Dismissed

Bhagwati Spherocast Pvt. Ltd. v. Ahmedabad-ii

CESTAT7 Sept 2018E/711/2009

Case brief

AI extract

What is this about?

The Tribunal upheld a customs duty demand by the Commissioner of Central Excise. It held that the amortization cost of free patterns used by the applicant must be added to the assessable value per Rule 6 of Central Excise Valuation Rules, 2000. The court rejected limitation defenses as suppression of facts justified an extended period invocation.

What did the court decide?

The impugned order confirming the differential duty demand was upheld; appeals were dismissed.

Bhagwati Spherocast Pvt. Ltd. vs Ahmedabad-ii — Customs and Excise | CESTAT (2018)

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CUSTOMS EXCISE & SERVICE TAX APPELLATE TRIBUNAL,

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West Zonal Bench, Ahmedabad

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Appeal No. E/711-713/2009-DB

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(Arising out of OIO No. 67-69/2009-AHD-II-CE/ID/COMMR-A-/AHD dated 27/02/2009 p assed by Commissioner of Central Excise-AHMEDABAD-II)

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Bhagwati Spherocast Pvt. Ltd., Smt. M P Bhagwati Dinesh T Soni - Applicant

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Vs.

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C.C.E. - Ahmedabad-ii - Respondent

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Represented by: For the applicant : Shri Amal Dave, Advocate For the respondent : Shri Amit Kr. Mishra, Dy. Commr. (AR)

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CORAM:

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Hon’ble Mr. Ramesh Nair, Member (Judicial) Hon’ble Mr. Raju, Member (Technical)

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Date of Hearing/Decision: 07/09/2018

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ORDER NO. A/12109-12111 / 2018

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Per: Ramesh Nair

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The brief facts of the case are that the appellant are engaged in the manufacture of raw casting. For the purpose of manufacture of raw casting, they have got some patterns manufactured on job work basis from the job worker and paid for such pattern to the job worker. Subsequently, said patterns were sold to the buyer of raw casting. The case of the department is that the patterns which are owned by the buyer of the goods were since used for manufacturing goods sold to the buyer, the amortization cost of the pattern so used in the manufacture of raw casting should be included in the value of the raw casting. Accordingly, the differential duty demand was raised. The Adjudicating Authority by applying Rule 6 of Central Excise Valuation Rules, 2000 included the value of amortized cost of pattern in the value of final product manufactured and sold by the appellant. Accordingly, differential duty demand was raised which was upheld by Commissioner (A).

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E/711-713/2009-DB

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Shri Amal Dave, Ld. Counsel appearing on behalf of the appellant. He submits that as per the CA certificate submitted by the appellant amortized cost of pattern already included in the value of the finished goods manufactured and sold by the appellant. Therefore, there is no further addition in the assessable value as required. He also made a submission on limitation. He submits that both the Show Cause Notices involved in the present case were issued by invoking extended period. He submits that the issue was raised during audit of the account of the appellant. The sale of patterns was taken from balance sheet of the appellant. Therefore, there is no suppression of fact on the part of appellant. He further submits that the first Show cause notice was issued for the period 2004-05, 2005 - 2006 on dated 22.10.2007. Thereafter, the second Show cause notice was issued for the period 2002-03 & 2003-2004 on 16/11/2007 which also invoked extended period. As per the judgment of Hon’ble Supreme Court in the case of Nizam Suga r Factory 2006 (197) ELT 465, in the case of second Show Cause Notice, extended period cannot be invoked. He also placed reliance on the judgment in their own case passed by this Tribunal vide order no. A/11141-11142/2015 dated 30/07/2015.

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Shri Amit Kr. Mishra, Ld. Dy. Commr. (AR) appearing on behalf of the Revenue reiterates the finding of the impugned order.

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We have carefully considered the submission made by both the sides and perused the records. We find that the issue on merit to be decided by us is whether the amortization cost of pattern is to be included in the assessable value of the final product manufactured and sold by the appellant and whether the demand is hit by limitation. As regard the first issue on merit, we find that there is no dispute in the fact that the appellant have used the pattern which belong to the buyer of the goods, which means the appellant have manufactured final product by the use of patterns, supplied free of cost

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E/711-713/2009-DB

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by the buyer to the appellant. In such a case, Rule 6 of Central Excise

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valuation Rules, 2000 comes into play which reads as follows:

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“RULE 6. Where the excisable goods are sold in the circumstances specified in clause (a) of sub section (1) of section 4 of the Act except the circumstance where the price is not the sole consideration for sale, the value of such goods shall be deemed to be the aggregate of such transaction value and the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee.

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Explanation 1 - For removal of doubts, it is hereby clarified that the value, apportioned as appropriate, of the following goods and services, whether supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale of such goods, to the extent that such value has not been included in the price actually paid or payable, shall be treated to be the amount of money value of additional consideration flowing directly or indirectly from the buyer to the assessee in relation to sale of the goods being valued and aggregated accordingly, namely : -

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i. value of materials, components, parts and similar items relatable to such goods;

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ii. value of tools, dies, moulds, drawings, blue prints, technical maps and charts and similar items used in the production of such goods;

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iii. value of material consumed, including packaging materials, in the production of such goods;

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iv. value of engineering, development, art work, design work and plans and sketches undertaken elsewhere than in the factory of production and necessary for the production of such goods.

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Explanation 2. - Where an assessee receives any advance payment from the buyer against delivery of any excisable goods, no notional interest on such advance shall be added to the value unless the Central Excise Officer has evidence to the effect that the advance received has influenced the fixation of the price of the goods by way of charging a lesser price from or by offering a special discount to the buyer who has made the advance deposit.

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Illustration 1. - X, an assessee, sells his goods to Y against full advance payment at Rs. 100 per piece. However, X also sells such goods to Z without any advance payment at the same price of Rs. 100 per piece. No notional interest on the advance received by X is includible in the transaction value.

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Illustration 2 . - A, an assessee, manufactures and supplies certain goods as per design and specification furnished by B at a price of Rs. 10 lakhs. A takes 50% of the price as advance against these goods and there is no sale of such goods to any other buyer. There is no evidence available with the Central Excise Officer that the notional interest on such advance has resulted in lowering of the prices. Thus, no notional interest on the advance received shall be added to the transaction value.”

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As per the above Rule 6, the consideration equal to the value of the goods supplied free of cost has to be included in the assessable value. Therefore, as per the explicit provision, we are of the view that the amortization cost of pattern was rightly included by the lower authority in the assessable value of final product. The submission of the Ld. Counsel,

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E/711-713/2009-DB

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that as per Chartered Accountant certificate, the amortized cost of pattern is already included. In this regard we find that in terms of Rule 6, the amortization cost is to be included over and above the transaction value. Even if the submission of the Ld. Counsel is accepted regarding CA certificate, since the said amortization cost as claimed by the appellant has been included in the transaction value, it is not amortization cost but a part & partial of the transaction value. Therefore, amortization cost of the pattern used by the appellant has to be included in the transaction value. Therefore, the demand on merit is clearly sustainable. As regard the issue on limitation, we find that the appellant has shown income from sales of patterns in the balance sheet from which no one can make out that whether the sales of pattern is related to those patterns which were used in the manufacture of final product for buyer by using pattern belonging to the buyer. Therefore, there is a clear suppression of facts and mis-declaration on the part of the appellant. As regard the claim of the appellant that on the same issue second show cause notice invoking extended period was issued, as per the Nizam Sugar Factory (supra), the demand is not sustainable in this regard we observed that the second Show Cause Notice is for the period which is prior to the period of first Show Cause Notice. Since, there is a clear suppression of facts in both the show cause notice, 5 years period is available to the Revenue for issuing the sub-Show Cause Notice. In the case of Hon’ble Supreme Court judgment in the case of Nizam Sugar Factory (supra), the fact was different that for the same issue if a show cause notice for the subsequent period is issued invoking extended period, the demand is hit by limitation. However, in the facts of the present case, the second show cause notice period is not for the subsequent period but for the previous period. Therefore, the ratio of the Supreme Court judgment in the case of Nizam Sugar Factory (supra), shall not apply in the present case. As regard the judgment in the appellant’s own case of this Tribunal, we find that in the said case, the demand for the subsequent was raised invoking extended

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E/711-713/2009-DB

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period. Therefore, the tribunal applying the ratio of Nizam Sugar Factory (supra), set aside the demand for extended period. As discussed above, the fact of the present case is not similar. Therefore, the tribunal’s decision dated 30/07/2015 will be of no help to the appellant. As per our above discussion, the demand of the duty confirmed by the lower authority is clearly sustainable. Hence, the impugned order is upheld. Appeals are dismissed.

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(Dictated and pronounced in the open Court)

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(Raju) Member (Technical)

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(Ramesh Nair) Member (Judicial)

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Bhagwati Spherocast Pvt. Ltd. v. Ahmedabad-ii

Case brief

What is this about?

What did the court decide?

Bhagwati Spherocast Pvt. Ltd. v. Ahmedabad-ii

Case brief

What is this about?

What did the court decide?

What the court decided

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