this period. The  adjudicating authority did not accept the contentions raised  by the respondents. The Commissioner of Central Excise,  therefore, confirmed the differential duty demand of Rs.  14,89,61,104/- and imposed penalty amount equal to the duty  demand by invoking Section 11AC   

7.      Considering the rival submissions CEGAT held as  follows:         "There is no reason given by the Revenue  as to on what basis the highest price of  particular day in each year was taken into  consideration for the purpose of fixing the  assessable value in the case of the SDS cleared  by the appellant. Choice of the highest price on  a particular day will  not satisfy the  requirement of nearest ascertainable  equivalent. Section 4(1)(b) 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  determined in such manner as may be  prescribed". Therefore, even when clause (i) of  sub-rule (b) of Rule 6 is applied, the endeavour  must be to determine nearest ascertainable  equivalent. We have no hesitation to hold that  such an exercise has not been done n the  present case. The department adopting the   highest price is unsustainable in law".   

8.      It is to be noted that while revenue relies on Rule 6(b)(i) of  Valuation Rules the assessee relies on Rule 6(b)(ii). Section  4(1)(a) of the Act is applicable when the buyer is not a related  person.  Section 4(1)(b)) relates to a case where the price is not  ascertainable.  

9.      Stand of the appellant is that comparable price is  available because there were two units at Captainganj and

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Barabanki. The assessee tried to make a distinction by  submitting that the product was captively consumed.  CEGAT  appears to have taken the stand that one day high price  cannot be applied even though Rule 6(b) may apply.  There is  no dispute relating to the period from April 1999 to December  1999. For the period from April 1994 to February, 1999 the  same was covered by a show cause notice dated 26.3.1999  and for the period March 1999 it is covered by a show cause  notice dated 31.8.1999. CEGAT had come to the conclusion  that no principle has been formulated and expressly no reason  has been given. The stress is on nearly ascertainable  equivalent as the expression ’ascertainable’ means  ascertained. There may be different rates for different periods.  There may be cases where even for the periods the highest and  the average prices may be taken.  The proviso to Rule 6 (b) (i)  is relevant:

       "on the value of the comparable goods  produced or manufactured by the assessee or  by any other assessee:

       Provided that in determining the value  under this sub-clause, the proper officer shall  make such adjustments as appear to him  reasonable, taking into consideration all  relevant factors and, in particular, the  difference, if any, in the material  characteristics of the goods to be assessed and  of the comparable goods"          

10.     It appears that the CEGAT has not determined what  would be the appropriate price.  By merely discarding the price  fixed by the assessing authority the issue does not get solved.  What was required to be seen is as to whether there was any  ascertainable price and on what basis it can be ascertained.   Even for a period the highest or the average can be taken. That  has to be done on the basis of the judicial discretion of the  assessing officer which can also be decided by the appellate  authority by finding out whether there is any rationale in the  fixation done.  In that view of the matter, the approach of the  CEGAT is not legally tenable. We set aside the order of CEGAT  and remit to CESTAT, which has come in place of CEGAT, for  fresh consideration.  

11.     The appeal is allowed to the aforesaid extent.  There will  be no order as to costs.