IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JODHPUR -------------------------------------------------------- OTHER TAX REF. CIVIL No. 26 of 2004 M/S PEACOCK INDUSTRIES LTD V/S COMMISSIONER OF CENTRAL EXCISE JAIPUR Mr. RAMIT MEHTA & Mr. AVINASH ACHARYA, for the appellant / petitioner Mr. VIVEK SHRIMALI for Mr. RAVI BHANSALI, for the respondent Date of Order : 6.2.2008 HON'BLE SHRI N P GUPTA,J. HON'BLE SHRI DEO NARAYAN THANVI,J. ORDER ----- This reference has been made to this Court by the learned Tribunal, consequent upon the order passed by this Court dt. 16.9.2003, in D.B. Central Excise Reference Application No. 14/2003. By the order dt. 16.9.2003 this Court found, that two substantial questions of law arise for consideration, and accordingly the Tribunal was directed to refer the said questions of law to this Court for its opinion. “1. Whether in the facts and on the circumstances of the case, the Tribunal was justified in coming to the conclusion that the goods received back in the factory were not defective/damages moulded plastic chairs but were plastic furniture scrap and this finding is based on any evidence and is, therefore, vitiated? 2. Whether on the facts and in the circumstances of the case, the Tribunal was justified in coming to the conclusion that the value of goods received back by the assessee was Rs.8/- per kg. which is less than the amount of Duty paid at the time of their clearance and whether the said finding is based on any material?” Necessary facts are, that the assessee is a manufacturer of plastic moulded furniture. The assessee submitted a claim for refund of excise duty, on the basis of it having accepted the rejected goods, returned to it by its distributors, for which it had issued credit notes to the parties. According to the assessee the damaged/rejected goods so received is subjected to process of grinding, wherein the same is cut into small pieces, which are mixed in certain proportion with the fresh raw material, and thus the goods so produced is cleared on payment of excise duty. Since they had refunded back the entire excise duty amount to the distributors through credit notes, they are entitled to refund of that amount. The concerned authority found, that the rejected goods so received by the assessee is required to cut into small pieces before being recycled, and even the same cannot be used entirely for manufacture of the articles, and is mixed with fresh raw material in small percentage. Thus, the Department was of the opinion that the goods received back by the assessee is nothing but plastic furniture scrap, and value of the same in local market being Rs. 8/- per Kg., the value of the goods so returned being less than the amount of duty paid originally at the time of clearance from the factory, and according to 2 provisions of Rule 173L(3)(v) of the Central Excise Rules, 1944 no refund is admissible. Accordingly a show cause notice was issued to the assessee, calling him upon to show cause as to why the refund claim filed by him should not be rejected, for the above reasons. The learned Dy. Commissioner examined the matter after receiving the reply, and the documents produced by the assessee, so also considering the market survey report, rather having twice undertaken market survey found, that on the basis of the second market survey report the value of the goods received by the assessee is around Rs. 8 to 10/- per Kg., and the refund claimed was directed to be decided accordingly, and then it was found, that the duty paid at the time of clearance was Rs. 42.30, which is more than the market value thereof on return of the goods to the factory being Rs.30/-, and the same is the case with other products, and thus in view of provisions of Rule 173L(3)(v) the refund claim was rejected. The appeal filed by the assessee before the Commissioner and Central Excise & Gold (Control) Appellate Tribunal, New Delhi also failed. Aggrieved, assessee filed an application under Section 35H before this Court on 15.7.2002 being D.B. Central Excise Reference Application No. 14/2003, wherein a reply was filed and rejoinder was also filed, and the same was decided vide order dt. 16.9.2003, whereby the learned Tribunal was directed to refer the above referred two 3 questions of law, for opinion. Arguing the reference it was contended by the learned counsel for the assessee, that there is no material on record to show, that the goods was not defective furniture received back by the assessee, and was only plastic furniture scrap. The next submission made is, that there is no evidence on record to show, that the value of the goods so received by the assessee was Rs. 8 to 10 per Kg. Elaborating this argument it was contended, that the assessee had filed various documents, and certificates from various dealers, and customers, to show, that they are prepared to purchase the goods at the rate of Rs. 20 to 21 per Kg. while the so called market survey report, as is said to have been got conducted by the Department, even twice, is not supported by any material, it is not shown as to who were the persons or customers who were contacted by the Department, the copy of the survey report was not given to the assessee, and the assessee had no opportunity even to cross-examine those persons from whom these datas were collected, and thus the so called market survey report cannot constitute any material on record, for the authorities below, to arrive at the price of the goods, so as to come to the conclusion, that the price of the goods received back by the assessee was less than the excise duty paid, and to deny the claim of refund, on that count. The next submission made is, that the burden lay on the Department to prove, that the value of the goods received 4 back by the assessee was less than the amount of duty paid originally at the time of clearance from the factory, which burden the Department has failed to discharge, and the documents and certificates produced by the assessee have been wrongly discarded. Relying upon two judgments reported in Roshan Di Hatti Vs. Commissioner of Income Tax, reported in 68 I.T.R.-177, and Commissioner of Income Tax Vs. Daulat Ram Rawatmull, reported in 87 I.T.R.-349, it was contended, that thus the authorities below have taken into account the irrelevant material, and since the assessee did not get opportunity to rebut, or cross-examine, the findings do give rise to question of law, and are liable to be interfered with. It was then submitted, that after this reference, now even the Commissioner itself has accepted the claim of refund, for subsequent periods, and that order of the Commissioner has not been challenged by the Department, which acquired finality, and therefore also the impugned orders are liable to be set aside. It was submitted, that in these circumstances, it is a fit case where the matter be remanded back to the original authority, at least to now draw samples, and undertake fresh enquiry as to market value of the goods received back, and then to decide afresh the matter. On the other hand, learned counsel for the Department supported the impugned order, and submitted, that the question as to what was the value of the goods as received back by the assessee, is a pure question of fact, 5 which has been decided by the authorities below, after appreciating the evidence, led on the side of the either side, thread bare. It was also submitted, that the market survey was conducted twice, as the assessee was not satisfied with the first market survey, and therefore, it was got conducted second time, which has never been challenged by the assessee, and on the face of that market survey report, it was for the assessee to lead its own evidence, to the satisfaction of the concerned authorities, about the prevalent value of the goods, at the time when they were received back by the assessee, and that having not been done, the findings do not require any interference. Then, regarding description of the goods, it was submitted, that under the scheme of things the goods can be either finished goods, or semi finished goods, or scrap, and there is no fourth category, as claimed by the assessee, and in any case, whatever be the nomenclature of the goods, that may be given by the assessee, what is relevant for the purpose of Rule 173L(3)(v) is, that the value of the goods so received back if is found to be less than the excise duty paid then the refund cannot be claimed, and since the authorities below have not believed the evidence led on the side of the assessee, about the value of the goods, and has relied upon the market survey report of the Department, that again being a pure finding of fact, does not require any interference. Replying the argument of burden of proof, it was submitted, that the initial onus had been discharged by the Department, by 6 submitting the market survey report, and then the assessee has failed to rebut that material. Regarding the later acceptance of the claim of refund, it was submitted, that the law has undergone a change, as the subsequent matters were covered by the provisions of Rule 16 of the Central Excise Rules, 2002, which does not contain provision analogous to Rule 173L(3)(v), thus those judgments are not of any assistance to the assessee, for the present purpose. Regarding remand, it was submitted, that it is nobody's case, that the assessee was denied any opportunity to lead any evidence, nor any grievance in this regard had been raised at any point of time by the assessee. It is not shown, as to what other evidence the assessee wanted to lead, which was not permitted by the original authority, apart from the fact, that no grievance in that regard has been raised, in the appeal before the authorities below, and therefore, there is no occasion for remanding the matter, simply to prolong the controversy. We have considered the submissions, and have gone through the material available. It may be observed here, that along with the file of this Reference No. 26, the files of other Reference Application No. 13 and 39 were also tagged. However it transpired, that this reference has been made in Reference Application No. 14/2003, therefore, that file was called, and since the three files were available, and learned counsel for either side referred to certain orders, and documents, from either of the three 7 different files, we have gone through those documents as well. We may at the out set gainfully reproduce the provisions of Rule 173L(1), 173L(2)and 173L(3)(v) which read as under:- “Rule 173L. Refund of duty on goods returned to factory.- (1) The Commissioner may grant refund of the duty paid on manufactured excisable goods issued for home consumption from a factory, which are returned to the same or any other factory for being re-made, refined, reconditioned or subjected to any other similar process in the factory: Provided that— (i) such goods are returned to the factory within one year of the date of payment of duty or within such further period or periods not exceeding one year, in the aggregate, as the Commissioner may, on sufficient cause being shown, permit in any particular case; (ii) the assessee gives information of the re- entry of each consignment of such excisable goods into the factory to the proper officer in writing in the proper form within twenty-four hours of such re-entry or within such further period not exceeding ten days, as the Commissioner may, on sufficient cause being shown, permit in any particular case, to enable the proper officer to verify the particulars of such goods within forty- eight hours of receipt of the information; (iii) the assessee stores the said goods separately pending their being re-made, refined, reconditioned or subjected to any other similar process in the factory unless otherwise permitted by the Commissioner by an order in writing and makes such goods available for inspection by the proper officer when so required; (iv) the amount of refund payable shall in no case be in excess of the duty payable on such goods after being re-made, refined re-conditioned or subjected to any other similar process in the factory: Provided further that in relation to the 8 declared excisable goods, for Clause (ii) of the first proviso, the following clause shall be substituted, namely:— “(ii) the assessee gives information of the re- entry of each consignment of such excisable goods into the factory to the proper officer in writing in the proper form within twenty-four hours of such re-entry or within such further period not exceeding ten days, as the Commissioner may, on sufficient cause being shown, permit in any particular case”. (2) The assessee shall maintain a detailed account of the returned goods and the processes to which they are subjected, after their return to the factory in the proper form. (3) No refund under sub-rule (1) shall be paid until the processes mentioned therein, have been completed and an account under sub-rule (2) having been rendered to the satisfaction of the Commissioner within six months of the return of the goods to the factory. No refund shall be admissible in respect of the duty-paid,— (i) in respect of opened packages containing goods with concessional rates of duty or partial exemption for the small or cottage sector, as set forth in the Schedule to the Central Excise Tariff Act, 1985 (5 of 1986), or by a notification issued under rule 8 or section 5A of the Act; (ii) if the amount of refund payable on the goods is less than rupees fifty; (iii) on goods which are disposed of in any manner other than for production of goods of the same class; (iv) on the un-manufactured tobacco from which cigars, cheroots and cigarettes so returned to the factory have been produced; (v) if the value of the goods at the time of their return to the factory is, in the opinion of the Commissioner, less than the amount of duty originally paid upon them at the time of their clearance from the factory. Explanation.—In this clause, "value" means the market value of the excisable goods and not the ex-duty value thereof.” 9 So far as Rule 173L sub-rule (1) and (2) are concerned, there is no controversy in this regard raised before the authorities below, and a look at Rule 173L(3)(v) shows, that the precise requirement is, that no refund is admissible in respect of duty paid, if the value of the goods at the time of their return to the factory, is in the opinion of the Commissioner, less than the amount of duty originally paid, at the time of clearance from the factory. The above language shows, that for the purpose of deciding this controversy, the precise requirement is, that in the opinion of the Commissioner, the value of the goods, at the time of return to the factory, should not be less than the amount of duty, paid by them, at the time of their clearance from the factory. How the commissioner is to frame this opinion, has not been provided for in the Rules. But then, inherently in the very nature of things, the opinion so framed by the Commissioner must be based on some material, and cannot be an arbitrary opinion. This obviously also includes the aspect of requirement of principles of natural justice, and as appears from the order of the Dy. Commissioner, that the concerned authority was of the requisite opinion, about the value of the goods being less than the amount of excise duty originally paid, and therefore, in order to comply with the requirements of principles of natural justice, show cause notice was given to the assessee, and as the things have come up, before issuance of such show cause notice, the market survey was 10 got conducted by the Department. Thus, the matter was gone into after receiving reply of the assessee, and the parties were ad-idem on the question, that it is to be established on record, as to what was the price of the goods, so as to enable the authority to arrive at a conclusion, as to whether the value of the goods was less than the amount of excise duty paid, or was more than the said excise duty. In that sequence a look at the order of the Dy. Commissioner does show, that he has cataloged the contentions of the parties ad seriatim at page-3 of the order, and has then taken up the matter point-wise. While so discussing the matter point-wise, it has examined the process required to be employed, for using the goods received back, and has also considered the factual aspect of the matter, that the goods have been received back from the far away places like Delhi, Bombay, Pathankot, Siliguri, Aurangabad etc., and has also examined the certificates given by the distributors of the assessee, and considering the totality of circumstances, they have not been relied upon, and have been found to be of no evidential value. Then, the other aspect has also been considered, as to whether the value of plastic flakes should be taken, and not of plastic scrap, and that contention has also been negatived, and has been found to be plastic furniture scrap, and thus the value of damaged chairs, as was suggested by the assessee, was not believed. Then the market value, as was considered in the case of Dawood & Dawood, a sister concern of the assessee, was also discussed, and not accepted for cogent reasons. 11 Then, reliance has been placed on market survey report, and above order has been passed. In appeal the matter was decided in view of another order passed in another appeal. Then, in further appeal before the Tribunal, the orders were challenged, interalia on the ground, that Commissioner (Appeals) had erred in not considering, that more than 75% of the damaged furniture, which had been returned back to the appellant, is only in the form of seconds furniture, capable of being resold, and therefore, the price was far higher than Rs. 10/- per Kg. Then, the other ground raised was, about the learned Commissioner having erred in disregarding the letters of the distributors and purchasers, submitted alongwith the replies, and that the Commissioner has erred in relying upon the market survey report, which has not been actually conducted, as per the material available on record. Thus, the adjudication proceeds on incorrect facts, and is liable to be quashed. Then, the next ground taken is, that the Commissioner has erred in not accepting its own rate, adopted in the case of another assessee regarding identical goods. Significantly this was not the ground raised, either that the copy of market survey report was not given, or that the appellant has not been given the opportunity to cross-examine the person from whom the enquiry was conducted, nor that the appellant did not get sufficient opportunity to establish the market value of the goods received back by the assessee, much less that the 12 price reported in the market survey report is inadequate. Similarly regarding the nature of substance received, being scrap, or not, also, only contention raised was, that more than 75% damaged furniture is only in the form of second furniture, capable of being resold. The learned Tribunal, by the judgment impugned, has dismissed the appeal, for the reasons given in the other order, which also happens to be available with us, and shows, that it was contended before the learned Tribunal, that damaged furniture, which is returned back, is only in the form of second furniture capable of being resold, and that the Revenue has not produced any evidence to fortify, that the value of the goods is less than the duty paid by the appellant, and has relied upon the evidence produced by the department about the price being more than Rs. 8/- per Kg., while the Department pointed out, that the assessee made request for conducting a fresh market enquiry for ascertaining the price of defective furniture, and on his submission fresh market enquiry was conducted, and accordingly the order of the original authority had been passed. The learned Tribunal after noticing the contentions found, that there is specific finding based on market survey conducted, that requisite value of the goods received by the assessee is less than the duty paid by the appellant at the time of clearance, there is specific finding of fact in this regard, that the appellant had received plastic scrap. Thus, the appeal was 13 dismissed. Even at the cost of repetition we are constrained to observe, that before the Tribunal also, no submission was made about copy of market survey report having not been given, or the other facets of this argument about opportunity to cross-examine having not been given, or opportunity to lead evidence had not been given, or the like, and even no request was made for remand, and the Tribunal proceeded on the basis, that the finding is a finding of fact. Having gone through the documents produced by the assessee before the original authorities, and the market survey reports, copies whereof have been made available to us, in these various files, though not open to us, still even after re-appreciating them, we are at one with the findings arrived by the authorities below, that the assessee has failed to establish by reliable evidence, that the market value of the goods as received by it back, was more than the excise duty paid thereon, at the time of clearance, as found by the learned authorities below. The reasons given by the original authority do establish preponderance of probabilities, in favour of the Department, and against the assessee, which has not been successfully dislodged by the assessee. So far as the contention about the furniture being 14 in the form of seconds furniture, capable of being resold is concerned, it is not the case of the assessee, that he has sold any portion of furniture so received back, as seconds furniture, therefore, this aspect need not detain us. So far as the subsequent acceptance of the claim of refund is concerned, we have gone through the provisions of Rule 16 of the CENVAT Rules, which reads as under:- “RULE 16. Credit of duty on goods brought to the factory. - (1) Where any goods on which duty had been paid at the time of removal thereof are brought to any factory for being re-made, refined, re-conditioned or for any other reason, the assessee shall state the particulars of such receipt in his records and shall be entitled to take CENVAT credit of the duty paid as if such goods are received as inputs under the CENVAT Credit Rules, 2002 and utilise this credit according to the said rules. (2) If the process to which the goods are subjected before being removed does not amount to manufacture, the manufacturer shall pay an amount equal to the CENVAT credit taken under sub-rule (1) and in any other case the manufacturer shall pay duty on goods received under sub-rule (1) at the rate applicable on the date of removal and on the value determined under sub-section (2) of section 3 or section 4 or section 4A of the Act, as the case may be. Explanation: The amount paid under this sub- rule shall be allowed as CENVAT credit as if it was a duty paid by a manufacturer who removes the goods. (3) If there is any difficulty in following the provisions of sub-rule (1) and sub-rule (2), the assessee may receive the goods for being re- made, refined, re-conditioned or for any other reason and may remove the goods subsequently subject