Case: M/S.Saci Allied Products Ltd., U.P Vs. Commnr.Of Cent.Excise,Meerut

of India vs. Kanti Lal Chunni Lal & Ors. (supra) which has been followed by the Bombay High Court in the case of Cosmos (India) Rubber Works Pvt. Ltd. & Ors. vs. Union of India, 1988(36) E.L.T. 102 (Bom). The Tribunal has also passed the judgment to the similar effect in the case of Racold Appliances vs. CCE, 1994(69)E.L.T. 312 which has been affirmed by this Court in 1998(100) E.L.T. A64. This issue, therefore, is no longer res integra and, therefore, the Collector could not have confirmed the demand under Section 4(1)(b) of the Act when there are significant sales at the factory gate to the independent buyers throughout India. We have already referred to the certain findings of the Tribunal applying the first proviso to Section 4(1)(a) of the Act, confirmed the same demand. In our view, it is not permissible on the part of the CEGAT to change the basis of the demand since the assessee was asked to show only in relation to applicability of Section 4(1)(b) of the Act. In the case of Commissioner of Central Excise, Calcutta-II vs. TISCO Ltd., 2004(174) E.L.T. 307(SC) (S.N. Variava & Dr. AR. Lakshmanan,JJ.), it was held that in order to attract the first proviso to Section 4(1)(a)(i) of the Act, there has to be an averment and the proof of the existence of a trade practice in that trade that the goods are being sold at different prices to different class of buyers. This Court, further, held that to claim benefit of proviso to Section 4(1)(a)(i) of the Act, a trade practice must be averred and shown to exist and it must be shown that there is a different class of buyers and only on basis of facts averred and proved, a conclusion can be reached that the sale is to a different class of buyers. This is a condition precedent for invoking the first proviso to Section 4(1)(a) of the Act. As already noticed, neither the show cause notice nor the Collectors order nor the CEGAT order makes any such averment let alone proving the same with evidence. On this ground alone the invocation of First Proviso to Section 4(1)(a) of the Act must fail. Further, the first proviso to Section 4(1)(a) specifically states that the sale to different class of buyers should not be to related persons. In view of the specific provision contained in the first proviso to Section 4(1)(a) of the Act, it is difficult to understand as to how the CEGAT applied this provision. In the case of C.C.E. vs. Ashok Ark, 2005(179) E.L.T. 513(SC), a Bench of S.N. Variava, Dr.AR. Lakshmanan and S.H. Kapadia, JJ. observed as under: "6. We are unable to agree with the view expressed by the Tribunal. The Tribunal has ignored the proviso to Rule 173C(11). It is true that in cases where, having regard to the nature of the goods and frequent fluctuations of the price of the goods, an assessee or class of assessee may be allowed to declare price of goods on the basis of the challan and advice note. But those are cases where it is not possible to determine the value in accordance with Section 4. Under Section 4, as it then read, the value of the goods is the normal price, i.e. the price at which the goods are ordinarily sold by an assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal where the buyer is not a related person and the price is the sole consideration for the sale. Thus, if it is found that there is a normal price at which goods are sold at the factory gate then even though earlier the assessee was permitted to clear under rule 173C(11) the re-assessment would be on the basis of the normal price as determined under Section 4.7. We are unable to accept the submission that such an interpretation would negate rule 173C(11). A Rule cannot override or be contrary to a Section. Under Section 4 the normal price has to be the value at which the goods are ordinarily sold. Thus clearly Rule 173C(11) only provides for cases where the normal price cannot be ascertained. In those cases, goods are allowed to be removed on basis of price shown on the challan or advise note. But the framers of the rule were careful enough to provide, in the proviso, that if the price on the challan or advise note does not represent the value as determined under Section 4 then there can be reassessment.8. In this case, it could not be shown that the price at the factory gate could not be determined or that the price at the factory gate was varying. Thus the assessing authority was right in holding that the value would have to be determined as per that price. The Tribunal was clearly in error in ignoring the proviso." 14. In the case of Hindustan Polymers Co. Ltd. vs. Collector of C.Ex. Guntur, 1999 (106) E.L.T. 12(S.C.), this Court in paragraph 6 held as under: "While we appreciate the Tribunals desire to do complete justice and mould the relief in that direction, we think that, in the circumstances, the Tribunal should not, in this case, have passed an order which proceeded upon a basis that is altogether different from that of the demand made upon the appellants. That is not "moulding" relief. The demand that was made upon the appellants was under Tariff Item 68 and it proceeded upon the basis that there was a process of manufacture of coloured polystyrene from uncoloured polytyrene. Having come to a conclusion against the Revenue on these counts, the appropriate order for the Tribunal to have passed was to have set aside the demand and left it open to the Revenue to proceed against the appellants, as permissible under the law. The appellants would then have had the opportunity of meeting the precise case made out by the Revenue." 15.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]Thus according to the appellate Tribunal, since the dealers in Uttar Pradesh who purchased the goods from Syndet, and independent dealers in other parts of the country to whom the appellants directly sold the goods are different class of buyers, appellants price to the independent dealers cannot be taken as the basis for assessing appellants sales to Syndet in Uttar Pradesh. This finding of the appellate Tribunal is based on first proviso to Section 4(1(a) of the Act. While the show cause notice and the order of the Collector proceeded on the basis of the invocation of third proviso to Section 4(1)(a) of the Act, the appellate Tribunal for the first time in the impugned order has sustained the proceedings on the basis of first proviso to Section 4(1)(a) of the Act. It was argued that the first proviso to Section 4(1)(a) of the Act was never invoked by the Department either in the show cause notice or in the impugned order and it was for the first time that the appellate Tribunal in the impugned order has sought to sustain the impugned order by invoking the first proviso to Section 4(1)(a) of the Act. It is thus seen that the Tribunal has gone totally beyond the show cause notice and the order of the Collector, which is impermissible. The appellate Tribunal cannot sustain the case of the Revenue against the appellants on a ground not raised by the Revenue either in the show cause notice or in the order. In this context, we may usefully refer to the judgment of this Court in the case ofReckitt & Colman of India Ltd. vs. CCE, 1996(88)ELT641(SC). This Court held that it is beyond the competence of the Tribunal to make out in favour of the Revenue a case which the Revenue had never convassed and which the appellants had never been required to meet. The impugned order of the Tribunal which had gone beyond the show cause notice and the order of the respondent-Collector is, therefore, liable to be set aside. Regarding Submission No.2 We shall now consider the second submission made by Mr. V. Lakshmikumaran. We have already extracted Section 4(1)(a) of the Act and the third proviso to Section 4(1)(a) of the Act in paragraph supra. In the present case, normal price satisfying the requirements of Section 4(1)(a) of the Act is available and there is no dispute on this factual position. About 35% of the production of the goods is sold by the appellants to independent and unrelated dealers spread through the country other than in Uttar Pradesh. There is no dispute raised by the Central Excise Department with regard to these sales. Appellants sale price to these independent dealers duly satisfy the requirements of Section 4(1)(a) of the Act in every respect and there is no dispute on this factual position. In respect of these sales to independent dealers located other than in U.P., appellants have paid excise duty based on their sale price to these dealers. This factual position is not disputed by the respondent. It was argued that once such a wholesale price to an unrelated buyer satisfying the requirements of Section 4(1)(a) of the Act is available, then that price alone should be treated as the normal price in respect of all the sales made by the appellants including the sales made to related persons. In other words, where sales are made by the assessee to wholesale buyers who are unrelated and also to buyers who are related, then the price to unrelated buyers should be adopted as the basis for payment of excise duty even in respect of sales to unrelated buyers. In such a situation, third proviso to Section 4(1)(a) of the Act will not come into play at all. Since in the present case, normal price to independent dealers is available, same should be treated as the basis for arriving at the assessable value in respect of sales to Syndet also. This submission of Mr. V. Lakshmikumaran is duly supported by the judgment of this Court in Union of India vs. Kanti Lal Chunilal & Ors., 1986(Suppl) SCC 345 = 1986(26)ELT 289(SC). This judgment dealt with a situation when 34% to 40% of sales were effected by the assessee to a related buyer namely, Alok Textiles and balance sales were to unrelated buyers. Excise Department sought to levy excise duty, in respect of sales made to Alok Textiles, based on Alok Textiles resale price to its buyers. This Court negatived such an approach and held that the value for the purpose of excise duty even in respect of sales effected to the related buyer Alok Textiles should be the price at which the goods were sold to unrelated buyers. The relevant portion of the judgment is reproduced hereinbelow:"The respondents sold only 34 to 40% of the total production to the firm of M/s Alok Textiles and the remaining production was sold to other wholesale dealers. The assessing authorities were, therefore, clearly wrong in taking the wholesale cash price at which the excisable goods were sold by the wholesale traders as the value of excisable goods for the purpose of levy of excise duty. The wholesale cash price at which the excisable goods were sold by the respondents to M/s Alok Textiles and other wholesale dealers was the only price liable to be taken for determination of the value for the purpose of levy of excisesee merit and substance in this contention. Mr. V. Lakshmikumaran invited our attention to the Circulars issued by the Central Board of Excise and Customs and submitted that the Revenue is bound by the circulars issued by it and cannot contend to the contrary. Therefore, in view of the circular, third proviso to Section 4(1)(a) of the Act is not invokable in the presentthis view of the matter, the argument advanced by Mr. A Subba Rao, learned counsel appearing for the respondent, has no merits. As a matter of fact, the Tribunal, by its order, has not questioned the genuineness of the sale between the appellants and Syndet. The appellants submitted before the Tribunal and also before the Collector that the depot of Syndet was existing right from 1976 and it was not created only after the appellants started selling the products to Syndet in 1990. The appellants, in support of this submissions, also filed affidavits of dealers, transporters, employees of Syndet. The Tribunal having accepted the sale as a genuine sale and having accepted that price to independent dealers is available under Section 4(1)(a) of the Act, the appellate Tribunal ought not to have rejected the submission of the appellants regarding the acceptance of price to independent dealers for sales to Syndet also. As could be seen from the records produced before the authorities below, Syndet also manufactures the goods in its Okhla factory in Delhi and sells the goods on its own and the Central Excise Department at Delhi has accepted the price at which Syndet has been selling to its dealers and paying excise duty accordingly without anyhave already reproduced the first proviso to Section 4(1)(a) of the Act. Thus the first proviso to Section 4(1)(a) of the Act merely says that where the goods are sold by the assessee to different classes of buyers at different prices, each such price, subject to the same satisfying the requirements of Section 4(1)(a) of the Act be deemed to be the normal price of such goods. Thus, the most important criteria for invoking the proviso is that each such price should satisfy the requirement of Section 4(1)(a) of the Act and if the price do not satisfy the requirements of Section 4(1)(a) of the Act, then the proviso cannot apply. One of the circumstances specified in Section 4(1)(a) of the Act is that the sale should be to unrelated buyers. If the sale is effected to a related buyer, then this requirement of the proviso is not satisfied. The proviso would apply only when the assessee sells the goods at different prices to different class of buyers. In the present case, sales to dealers in Uttar Pradesh which is being considered as different class by the Tribunal, is not made by assessee - appellant, SACI, but by Syndet after purchasing the goods from the appellant. Hence, first proviso to Section 4(1)(a) of the Act is wholly inapplicable. The impugned order of the appellate Tribunal which is solely based on the first proviso to Section 4(1)(a) of the Act is, therefore, in our view, cannot be sustained. Our attention was invited to the circular No.3/90-CX.1 dated 25.1.1990 issued by the Central Board of Excise and Customs (at page 18 of Vol.II of the paper book) taking the view that the wholesale dealers in India cannot be considered as belonging to different classes simply because they are located in different places. This position was again reiterated by the CBEC vide its further Circular No. 24/14/93 dated 31.12.1993. Thus, during the disputed period in question in the present case, the CBEC itself has held that dealers in different regions cannot be treated as different classes of buyers and, therefore, the first proviso to Section 4(1)(a) of the Act cannot be invoked in such circumstances. Having issued such a circular which is binding on the Department, the Revenue cannot now contend to the contrary and say that dealers in different regions constitute different classes of buyers and, therefore, price to independent dealers cannot be adopted for sales to Syndet in Uttar Pradesh. Further, during the disputed period, when the appellants were filing price lists regionwise declaring different prices for different dealers located in different regions, based on the above circular dated 25.1.1990, show cause notices were issued by the Department contending that it is not permissible to have different prices for dealers in different regions. The show cause notices sought to take the highest price as the assessable value which incidently was the price at which the goods were sold by Syndet to its dealers. Having taken such a stand based on the circular of CBEC, which held the field then , it is not open to the Revenue or to the appellate Tribunal to hold that dealers in different regions constitute different classes of buyers and, therefore, the price to independent dealers in other regions cannot be adopted as the basis for sales to Syndet in Uttar4(1)(b) has already been extracted above. The said section will apply only when goods are sold only to all through related persons and at the normal price such goods are resold to unrelated dealers is not applicable. Since, the Collector has given a finding that there exists factory gate as well as to independent dealers throughout India at a uniform price and which is not distributing normal price for such goods is ascertainable at the factory gate. In such an event, section 4(1)(b) of the Act is not permissible. These submissions merits acceptance. We have already referred to the judgment of this Court in Union of India vs. Kanti Lal Chunni Lal & Ors. (supra) which has been followed by the Bombay High Court in the case of Cosmos (India) Rubber Works Pvt. Ltd. & Ors. vs. Union of India, 1988(36) E.L.T. 102 (Bom). The Tribunal has also passed the judgment to the similar effect in the case of RacoldAppliances vs. CCE, 1994(69)E.L.T. 312which has been affirmed by this Court in 1998(100) E.L.T. A64. This issue, therefore, is no longer res integra and, therefore, the Collector could not have confirmed the demand under Section 4(1)(b) of the Act when there are significant sales at the factory gate to the independent buyers throughout India. We have already referred to the certain findings of the Tribunal applying the first proviso to Section 4(1)(a) of the Act, confirmed the same demand. In our view, it is not permissible on the part of the CEGAT to change the basis of the demand since the assessee was asked to show only in relation to applicability of Section 4(1)(b) of the Act.In the case of Hindustan Polymers Co. Ltd. vs. Collector of C.Ex. Guntur, 1999 (106) E.L.T. 12(S.C.), this Court in paragraph 6 held as under: "While we appreciate the Tribunals desire to do complete justice and mould the relief in that direction, we think that, in the circumstances, the Tribunal should not, in this case, have passed an order which proceeded upon a basis that is altogether different from that of the demand made upon the appellants. That is not "moulding" relief. The demand that was made upon the appellants was under Tariff Item 68 and it proceeded upon the basis that there was a process of manufacture of coloured polystyrene from uncoloured polytyrene. Having come to a conclusion against the Revenue on these counts, the appropriate order for the Tribunal to have passed was to have set aside the demand and left it open to the Revenue to proceed against the appellants, as permissible under the law. The appellants would then have had the opportunity of meeting the precise case made out by the Revenue."