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
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
