Disposition: Appeal allowed

ORDER

K.K. Usha, President

1. Order-in-Original No. MP (Demand-34/99) 19/2000, dated 27-11-2000 passed by the Commissioner of Central Excise, Allahabad is under challenge in this appeal at the instance of the assessee M/s. Somaiya Organics (India) Ltd.

2. The appellants are having two manufacturing units - a distillery at Captainganj and a chemical factory at Barabanki. In their distillery the appellants manufacture Ethyl Alcohol-Denatured (for short SDS). The SDS is stock-transferred to their Barabanki unit where it is wholly consumed in the manufacture of specified chemicals. Under the impugned order, the differential duty demand of Rs. 14,89,61,104.00 has been confirmed by the Commissioner 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 has filed the present appeal.

3. 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-116/98/3149, dated 26-3-99-SCN No. 12/COMMR-AUD-99/26-3-99

April 94 to Feb. 99

Rs. 14,59,49,158.65

2

C. No. 20-C.E./Somaiya/SBZ/ 99/550, dated 31-8-99

March 99 to July 99

Rs. 25,12,528/-

3

C. No. 20-C.E./Somaiya/SBZ/ 61, dated 18-1-2000

August 99 to Dec. 99

Rs. 4,99,417/-

4. Excise duty was levied on SDS for industrial consumption w.e.f. 1-3-94. The appellants were paying excise duty at the time of stock-transferring the 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 appellants on costing basis in terms of Rule 6(b)(ii) of the Central Excise Valuation Rides, 1975 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 Messrs.

Applicable Date

Value Per Itr./BL

1994-95

Saraya Distillery Gorakhpur

13.6.94

Rs. 20.00

1995-96

-do-

20-6-95

Rs. 12.90

1996-97

-do-

10-3-97

Rs. 14.00

1997-98

-do-

20-11-97

Rs. 14.75

4/98 to 2/99

Kisan Sahkari Chini Mills, Ghosi

1-12-98

Rs. 15.50

3/99 lo 7/99

-do-

20-3-99

Rs. 14.25

8/99 to 12/99

-do-

10/99

Rs. 14.25

5. 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 appellant 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 appellants at controlled rate in terms of the provisions 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 appellants and M/s. Saraiya Distillery, one of the manufacturers whose selling price had been relied upon in the show cause notice. Appellants determined the assessable value of SDS for the purpose of Section 4(1)(b) of the Central Excise Act on costing basis as it had no sale of SDS, The cost is undertaken annually on the basis of the previous years 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 price declarations filed effective from 1-3-94 along with the questionnaire, was approved by the Central Excise authorities. With effect from 1-4-94, when Rule 173C was amended the appellants filed the declarations under Rule 173C also.

6. The actual value on which the appellants cleared SDS during the period in question is as under :-

Sr. No.

B/ENo.

Description

CTH

01.

5243/15-2-97

8 Nos. of Aerobridges complete with Spare & Tools

8428





1 No. : Agnis

8431.39

02.

10135/26-3-97

3 Nos. of "Agnis"

8430.80





16 Nos. of Long Life Lamps for Aero-bridges

8539.29

03.

10140/26-3-97

8 Nos. of Tyres for Aerobridges

4011.99

The appellant 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 a particular date is totally illegal. It was further contended that for the period from April, 1999 to December, 1999 the appellants 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 any of the contentions raised by the appellants. 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 11 AC.

7. We will first refer to the case put forward by the appellants regarding the demand for the period April, 1999 to December, 1999 which is covered by the two show cause notices 31-8-99 and 18-1-2000. The communication addressed by the appellants to the Superintendent of Central Excise, Barabanki, dated 31-1-2000 would clearly show that after finalisation of the costing for the year 1998-99 it was found that the cost had gone up from Rs. 13.50 to Rs. 17.43 per Itr. and that they debited the differential amount of Central Excise duty as per the details given in the communication for the period of April, 1999 to December, 1999. Unfortunately, the Commissioner has not even referred to the above contention raised by the appellants. There is a total non-application of mind by the Commissioner on this issue which has had serious consequences on the assessee. The learned Departmental Representative is not disputing the correctness of the above statement made by the assessee in the communication dated 31-1-2000 addressed to the Superintendent of Central Excise. In view of the above, there is no reason to sustain the demand for the above period.

8. We will now come to the issue relating to the major portion of the demand i.e. for the period from 4/94 to 2/99 covered by show cause notice dated 26-3-99 and for the month of March, 1999 covered by the show cause notice dated 31-8-99. Main contention raised by the learned Counsel for the appellants is that the provisions contained in Clause (i) to Sub-rule (b) of Rule 6 of the Central Excise Valuation Rules, 1975 has no application in the present case as value of comparable goods manufactured by the assessee is not available in the present case. Therefore, according to him, the assessee has correctly proceeded to determine the value on the cost of production basis. There is no case for the Revenue that the cost of production has been wrongly calculated by the assessee. On the other hand, the contention is that value of comparable goods manufactured by the assessee is available and therefore, the assessable value has to be arrived at by applying Clause (i) and not Clause (ii). The department had adopted the highest price prevailing on a particular day in an year in the case of one of the other three manufacturers in the vicinity as the value of SDS cleared by the appellants. The contention raised by the assessee that there was no justification for choosing the highest price for determining the value of excisable goods in terms of Rule 6(b)(i) was rejected by the assessing authority by observing as follows :-

"As regards picking up the highest value of the comparable goods for determination of value of the excisable goods manufactured by the party in terms of Rule 6(b)(i) of the Valuation Rules, it is observed that M/s. Saraya Distillery and M/s. Kishan Sahkari Chinni Mills, manufacturers of the identical goods, on the basis of whose prices the value of the excisable goods manufactured by the party has been determined, were having a contracted price with the buyers. Therefore, frequent variations in the rate of these units is due to sale made on the mutually agreed/contracted price and the prevailing rate in the market. On the other hand there is no such frequent fluctuations in the price of the goods manufactured and consumed captively by the party. The prices of the goods declared by the party in most of the cases have been static almost for the whole year. Therefore, the highest contractual price will be appropriate value and near to the normal price of the identical goods. Under the circumstances, I feel that highest contractual price, in a particular financial year should be considered as the nearest ascertainable equivalent of the normal price for determination of the value of the excisable goods under Rule 6(b)(i) as has rightly been done by the department."

9. The above would show that the Commissioner has relied on contractual prices without examining the terms of the contract. A reference to Annexure to the show cause notice relating to the price of SDS sold by M/s. Saraya Distillery would show that the price varies between Rs. 12/- to Rs. 20/- during the period from 1-3-94 to 30-3-95. From 25-4-95 to 25-3-96 it varies between Rs. 5.50 to Rs. 12.90. For the period from 4-5-96 to 20-3-97 the price varies between Rs. 4.20 to Rs. 14/-. For the period from 16-5-97 to 27-12-97 the variation is between Rs. 10/- to Rs. 14.75. 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 ascertain-able 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 endeavor must be to determine nearest ascertainable equivalent. We have no hesitation to hold that such an exercise has not been done in the present case. The department adopting the highest price is unsustainable in law.

10. In the light of the above, we hold that the demand confirmed by the Commissioner has not been made in accordance with the provisions of law and therefore not sustainable. We, therefore, set aside the order impugned and allow the appeal.