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Cum duty price: Board finally bows down to judicial opinion

TIOL-DDT 26
6 1 2005
Thursday

In valuation disputes it often happens that the department feels that there was undervaluation and the assessee is slapped with a demand for differential duty. The assessee finds himself in a difficult situation as he would not in most cases be able to realise the differential duty from his customers. There has always been a demand that the price already realized should be treated as cum duty price. The formula explained in the MRF case does not come to rescue as the dispute is mostly when additional consideration is received or to be assessed, whether the extra consideration is to be added to the assessable value or the sale price and whether abatement of additional duty payable or paid is allowed. This needs a little elaboration.

Suppose the value assessed was Rs. 1000/- on which the assessee paid excise duty of Rs. 160/-. So here the cum-duty price is Rs. 1160/-. (for convenience sake, other taxes and expenses are not considered). Later the assessee realises or the department alleges that there is an extra money consideration of Rs. 200/-. The department would work out the differential duty like this :-

Assessable value

1000

Duty @16%

  160

Additional receipt

  200

Revised assessable value

1200

Excise duty

  192

Differential duty

    32            = 192 - 160

Whereas the assessee would like (if at all he is liable to pay) to pay Rs. 27/- as follows :-

Assessable value

1000

Duty @16%

  160

Additional receipt

  200

Total cum duty value

1360

Revised assessable value

1173                         = 1360 ÷ (1+0.16)

Excise duty

  187

Differential duty

 27                            = 187 - 160


The department’s argument is that had the duty been properly assessed in the first place, the assessee would have realised the duty for the additional Rs. 200/- and in fact many buyers would gladly pay the duty when charged separately. For the lapse of the assessee, the Government should not lose and the defaulter should not get any benefit. This as often happens is a case where the heart rules over the head. Case law as it stands now is in support of the assessee. In a famous decision in, Srichakra Tyres Ltd. v. Collector of Central Excise, Madras
2002-TIOL-140-CESTAT-DEL-LB, the Larger Bench of the CEGAT to which the question,

“whether in the case of the goods which have been sold at a particular price and where duty is subsequently demanded in respect of the same in terms of Section 4(1) read with Section 4(4)(d)(ii) the amount of duty which became payable later and which has been demanded can be abated from the sale price or not”

was referred, by a majority held that it was abatable.

However the Honourable Member (T) Mr. Lajja Ram in his contra view asserted, “in the case of the excisable goods which had been sold without approval at a particular non-declared higher price, while central excise duty was paid on the declared lower price and the matter of evasion of central excise duty is subsequently detected and central excise duty is subsequently demanded in respect of the differential price in terms of the Section 4(1) read with Section 4(4)(d)(ii) of the Central Excises Act, 1944, the amount of duty demanded could not be abated from the sale price.”


The issue was referred to the Larger Bench as different benches of the CEGAT had taken opposite views. However Srichakra like any other case was not the end of the story. The issue has been taken to the Supreme Court and the Apex Court in Collector v. Srichakra Tyres Ltd. (
2002-TIOL-51-SC-CX) dismissed the departmental appeal. And the Supreme Court in a landmark judgement in Commissioner of Central Excise, Delhi v. Maruti Udyog Ltd (2002-TIOL-34-SC-CX ) held that duty had to be abated from the cum-duty price. Even the government realized this and admitted this position legislatively. The Finance Act, 2003 added an explanation to Section 4(1).

“Explanation. - For the removal of doubts, it is hereby declared that the price-cum-duty of the excisable goods sold by the assessee shall be the price actually paid to him for the goods sold and the money value of the additional consideration, if any, flowing directly or indirectly from the buyer to the assessee in connection with the sale of such goods, and such price-cum-duty, excluding sales tax and other taxes, if any, actually paid, shall be deemed to include the duty payable on such goods.”

This explanation came into existence from 14-5-2003. And so the Board was prepared to accept this position only from that date. The Board in Circular No. 749/65/2003-CX., dated 26-9-2003, informed that review petitions have been filed against the above orders. Board felt that the effect of amendment to Section 4 by Finance Act, 2003 has only prospective effect and litigation can continue merrily for the past period. The Board circular explained that

in the judgment dated 26-02-2002 of the Hon’ble Supreme Court in the case of CCE, Madurai v. T.V.S. Srichakra Ltd. and the judgment dated 27-2-2002 in the case of CCE, Delhi v. Maruti Udyog Ltd. [2002 (141) E.L.T. 3 (S.C.)]., appeals filed by the Department were dismissed by the Hon’ble Supreme Court, upholding that the sale price realised by the assessee is to be regarded as inclusive of excise duty and therefore, in arriving at the excisable value of the goods, the element of duty which is payable is to be excluded.

Though vide section 136 of the Finance Act, 2003, Section 4 of the Central Excise Act has been amended by insertion of an Explanation to Section 4(I) to the effect that the price-cum-duty shall be deemed to include the duty payable on the goods, Board has taken a view that the amended provision will apply only prospectively and the old cases will have to be pursued as per the provisions of law prevailing at the relevant time.


So the Board had taken up the matter in review in Supreme Court and wanted the field to keep all the old cases in call book till the Supreme Court decides on the review petition. For those not well initiated into the strange ways of the department, “call book” is where they dump all cases which cannot be decided. They are not shown as pending. Problem is they are rarely recalled. Board seems to be the main cause and reason for all the trivial Show Cause Notices which clog our appellate system. All the consultants in the Country should send nice packets of sweets to the Board for keeping them in business. Here was a classic case of the apex court ruling that duty should be deducted from cum duty price and the Government amending section 4 of the Central excise Act in tune with the judgement. But the Board should have the final word. It accepted the Supreme Court’s wisdom but from the date of its acceptance! Consultants had the last laugh all the way to the bank!

Now the Board’s review petition has been dismissed by the Supreme Court and as the Board has no other place to appeal to, it has gracefully accepted the Supreme Court order. The latest circular of the Board informs that circular No. 749/2003 is withdrawn. Hopefully all the pending cases at all levels will be closed. Recall the Call Book. End of a long battle! Hopefully. –see Board’s Circular 803/36/2004-CX, Dated : December 27, 2004

Board tries to solve some of the problems arising out of withdrawal of warehousing scheme for petroleum products

The Government had withdrawn warehousing facilities for petroleum products by a weekend notification on 4th September 2004 and created several problems for the oil sector by circular No. 796/2004. The circular wanted the duty on stocks held in the warehouses to be paid immediately on 6th September. Taxindiaonline had then pointed out that legally they can pay that duty by the 5th of October 2004 and it seems that nobody paid the duty on 6th September. This is what happens when Board goes round giving patently illegal directions. Now after three months, wisdom has dawned on the portals of the mighty Board and it clarifies that duty can indeed be paid by 5th October 2004. May be there are several Show Cause Notices pending against the oil companies for not paying the duty on 6th September as the Board wanted. Though late, the nation is grateful to the Board for coming out with a clarification that would perhaps put an end to some unwanted litigation. Regarding end-use exemptions, Board clarifies that if the refineries do not know the end users at the time of clearances from the refinery, they should go for provisional assessment. – See Board circular 804/1/2004-CX, Dated : January, 4, 2005

Unemployed Commissioner finally gets work : It seems Chanakya first found a king and then searched for a kingdom to put the king in. Board being related to Chanakya, first posted a Commissioner and then went on to search for a commissionerate for him! In the recent promotion to the cadre of Commissioners, the CBEC posted an officer as Commissioner (Appeals) III, Hyderabad. There was a small hitch. There is no post of Commissioner (Appeals) III, at Hyderabad. So the promoted officer was holding a non existent post. It took the Board more than two months to notify a post for the officer. Finally Hyderabad III Commissioner (Appeals) is now officially notified – Notification No. 1/2005 – CENT dated 4.1.2005.

Until tomorrow with more of DDT

Have a Nice Day

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