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Friday, February 12, 2016

whether there was a depression of the sale price on account of receipt of advance. In the case of Metal Box India Ltd. (supra), the facts were extremely clear as there was an agreement that M/s. Ponds (I) Ltd. had given 50% advance with a stipulation that it would purchase 90% of the manufactured goods. It was a case where a separate price was charged. In the case of Hero Honda Motors Ltd. (supra), the facts, as we perceive, were not clear and, therefore, there was a remit. Be it noted, sale price agreed between two competing parties may get depressed, when substantial and huge advances are periodically extended and given with the objective and purpose that the sale price paid or charged would be lowered, to set off the consideration paid by grant of advances. There should be a connect and link between the two i.e. the money advanced it should be established was a consideration paid which could form the basis for depression of sale price. Evidence and material to establish the said factual matrix has to be uncovered and brought on record to connect and link the sale price paid on paper and the “other” consideration, not gratis, but by way of interest free advances.

                                 Reportable

                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION
                        CIVIL APPEAL NO.1829 OF 2008

Commissioner of Central Excise,              Appellant(s)
Pune

                                   Versus

Hindustan National Glass and                        Respondent(s)
Industries Limited


                                  O R D E R
Dipak Misra, J.
      A show cause notice under F. No.  Prev/CEX/AEI/OBL/  141/99/797  dated
16th August, 2002, was issued to M/s. Owens  Brockway  (I)  Pvt.  Ltd.,  the
predecessor-company of the respondent which is presently known as  Hindustan
National Glass and  Industries  Limited,  by  the  Commissioner  of  Central
Excise, Pune-I, alleging that the manufacturing company was not  adding  the
additional consideration received from the customers in the form of  advance
and, therefore, the notional interest accrued thereon is to be added to  the
sale price,  for  such  non-addition  had  resulted  in  depression  of  the
assessable value of the goods,  namely,  the  bottles  manufactured  by  the
respondent-assessee.
2.    In the show cause notice, it  was  mentioned  that  the  assessee  had
short paid the duty on its products, that  is,  printed  glass  bottles,  by
under-valuing the same at the time of clearance from  its  factory  inasmuch
as it did not add “additional consideration” received from  M/s.  Coca  Cola
India and M/s. Pepsico India Holdings  Pvt.  Ltd.   The  show  cause  notice
referred to the statement of the Manager (Sales) of the Company  from  which
it was discernible that the respondent-assessee  had  received  90%  advance
from M/s. Coca Cola India and 100% advance from M/s. Pepsico India  Holdings
Pvt. Ltd. for the goods  and  it  was  giving  3-4%  discount  to  the  said
Companies.
3.    After the reply to the  show  cause  was  received,  the  adjudicating
authority passed an order on 28th November, 2003, making  a  demand  of  Rs.
33,91,934,00/- under Section 11A(1) of the Central  Excise  Act,  1944  (for
short “the Act”) being the duty  payable  on  the  additional  consideration
received by the  assessee  from  the  customers  in  the  form  of  notional
interest accrued on advance payments and also imposed penalty for  the  same
amount under Section 11AC of the Act.  Apart  from  that,  the  adjudicating
authority confirmed certain other demands.
4.    Being grieved by the aforesaid order of  the  adjudicating  authority,
the respondent-assessee preferred an appeal before the Customs,  Excise  and
Service Tax Appellate Tribunal, West Zonal Bench, Mumbai  (for  short,  'the
tribunal').  Initially, the matter was heard by two  Members  consisting  of
Member (Judicial) and Member (Technical).  The Member  (Technical)  came  to
hold that the revenue had not been able to discharge the  onus  by  adducing
cogent material evidence that the advances obtained from a buyer had  really
been instrumental in  depression  of  the  price.   Learned  Member  further
opined that there was no nexus of interest with the  price  and  hence,  the
demand was not acceptable and consequently, no penalty could be levied.
5.     The  Member  (Judicial)  adverted  to  the  order   passed   by   the
Commissioner  wherein  the  statement  of  the  Manager  (Sales)  had   been
adumbrated in detail, referred to the other documents  that  had  been  put-
forth by the revenue before the adjudicating  authority  and  in  course  of
discussion adverted to the  principle  stated  in  Commissioner  of  Central
Excise, New Delhi vs. Hero Honda Motors Ltd.[1] and opined as follows:
“In view of the above decision, I am of the opinion that  the  matter  needs
to be remanded to the Commissioner for fresh examination  in  the  light  of
the observation made by the Hon'ble Supreme Court in the case of Hero  Honda
Motors Ltd. vs. CCE referred supra and after examining the entire aspect  of
the use of the advances, income generated  from  the  said  advances,  their
contribution of the pricing structure and their reflection in  the  Balance-
sheet or the Annual Reports of the appellants, and  the  deployment  of  the
funds so received by them, as I agree with the learned brother  Shri  Sekhon
that onus to prove so is on the Revenue.  However, the appellants  would  be
at liberty to produce relevant evidences before the  adjudicating  authority
in support of their contention that the interest accrued  on  such  advances
have not in any way resulted  in  depreciation  of  the  price.   All  other
issues are left open for the appellants to address before  the  adjudicating
authority.”


6.    As there was difference of opinion, the matter  was  referred  to  the
third Member and the third Member, who was a  Judicial  Member,  vide  order
dated 29th August, 2007, cogitated on the concept of assessable value  under
the Act, the concept of two prices and eventually opined that the  decisions
in Hero Honda Motors Ltd. (supra) and Metal Box India Ltd. vs. Collector  of
Central Excise, Madras[2] are  not  applicable  to  the  case  at  hand  and
accordingly concurred with the opinion expressed by the Member  (Technical).
 Hence, the revenue is before this Court in appeal.
7.    We have heard Mr. Yashank Adhyaru,  learned  senior  counsel  for  the
appellant-revenue and Mr. Aarohi Bhalla, learned counsel for the respondent-
assessee.
8.    On a scrutiny  of  the  factual  score,  it  is  noticeable  that  the
respondent-assessee  had   obtained   certain   advance   sums   from   some
companies/users to supply the bottles and on that count it had  granted  3-4
per cent discount.  Though the quantum had not been  stated  precisely,  yet
it has been found as a matter of fact that M/s. Coca  Cola  India  and  M/s.
Pepsico India Holdings Pvt.  Ltd.  had  given  advances  for  90%  and  100%
respectively for their purchases.
9.    In Metal Box India Ltd. (supra), the  Court  while  dealing  with  the
transaction between the appellant therein and M/s. Ponds (I) Ltd.,  who  was
a whole-sale buyer of the appellant's goods, had accepted the  view  of  the
tribunal and expressed thus:

“On the facts on record, therefore, it must be held that  the  Tribunal  was
perfectly justified in taking the view that charging a  separate  price  for
the metal containers supplied to M/s  Ponds  (I)  Limited  could  not  stand
justified under Section 4(1)(a) proviso and,  therefore,  to  that  separate
price charged from the Ponds (I) Limited, the extent of benefit obtained  by
the assessee on interest-free loan was required to  be  reloaded  by  hiking
the price charged from M/s. Ponds (I) Limited to that extent.  Contention  2
also, therefore, fails and is rejected.”

10.   In Hero Honda  Motors  Ltd.  (supra),  the  question  that  arose  for
determination  is  whether  receipt  of  advance  and  the  income  accruing
thereon, had gone towards the depreciation  of  the  sale  price.   In  that
context, the Court opined  that  there  is  conspectus  of  decisions  which
clearly establish that inclusion of  notional  interest  in  the  assessable
value or wholesale price will depend upon  the  facts  of  each  case.   The
three-Judge Bench adverted to the facts of the case, the agreement  existing
between the parties and the lower price  at  which  the  respondent-assessee
therein had sold the motor-cycles and after  analysing  the  factual  matrix
opined as follows:

“For the above reasons, we hold  that  the  tribunal  has  disposed  of  the
appeal before it in  a  most  perfunctory  manner  without  going  into  any
figures at all but by merely on the statement made by  counsel  and  on  the
basis of material which appears to have been produced first time before  the
tribunal. We, therefore, set aside the order of the tribunal and remand  the
matter back to the tribunal.  The  tribunal  will  consider  in  detail,  if
necessary, by taking the help of a Cost Accountant and  after  looking  into
the accounts of the respondent whether or  not  the  advances  or  any  part
thereof have been used in  the  working  capital  and  whether  or  not  the
advances received by the respondent and/or the interest earned thereon  have
been used in the working  capital  and/or  whether  it  has  the  effect  of
reducing the price of the motorcycle. The  tribunal  to  so  decide  on  the
material which was placed before the  Commissioner  and  not  to  allow  any
additional  documents/materials  to  be  filed  before  it.  None   of   our
observations made herein shall bind the  tribunal  to  which  this  case  is
remitted.”

11.   In the case at hand, the Member (Judicial) has remitted the matter  to
the competent authority to deal with it afresh in the light of the  decision
rendered in Hero Honda Motors Ltd. (supra).
12.   Mr. Aarohi Bhalla, learned counsel for the  respondent-assessee  would
submit that when no evidence was adduced by the  revenue  at  any  point  of
time and the law is settled that the onus is on  the  revenue  to  establish
that there has been depression of assessable value,  the  majority  view  of
the tribunal cannot be found fault with.
13.    Mr.  Yashank  Adhyaru,  learned  senior  counsel  appearing  for  the
appellant-revenue would submit that the documents were produced  before  the
adjudicating authority as well  as  the  tribunal  to  show  the  nature  of
advance and the manner of transaction from which  it  is  demonstrable  that
there has been depression of the assessable value.
14.   On a perusal of the order passed by the Commissioner, it is seen  that
observations have been made on certain  aspects  and  inferences  have  been
drawn. It cannot be said that no material was produced by the  revenue.  The
concerned Commissioner has taken note of the statement made by  the  Manager
(Sales) of the assessee-Company.  An aspect raised relates to percentage  of
total sales made to two companies, but the core issue is whether  there  was
a depression of the sale price on account of receipt  of  advance.   In  the
case of Metal Box India Ltd. (supra), the  facts  were  extremely  clear  as
there was an agreement that M/s. Ponds (I) Ltd. had given 50%  advance  with
a stipulation that it would purchase 90% of the manufactured goods.  It  was
a case where a separate price was  charged.   In  the  case  of  Hero  Honda
Motors Ltd. (supra),  the  facts,  as  we  perceive,  were  not  clear  and,
therefore, there was a remit.  Be it noted, sale price  agreed  between  two
competing parties may get depressed, when substantial and huge advances  are
periodically extended and given with the  objective  and  purpose  that  the
sale price paid or charged would be lowered, to set  off  the  consideration
paid by grant of advances.  There should be a connect and link  between  the
two i.e. the money advanced it should be  established  was  a  consideration
paid which could form the basis for depression of sale price.  Evidence  and
material to establish the said  factual  matrix  has  to  be  uncovered  and
brought on record to connect and link the sale price paid on paper  and  the
“other” consideration, not gratis, but by way of interest free advances.


15.   In our considered opinion, in  the  present  case,  there  has  to  be
application of mind by the tribunal regard being had to the amount of  money
paid by purchasers, namely, M/s. Coca Cola  India  and  M/s.  Pepsico  India
Holdings Pvt. Ltd. and what is the effect of  the  sales  made  to  the  two
companies in percentile terms, whether this had  the  effect  of  depressing
the sale price.   The onus would be on the revenue.  That being  the  thrust
of the matter, liberty is granted to the revenue to  produce  the  documents
in this regard to discharge the onus.  As we are remitting  the  matter,  we
may note one submission of the respondent-assessee.   It  is  urged  by  the
learned counsel that when the entire activities were  within  the  knowledge
of the excise authorities, penalty is not leviable.  Needless to  emphasize,
the tribunal shall advert to  the  said  submission,  if  required,  in  the
ultimate eventuate, in proper perspective.
16.   In the result,  the  appeal  is  allowed,  the  order  passed  by  the
tribunal is set aside and the matter is remitted to the tribunal  for  fresh
disposal keeping in view the observations made herein-above.  We may  hasten
to clarify that we have not expressed any opinion on  any  of  the  aspects.
There shall be no order as to costs.


                                                    ......................J.
                                                               (Dipak Misra)



                                                    ......................J.
                                                               (N.V. Ramana)

New Delhi;
January 14, 2016.
-----------------------
[1]     (2005) 4 SCC 182
[2]     (1995) 2 SCC 90

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