Important point
Rule 6(b)(i) of the Central Excise (Valuation) Rules, casts a duty on the department to approve the assessable value and it is for the department to find out whether there are goods comparable to the assessee’s goods.

Headnote:Central Excise and Salt Act, 1944 —Section 4—Central Excise (Valuation) Rules, 1975—Rule 6(b)(i)—Assessable value—Applicability of Rule 6(b)(ii) of the Act—Assessee is a division of M/s Jagatjit Industries—It is in business of manufacturing glass bottles and jars at its factory—50% of its total production was captively consumed by the holding company, in the business of manufacturing liquor and food products—Remaining supply of bottles was to industrial consumers, namely, Dabur, Hamdard, Maaza, Kissan etc.—Show cause notice demanding differential duty mainly on the ground that the assessee had, with the intention to evade duty, wilfully and deliberately filed incorrect price declarations—Assessee was called upon to show cause as to why the department should not invoke rule 6(b)(ii) of the 1975 Rules and determine the assessable value afresh on the costing method, particularly when comparable prices were not available—Commissioner rejected assessee’s case that the prices of bottles supplied to JIL for captive consumption were comparable to prices of bottles supplied to ‘other buyers’—Whether the assessee was right in valuing the bottles supplied by them to JIL by relying upon the prices charged by the assessee to other companies—(No).
       Held : Under rule 6(b) of the said 1975 Rules, applicable to this case, the first option was to value the goods on the normal price of comparable goods and if that was not possible, then, alone in the alternative, rule 6(b)(ii) had to be applied in order to compute the normal price and consequently, all expenses like selling and organizational expenses, bill discounting expenses etc. which formed an integrated part of the sale invoice, in respect of sales on principal to principal basis, formed the part of the assessable value of such goods. (Para 13)
       In the present case, even if the capacities of the bottles supplied to JIL on one hand and bottles supplied to “other buyers” on the other hand are the same, still the size and the shape of the bottles would make the relevant difference. JIL is a liquor manufacturer whereas Kissan, Dabur, Hamdard etc. are manufacturers of food and medicinal preparations. Therefore, the shape and size of the bottles supplied to JIL cannot be compared with the shape and size of the bottles supplied to Kissan, Dabur, Hamdard etc. Even the thickness of the glass of the bottles supplied to a liquor manufacturer would be different from the thickness of the glass of the bottles supplied to a manufacturer of drugs/food products. Rule 6(b)(i) casts a duty on the department to approve the assessable value and it is for the department to find out whether there are goods comparable to the assessee’s goods. However, the proforma of the price list in part VI(a) under the heading “comparable goods, if known to the assessee” indicates that the particulars of comparable prices have to be given by the assessee. In terms of rule 6(b)(i), such value has to be of comparable goods manufactured by the other assessee. In the present case, the department has found that there were no other manufacturers of similar bottles. Moreover, in the present case, the department found price manipulation. Prices of bottles sold to JIL were lower than the prices of bottles sold to other buyers like Dabur, Hamdard, Maaza, Kissan etc. Further, the department found that the price increase of bottles sold by the assessee to JIL was in the range of 30 to 48% whereas the price increase of bottles sold by the assessee to other buyers like Dabur, Hamdard, Maaza, Kissan etc. was in the range of 50 to 92%. Further, even the costing data supplied by the assessee to the department indicated that the bottles supplied to JIL and their franchisees were under-priced as the selling and organizational expenses and bill discounting expenses were not included in the assessable value of the goods and, therefore, such prices were not comparable with prices of the bottles sold to Dabur, Hamdard, Maaza, Kissan etc. The costing done by the assessee itself indicates the price differential and consequently, prices of the bottles sold by the assessee to companies like Dabur, Hamdard, Maaza, Kissan etc. were not comparable with the prices of the bottles captively consumed by the JIL. Further, as found by the Commissioner, the price lists filed by the assessee under part VI(a) were illusory as they were based on sales which did not exist or which were meager. Further, as found by the Commissioner, the price lists under part VI(a) filed by the assessee during 1991-92 had no comparable price lists. Further, all supplies shown under gate passes/invoices in favour of M/s ASA were actually destined for JIL. Further, as found by the Commissioner, the franchisee agreements between JIL and the franchisee holders were not on principal to principal basis, particularly when the cost of packing was to be borne by JIL. The commissioner was right in holding that the assessee was guilty of creating artificial buyers. Further, the commissioner found that the bottles sold to “other buyers” like Dabur, Hamdard Maaza, Kissan etc. were different from the bottles supplied to JIL; that although the capacity of a few bottles were common, they were different in terms of shape and size; they were also different in terms of cost of production; that there were no other manufacturers of similar bottles in terms of technology and in terms of capital investment and thus the prices of similar goods were not available. Under the above circumstances, the tribunal should not have interfered with the well reasoned order of the adjudication passed by the commissioner. (Paras 16 and 17)

Judgment

Kapadia, J.—The issue involved in this civil appeal filed by the department under section 35L(b) of the Central Excise Act, 1944 is - whether M/s Universal Glass Ltd. (assessee herein) was right in valuing the bottles manufactured and supplied by them to M/s Jagatjit Industries Ltd., Kapurthala (for short “JIL”) by relying upon the prices charged by the assessee to companies, like Dabur, Hamdard, Maaza, Kissan etc. (hereinafter referred to as the “other buyers”) under rule 6(b)(i) of the Central Excise (Valuation) Rules, 1975 (hereinafter referred to as “the 1975 Rules”).

2. The assessee herein is a division of JIL. It is in the business of manufacturing glass bottles and jars at its factory in Meerut. During the relevant period, 50% of its total production was captively consumed by JIL (holding company) and the remaining was sold to industrial consumers, namely, Dabur, Hamdard, Maaza, Kissan etc. JIL are in the business of manufacturing liquor and food products.

3. By show-cause notice dated 30.12.1994, differential duty of Rs. 4.33 crores (approximately) for the period December 1989 till March 1994 was demanded mainly on the ground that the assessee had, with the intention to evade duty, wilfully and deliberately filed incorrect price declarations during the aforestated period; that a deliberate attempt was made to show that an independent market existed in respect of the said bottles by filing price lists in part-I and part-II, when in fact there existed no such market; that the sales under parts I & II were not on principal to principal basis; and that the assessee had filed price lists in the case of supplies to JIL for captive consumption by relying upon the prices charged by the assessee to others, namely, Dabur, Hamdard, Maaza, Kissan etc. knowing fully well that there was a difference between the variety of bottles supplied to JIL and the bottles supplied to Dabur, Hamdard, Maaza, Kissan etc. in terms of shape and size. The assessee was called upon to show-cause, under the aforestated circumstances, as to why the department should not invoke rule 6(b)(ii) of the 1975 Rules and determine the assessable value afresh on the costing method, particularly when comparable prices were not available.

4. By the impugned order dated 27.3.1997, the Commissioner rejected the contention of the assessee that the prices of the bottles supplied to JIL for captive consumption were comparable to the prices of the bottles supplied to the said “other buyers” for the following reasons. According to the Commissioner, M/s Ashoka Sales Agency (for short “M/s ASA”) was a buyer set up by the assessee to create an artificial gate price for jars and jugs of “Maltova” and “Viva”. That, the so called “franchisees” were not independent buyers, who were put up to create an artificial market. In this connection, it was found that the packing costs were borne by the JIL, which circumstance, indicated complete control of JIL. That, sale prices of the bottles supplied to JIL were not revised though there were periodic revisions for bottles supplied to “other buyers”. During 1992-93, 24 types of bottles were supplied to JIL out of which there were no sales for 19 types. During 1993-94, there were no sales for 16 types out of 19 types of bottles. That, in most of the cases, price lists were filed by the assessee either in part-I or in part-II without sales in fact taking place and yet such price lists were relied upon by the assessee for clearances of bottles to JIL. The Commissioner further found that there were no comparable manufacturers of the bottles in the vicinity in terms of capital investments, shape and size of the bottles etc. That, the assessee had sold Maltova and Viva jars to M/s ASA and placed reliance on price lists in part-II which the assessee could not have done as the bottles sold to M/s ASA were re-sold to JIL. In the circumstances, the Commissioner came to the conclusion that the entire exercise undertaken by the assessee was wit

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2005 Supreme(SC) 452

Important pointRule 6(b)(i) of the Central Excise (Valuation) Rules, casts a duty on the department to approve the assessable value and it is for the department to find out whether there are goods comparable to the assessee’s goods.

Cases Referred (1)

Important point
Rule 6(b)(i) of the Central Excise (Valuation) Rules, casts a duty on the department to approve the assessable value and it is for the department to find out whether there are goods comparable to the assessee’s goods.