Why and how do we lose cases?

 

By

K. VIJAY KUMAR

                        MA; BL; MBA; B.Ed.

 

 

I, like many of my colleagues read ELT, for enhancing my knowledge levels in the difficult field, I am in . As such the ocean of case laws, often confusing and contradicting each other is a little too much for small minds like mine to fathom. Single bench, larger bench, regional bench are all benchmarks beyond us and ordinary people like me believe that the wise men who pass orders and the wiser men who argue cases and the still wiser men who decide cases at appellate levels are all extraordinarily brilliant scholars who can analyse and re analyse finer points of law which ordinary mortals find extremely difficult to even understand and we read with awe the judgements delivered in these higher portals of judicial debate, so sincerely brought to us fortnight after fortnight by ELT. There are so many judgements that even the fairly bulky issues of ELT were not able to carry all and so ELT is coming out with extra volumes to cover these unreported cases.

 

I was under the impression that when a case is taken to CEGAT or the High Courts and the Supreme Court, a lot of brainwork goes into the preparation of the appeal, analyzing various options of how to win the case, brainstorming sessions of senior officers to counter possible arguments from the other side. Then the best legal brains are hired and a highly surcharged case is argued and decided. May be it is done in private appeals. Apparently not in Government appeals. Most of our appeals are dismissed in Supreme Court for grave reasons like delay in filing appeal; failure to furnish certain papers or even for not depositing the printing charges! Going through the 1^st November 2000 issue of ELT, really broke my heart. I could find at least six cases where the department lost its appeals/ cases in the CEGAT for silly reasons, not because we had no case, not because we could not argue, not because the other side was represented by wiser counsel, not because the law was not on our side, but due to our sheer incompetence; incompetence of a few officers. Have a look at the following cases reported in that one issue of ELT and how sadly and badly we lost.

 

 

2000(121) ELT 818(Trib) CCE, Mumbai – I v Swan Mills Ltd.

 

Commissioner's appeal is against the first two refund claims whereas in the statement of facts a reference has been made only to the third refund claim. Thus the statement made in the Form EA3 are different from the statements made in the appeal papers, in the statement of facts and grounds of appeal. It is clear that the authorisation given by the Commissioner is without application of mind. Appeal dismissed as not maintainable.

( We lost because, somebody failed in his elementary responsibility while drafting the appeal)

 

2000(121) ELT 813(Trib) CC, Surat – I v Special Prints Ltd.

An appeal was filed in form EA 3 for a customs case. The registry pointed out the lapse at the time of filing the appeal and in several later communications. At last the appeal was filed in form CA3, without proper verification and without filling certain columns. The tribunal pointed the defects in a number of communications, but they were not corrected. Result: appeal dismissed.

(Here it was the case of a wrong form, nothing wrong in it, but couldn't they be a little more careful at least after being pointed out by the Tribunal?)

 

2000(121) ELT 804(Trib) CCE&C, Surat v Gupta silk Mills

On scrutiny of the appeal, it was found that the appeal memo was defective. Notice was sent for correction with a caution that failure to correct would result in dismissal of the appeal.

WHAT HAPPENED? Corrections were not carried out and the appeal was dismissed.. In an earlier case the CEGAT had observed that the "authority vested under Section 35 B has to be used with circumspection and due application to the extent that even not mentioning of the words "not legal and proper" would result in dismissal of the
appeal……. Not paying attention to the basic requirement, the Collectors have shown utter negligence. And so, "Following regretfully our earlier decision, we dismiss the present appeal also."

 

2000(121) ELT 803(Trib) CCE, Mumbai – VI v JK Chemicals Ltd

" The scrutiny shows that the copies of the Order in Original were not enclosed herewith. Several memoranda were sent asking the Commissioner why the appeal should not be dismissed. Sri. Choubey, JDR also separately sent a letter …… We are amazed at the lack of knowledge displayed by the appellant Commissioner. In spite of several reminders and notice the Commissioner has not ensured the survival of the appeal. The appeal is dismissed." was the sad remark of the Tribunal. Should anything be added?

 

In all the above-mentioned cases, the department had gone in appeal to the CEGAT, but could not sustain the appeal because of ridiculous reasons. We obviously went in appeal, because there was a strong ground for appeal, as discovered by some of the senior most officers in the department; yet our appeals were not even presentable for admission. How much money and time must have been wasted on these appeals. With what results? And what about the issues involved and the duty lost? Had we not appealed, we could have avoided the slap from the Tribunal. But why do such things happen? And what is the corrective action? Does any body bother? As they say war is too serious a matter to be left to generals ……….

All our investigations, intelligence gatherings, high profile case detection, surveillance, audit and all related activities are meaningless if we are not able to take the battle to its legalistic conclusion and as a first step in that direction, we should at least know how to file an appeal. Unfortunately courts are not kind to our inefficiency and careless attitude.

But is it a correct attitude? I mean that of the courts. Should Government lose a case because, I am inefficient and careless?

 

While the examples show how OUR appeals failed, I was equally saddened by two orders where we lost because of our careless attitude at the preparation stage itself. In one case, the notice was sent to a wrong name and in another case a wrong rule/ section was quoted, so wrong that it traveled to another ACT!

 

2000(121) ELT 799(Trib) Supreme Industries v CC, Sheva.

Show cause Notice issued to SUPER INDUSTRIES
instead of SUPREME INDUSTRIES. Order set aside.

2000(121) ELT 747 (Trib) Steelco Gujarat Ltd v CCE, Vadodara.

Para 5 " When duty has been demanded under Rule 57 I of the Central Excise Rules, 1944, there is no question of imposition of penalty under Section 112(b) of the Customs Act.

As Parkinson would perhaps say the importance given to an item of work is inversely proportional to its worth and that is exactly what is happening with our adjudication and appeals.

 

 

EXCISE LAW TIMES – 01.02.2001 – A138

Where is the B- 4 Bond?

 

VIJAY. K. KUMAR

MA, B.Ed,BL,MBA

Superintendent of Central Excise, Hyderabad

 

 

1. The other day, a colleague rang me up in frantic anxiety and asked me if I could help him in finding the proforma of the B-4 Bond. Obviously he had to arrange for provisional release of some seized goods and all his search operations in the several published documents relating to Central Excise did not yield results. He could successfully "search" a factory or a vehicle and seize goods and vehicle, but when it came to releasing the vehicle, he did not know, under what bond he should do so. I told him that there was no need for any search by him or me for the simple reason that the bond simply did not exist.!!!!!!!! Then why the confusion?
   

 

1. Para 2.2 of Chapter 14 of the CBEC's Excise Manual of Supplementary Instructions as on 1.9.2001, states,
   

 

2.2        The following are the types of bonds, which are presently in vogue:             

1. B-1 Surety / Security (General Bond) - for export of goods without payment of duty under Rule 19;
   
2. B-2 Bond Surety / Security(General Bond) for provisional assessment;
   
3. B-3 Bond Surety / Security) - to obtain matches Central Excise stamp on credit;
   
4. B-4 Bond Surety/Security for provisional release of seized goods (provided in this Manual by instruction); and
   
5. B-17 Bond (General) Surety / Security -composite bond for EPZ/ 100% EOUs for assessment, export, accounting and disposal of excisable goods obtained free of duty [continuation of the Format as specified under the erstwhile Central Excise Rules, 1944].
   

1. This B-4 Bond was supposed to have been provided in the manual by instruction. You search the manual a hundred times; you will not find it - for IT SIMPLY IS NOT THERE.
   
2. Somebody who was supposed to have included the bond in the manual obviously missed it. Proof reading and comparison being outdated virtues especially in our offices flooded with computers (with no computerisation at all) used as type machines, these types of omissions go un noticed. And with frequent changes in the law and procedure, no body is seriously reading the changed laws. I think they are all waiting for the next change and may be for the provisions to settle down finally, for if they master the rules now, there may be some changes soon and this unlearning process especially during the latter years of one's career is a disturbing and difficult proposition. And the younger ones are advised not to waste their time mastering the rules which are going to be changed anyway. So one hears people talking about basic concepts, common sense (not really very common), but not the law. Please forgive me for the digression( if any), but coming back to the binding force (or the lack of it) of our bonds:-
   
3. On what bond, are seized goods released provisionally? The Manual is not totally silent on this. Para 3.2 of Chapter 17 of the manual says, "3.2 :   The power to release seized goods emanates from power to seize itself. The goods seized may be released provisionally under bond in the Format specified under erstwhile Central Excise Rules, 1944 [B-8 bond] along with 25% security or surety by the officer who is normally competent to adjudicate the case.
   
4. By the time Chapter 17 came to be written, B-4 Bond mentioned in Chapter 14 was forgotten and a new bond is prescribed, not exactly a new bond. We are told to use an old bond prescribed under the old Central Excise Rules 1944. Even this is not a bad arrangement – only if the bond mentioned was correct. The B – 8 Bond under the erstwhile rules was brought in by a notification in 1945, yes 1945 and the bond was to be entered into by person licensed to obtain without payment of the whole or part of the duty, excisable goods to be used for special industrial purposes. That is the erstwhile Chapter X procedure or the present Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001. It is anybody's guess as to how a bond for receipt of goods without payment of duty can be used for getting goods released provisionally. ( The logic might be that the goods got seized because they were got without payment of duty)
   
5. But then what happens to the goods seized? Do they ever get released? Or do they remain with the department for want of a bond?
   
6. The erstwhile rules (actually the erstwhile to the erstwhile rules) had a bond called B –11 to be entered into by person seeking release of goods seized pending adjudication. So what the manual means by B-8 Bond is perhaps the B- 11 Bond. A small typographical mistake which went un noticed!! . I think that solves my colleague's problem and I told him, "don't throw away your old books, they would be useful when you search for the elusive bond in the new manual"
   

But
my bond story does not end here. As per the manual, the Bond B-3 is - to obtain matches Central Excise stamp on credit; ( Please see para 2 of this article). But Board, in Circular No.581/18/2001-CX dated 29.6.2001 prescribed a Bond called B-3 for the due despatch of excisable goods removed for warehousing and export there from to a foreign country without payment of duty. And
there of course is a bond for obtaining Central Excise stamps on credit by match manufacturers prescribed as annexure to Notification No. 50/2001 – CE (NT) dated 28.6.2001. This bond is not given any number but the manual confuses it with the B-3 bond for warehousing of export goods! But elsewhere in the manual, precisely in para 2.1 of Part II Chapter 10, the exporter is required to furnish a Bond B-3!!!. As per the manual as shown in para 2 of this article, there are only five bonds in vogue now. But the Central Excise (Removal of Goods at Concessional Rate of Duty for Manufacture of Excisable Goods) Rules, 2001 in rule 3 requires that the manufacturer shall execute a general bond with surety or security. It is not mentioned anywhere what this bond is. This is actually the Bond B-8 under the erstwhile CE Rules 1944.

Confusing?

 

EXCISE LAW TIMES – 01.08.2002– A 221

WHAT IS GRETEST AGGREGATE QUANTITY?

by

 

K. VIJAY KUMAR¹

MA, BL, B.Ed, MBA

Superintendent of Central Excise, Hyderabad

 

As per rule 7 of the valuation rules, when goods are sold from the depot, consignment agent etc., the value shall be the normal transaction value of such goods at or about the same time and where such goods are not sold at or about the same time, at the time nearest to the time of removal of goods under assessment.

Normal Transaction value has been defined under rule 2(c) as the transaction value at which the greatest aggregate quantity of goods are sold. Now the greatest aggregate quantity has not been defined. In a recent seminar, I found there were conflicting opinions on what this concept meant. Somebody said this is the average; somebody said this is the total and somebody said there was confusion.

 

This concept of greatest aggregate quantity is actually from GATT valuation rules. Article 5 of the GATT valuation rules says "If the imported goods or identical goods are sold in the country of importation in the condition as imported, the customs value of the imported goods under the provisions of this Article shall be based on the unit price at which the imported goods or identical or similar imported goods are so sold in the greatest aggregate quantity, at or about the time of the importation ……"

 

The Customs valuation rules have incorporated almost the same words. Rule 7 says " ….. if the goods being valued or identical or similar imported goods are sold in India in the condition as imported at or about the time at which the declaration for determination of value is presented, the value of imported goods shall be based on the unit price at which the imported goods or identical or similar imported goods are sold in the greatest aggregate quantity ………"

 

Fortunately for us the Interpretative Notes to the Customs Valuation Rules have explained with examples what this term means. As this is a new concept to Excise, it may be worthwhile for us to see the explanation as given in the customs.

 

Ex 1

Sale Quantity	Unit price	Number of sales	Total quantity sold at each price
1 – 10 units	100	10 sales of 5 units 5 sales of 3 units	65
11- 25 units	95	5 sales of 11 units	55
Over 25 units	90	1 sale of 30 units 1 sale of 50 units	80

 

The greatest number of units sold at a price is 80, therefore the unit price in the greatest aggregate quantity is 90.

 

Ex 2

Two sales occur. First 500 units are sold at a price of Rs.95 each and second 400 units are sold at Rs. 90 each. The greatest number of units sold is 500 and so the price is Rs. 95.

Ex 3

(a) Sales

Sale quantity	Unit price
40 units	100
30 units	90
15 units	100
50 units	95
25 units	105
35 units	90
5 units	100

 

(b) Totals

Total Quantity sold	Unit price
65	90
50	95
60	100
25	105

 

Here the greatest number of items sold at a particular price is 65 and therefore the price in the greatest aggregate is 90.

 

It will be of interest to note that while the GATT valuation Rules as well as the Customs Valuation Rules speak about the unit price at which the greatest aggregate quantity of goods are sold, the Central Excise Valuation Rules 2000 mentions the transaction value at which the greatest aggregate quantity of goods are sold. Literally taken, this can open up a Pandora's box of litigation and dispute. But on a harmonious construction, the unit price may have to be taken. It would have been nice if the words unit price were there in the statute. Simplification does not mean removing certain important words.

 

Neither the Customs Valuation rules nor the CE valuation rules say anything about a situation where there is more than one greatest aggregate quantity of sales. For example if the following are the sales from a depot

 

Units	Price
500	150
500	175
500	165

 

 

Here the greatest aggregate quantity of goods is 500 units and they are sold at three different prices. What is the value?

 

Then what about situations where the goods are cleared to the depots for the first time and there were no previous sale. What is the value for payment of duty at the time of removal from the factory? Somebody suggested, pay some duty and opt for provisional assessments. Are we going to go for another never ending provisional assessment spree?

Are all depot clearances going to be under provisional assessments?

 

I humbly submit the above views for consideration by all concerned for favour of clarifications/rectifications. EXCISE LAW TIMES – 15 12 2000 – A 133

WHAT HAPPENS IF A BUDGET IS NOT PASSED?

By

 

K. VIJAY KUMAR

 

 

In view of the recent happenings in the country, this question is being repeatedly discussed. The consequence of a Finance Bill not getting the approval of Parliament are now more a reality than a hypothesis. In this connection the relevance to such a situation in Customs and Central Excise matters is perhaps worth a review.

 

 

It is perhaps well known that as per the provisions of the Provisional Collection of Taxes Act, 1931, certain Customs and Central Excise Duties have immediate effect after presentation of the bill to Parliament. That is increase in Customs and Excise duties are effective from the midnight of the presentation of the Union Budget unlike other taxes like Income tax and other increases like increase in railway freight or postal rates which are normally effective from the new Financial year or after passing the budget.

 

But there is a difference in the case of Customs and Excise duties. If the duties are not given immediate effect, there is possibility of large-scale manipulation of trade to take undue advantage of the budgetary changes. It should be noted that not all proposals in the Finance Bill relating to Customs and Excise duties have immediate effect. The general understanding is that a Finance Bill comes into force only from the date of enactment or a date to be determined by the Government after enactment if there is such a provision in a particular clause of the Finance Bill. But Provisional Collection of Taxes Act, 1931, gives the power to Government to make certain Customs and Excise Duties immediately effective.

 

 

Section 3 of the Provisional Collection of Taxes Act, 1931 gives the power to the Government to make a declaration in the Finance Bill that any provision of the Bill relating to imposition or increase of Customs or Excise Duties shall have immediate effect. It is interesting to note that first of all there has to be a declaration in the Finance Bill that certain provisions will have immediate effect. It is in compliance with this proviso that we find a declaration under the Provisional Collection of Taxes Act, 1931 in the Finance Bill that certain clauses of the Finance Bill have immediate effect. It is also of interest that this immediate effect is only in relation to imposition or increase in Customs and Excise duties. Merely because a particular clause is declared to have immediate effect under the Provisional Collection of Taxes Act, 1931, it will not have immediate effect unless it relates to an imposition or increase in Customs and Excise Duties. So the natural corollary is that a decrease in Customs and Excise Duties will not have immediate effect. To give effect to such decrease immediately, exemption notifications are given (to the existing rates)

 

What is Immediate Effect?

 

Section 4(1) of the Provisional Collection Taxes Act, 1931, says that a declared provisional shall have effect immediately on the expiry of the day on which the bill is introduced in Parliament, that is, when the budget is presented on the 28^th February, the provisions are effective from 0000 hours of the first day of March. Though by an undertaking under Rule 224, under Central excise, they are made effective from 5 p.m. on the budget day, as per the Provisional Collection Taxes Act, 1931, it is effective only from next day.

 

The declared provision under the Provisional Collection Taxes Act, 1931, ceases to have effect under the following conditions:

 

1. When it becomes an Act with or without amendments.
   
2. When Government by notification directs that it ceases to have
   effect in pursuance of a motion passed by Parliament.
   
3. If it does not cease to have effect under (1) or (2), then on the expiry of seventy five days after the Bill was presented to Parliament.
   

   
    

   Thus the maximum life of a Declared provision is seventy five days. It can be seen that a Finance Bill presented to Parliament:-
   

   1. can be passed without any amendment as is normally the case.
      
   2. can be passed with some amendments which rarely happens. (This may happen now)
      
   3. may be rejected(which may mean the Government itself going out).
      
   4. may not be passed at all(for any reason).
      

 

 

Now what are the consequences of each of the above situations, with regards to imposed or increased duties already collected by virtue of Provisional Collection of Taxes Act, 1931?

 

In the first case that is when the budget is passed without amendment, there is no effect, as the Bill has become law.

 

In the second case that is when the Finance Bill is passed with amendments and if these amendments result in certain declared increase or imposition not accepted by the Parliament, then the position is that the duties collected from the day after the presentation of the Finance Bill till its enactment which would not have been collected if the amended provision had been the declared provision, should have to be refunded.

 

What happens if after presentation of the Finance Bill, the Government falls and the same Finance Bill is reintroduced by the new Government?

 

Under the Provisional Collection of Taxes Act, 1931, the provisions of the new Bill can have effect from the date of presentation of the new bill and the old Bill not having become law ceases to have effect after seventy five days and refunds have to be given.

 

In the third and fourth situations, as stated earlier the proposals cease to have effect after seventy five days and if it so happens, all the duties collected will have to be refunded.

 

So if a budget is not passed within seventy five days, the new Government ( new because, the question of an unsuccessful Finance Bill occurs only when the Government of the day has fallen) will inherit a huge refund claim in respect of increased or imposed duties of customs and excise. Of course as per the Central Excise and Customs Laws(Amendment) Act, 1991, refunds under Customs and Central Excise are granted to the parties only when the incidence of Tax is not passed on to the buyer. Otherwise the refundable amount is credited to the Consumer welfare fund.

 

Thus the biggest beneficiary in case of the budget not getting parliamentary approval will not be the party that toppled the ruling party, but the fund. But people who have paid excess duty may not file any refund claim at all, because any refund will go the fund. However if it can be proved that incidence has not been passed on, refunds can be claimed and even those who bore the burden of increased duties can claim refund.

 

The net result will be

1. There will be a litigation galore, or
   
2. The government will have to refund thousands of crores of rupees collected, or
   
3. Both the above.
   

 

 

 

EXCISE LAW TIMES – 01.09.1997 – A 91

What is the value when goods are not sold?

by

K. VIJAY KUMAR¹

MA, BL, B.Ed, MBA

Superintendent of Central Excise, Hyderabad

 

 

 

As per Section 4 of the CE Act, the value shall

1. in a case where the goods are sold by the assessee, for delivery at the time and place of removal ...., be the transaction value;
   
2. in any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed.
   

 

So in a case where the goods are not sold, the value has to be determined under the Valuation rules. Rules 4 to 11 of the valuation rules deal with this great job of finding the value. A brief description of these rules may not be out of place to this article.

 

Rule 4. When goods are sold at a time other than the time of removal

Rule 5. When goods are sold at a place other than the place of removal

Rule 6. When price is not the sole consideration for sale

Rule 7. Depot sales

Rule 8. When the goods are not sold but captively consumed

Rule 9. Sale to or through a related person

Rule 10. Sale to or through an inter connected undertaking

Rule 11. When the value can not be determined under the above rules.

 

From the list above it can be seen that only Rule 8 deals with cases where there is no sale. Sale is mandatory in all other rules except of course rule 11. So it is necessary for us to read the text of Rule 8. Have a look.

Rule 8: where the excisable goods are not sold by the assessee but are used for consumption by him or on his behalf in the production or manufacture of other articles, the value shall be one hundred and fifteen percent of the cost of production or manufacture of such goods.

 

This is the only valuation rule that takes care of cases where there is no sale, but even this rule covers only certain specific situations. It is absolutely necessary that

1. the goods are not sold
   
2. the goods are used by him or on his behalf - in the production or manufacture of other articles
   

for the situation to be covered under Rule 8.

 

What happens if the goods are not sold, nor are they used by him or on his behalf in the manufacture of other articles? The goods may be gifted or used for purposes other than manufacture of other articles. For example if a car manufacturer uses a car manufactured by him. In such cases, Section 4 stipulates that the value shall be determined as per the valuation rules and the valuation rules are silent about such non-sales! Is rule 11 the only remedy? It appears so. Incidentally many of my learned colleagues are under the impression that determination of the price under rule 11 is a departmental prerogative. They are still under the old valuation era of best judgement assessment by the proper officer under rule 7 of the old valuation rules. Now the assessee is going to determine the price as per rule 11 of the new valuation rules and the proper officer can only re assess.

 

It has to be fairly conceded that in the old valuation rules also, there was no provision for determining value when goods were freely distributed. But then there was no need to, as the deemed value of normal price of such goods took care of the situation. But now with transaction value, this needs to be incorporated in the rules. This problem could have been overcome if rule 8 read as follows. " Where the excisable goods are not sold by the assessee or on his behalf, the value shall be one hundred and fifteen per cent of the cost of production".

 

And that brings us to another problem. What is the manufacturing cost? The Board circular dated 30.6.2000 says ' cost of production based upon general principles of costing'. What then are general principles of costing? In a costing Seminar last year, I asked a Cost Accountant who gave us a lecture on costing, whether cost includes the excise duty paid on the raw materials, which is allowed as modvat credit. He replied that it does, as the cost of the raw materials is the total cost of the materials including all taxes. Immediately another cost accountant, a senior executive (dealing with excise also) rebutted and said it was not includable as the real cost did not include the duty, which was later allowed as credit. The first accountant said that modvat credit was only an opinion as most often the department sought to disallow even genuine credit on silly grounds like some rubber stamped inscriptions are missing in the invoice! As the industry is not sure of modvat, the duty on inputs has to be included in the cost. Modvat may be a profit later. This gentleman was a pure cost accountant and for a moment he forgot captive consumption and Dai Ichi Karkaria. Of course now this issue has been settled by the Supreme Court. On a similar analogy, if a manufacturer makes some money by selling the packing material in which he gets his inputs, will the cost be reduced to the extent of the sale price of the packing materials?

****

EXCISE LAW TIMES – 01.01.2001 – A 18

VISION 2000 – ELETRONIC EXCISE

By

K.Vijay Kumar, M.A.,B.Ed., B.L.,

SUPERINTENDENT OF CENTRAL EXCISE

 

 

 

    All Excise Range offices are fully computerized.( Yes! They actually have computers). All Excise assessees have computers with software supplied by Excise at the time of registration. There will be no Excise Duty on clearances up to Rs. one crore. For an assessee with a turn over of over one crore of rupees, investing about a lakh of rupees on a computer and software is not a big problem.

    There is a registration fee of Es. 10,000/-. At the time of registration, the prospective assessee fills out an electronic form with elaborate details and is given a software package with his registration number. This is his code number for all Excise purposes and there is no other code or number allotted to him. This number is to be used on all his Excise documents. His computer is linked to the computer in the Range office, which again is linked to all the computers in the Excise offices all over the country.

    Immediately after registration, a classification declaration has to be filed on line. Apart from the columns given in the Proforma supplied in the software, the Superintendent or the Assistant Commissioner may ask for additional information. There are only three rates of duty and classification often is not very important. An All India code number is given for every conceivable commodity in the county and over a period of time, almost all items will be classified and codified and this will be a basis for future Finance Ministers to decide on their taxation strategies. The classification is approved by the department within a maximum period of three days. Disputes are referred to a Central Classification Council, which has trade representatives also in it.

    The software contains a Modvat declaration. Immediately on filing the declaration, the computer itself tells the assessee whether he is eligible for Modvat or not. Over the years, a data base on what the inputs are for various products is built up and new products are added to the list.

    The RG 1 proforma is in the software supplied by the Range. The assessee enters data at the end of every shift. So also for raw materials.

 

    The invoice proforma is also in the software along with PLA, RG 23A and RG 23C. Credits and debits are accounted immediately. The invoice can be printed only ifl there is sufficient balance in PLA, RG 23A etc. The invoice number is automatically generated by the computer and the same number can not be printed again. If there is a mistake it has to be cancelled and a fresh invoice has to be issued. The duty debited will be refunded by the Superintendent on surrender of the cancelled invoice, immediately on line. The invoice should accompany the consignment till it reaches destination. The invoice can be seen in the Range computer also. Range can take a printout of this invoice ,but this can not be used for transport of the goods, as any invoice printed in the Range computer ill have the words "Range Copy – not for transport". Range can check the invoices, as they area issued or later at their convenience.

    At the time of clearance it has to be clearly mentioned whether the goods are going to a Modvat user /Dealers/others. If they area going to the first two categories, the registration numbers of the recipients arte to be given, Every morning, the Central Excise officers check all the particulars like production, receipts and clearances on their computers. If the invoices are correct, the Range Officer transmits them to the computers of the recipient Ranges.

On receipt of the goods at the factory of the Modvat availing unit, all that he has to do is make an entry in the RG 23A/C Part I and if he is eligible for credit, based on the eligibility criteria already fed into the computer, credit will be automatically entered in the Part II immediately. If for any reason credit can not be allowed, the computer will indicate the reasons for non eligibility. The Range officer can then be contacted. If the assessee is aggrieved by the Range Superintendent's decision,. He can make an online appeal to the Assistant Commissioner, who will immediately communicate his decision., If he is also not allowing the credit, he will issue a simple on line notice explaining why the credit can not be allowed. The assessee can then give his reply and avail personal hearing. The AC's order is given within two days of the hearing.

    Every week, the range staff verifies the credits and if there are any discrepancies, they are pointed out and the disputed credits are reversed immediately. If the assessee disputes it, he can ask for a show cause notice and it will be issued within a week, it will be presumed that the department is not insisting on reversal and the reversed credit can be taken back.

 

 

 

 

    Once credit is taken, the fact is informed to the original Range Officer who defaces that invoice in his computer, so that nobody else can take credit on that invoice again. No need for submitting copies of invoices to Range offices and questions like "duplicate lost in transit " does not arise.

    A similar procedure is adopted for dealers. As soon as a dealer issues an invoice, necessary debit entry is made against the original invoice and once the whole quantity is issued, the original invoice is defaced.

    No returns are filed and an annual on line assessment is done, in which discrepancies if any are corrected. Officers do not visit the factories except on rare occasions. Audit is done once in three years and the audit party should finish the audit within a day. Internal audit groups audit the accounts from the Range computers once in six months. No routine information is asked from the factories and any officer including preventive parties visiting factories should get all the information from the Range computer before visiting the factory. Preventive party's visits to the factories will not be on suspicion or as fishing expeditions. They visit a factory only after gathering intell8igence and only lf they have strong belief that there is evasion. If a preventive party visits a factory and no case is booked resulting in realization of duty, no preventive party can visit that unit for the next six months.

    

    There is a fast and efficient appellate mechanism. There is a Commissioner (Appeals) for every Commissionerate. No person is appointed as a Commissioner (Appeals) in a place where he has worked in a last five years. These postings are by selection and choice and not routine transfers. Like the Ranges, the Appellate Commissioners also have a network and the computer identifies cases of similar nature and they area bunched together, heard together and decided together save a lot of time and money. As far as possible, orders are issued on the day after the hearing. In the CEGAT also this type of bunching is done on an All India basis     and no two benches of the Tribunal will hear identical cases. This eliminates conflicting orders on the same issue.

 

    This is broadly what Central Excise of the next century will be or should be. Once this happens, most of the paper work in the offices can be avoided and meaningless litigation will also be reduced. Statistical information like number of provisional assessments, duty under protest, revenue particulars in various permutations and combinations can all be had at the click of a key board in the Range Office without going to the factories and the information furnished by the Central Excise offices will be accurate worth hardly any chance for manipulation.

    

    But this has to be done carefully, after a thorough drill and fully equipping the offices with the infrastructure. Some years back as part of the Government's computerization programme, they ordered computers, the air conditioners arrived, he computers didn't , the flooring was done, still no sight of the computers. So, the computer tables were used as dining tables by the staff, and even the computer rooms with air conditioners were occupied by senior officers.

 

    By the time the computers arrived, there were no rooms to put them in and not even tables to put them on. This kind of fiasco should not be repeated.

 

Is this possible? And what is the cost?

 

    When I discussed this idea with a colleague, he said, "what you are suggesting is nothing great, you can't stop technology; all this will be done some day". It has to be done, certainly by the end of the next century. If it has to be done anyway, why not do it in the beginning of the next century instead of its ending?

    As to costs; There area about 3,000 range offices in the country. Systems will cost about Rs.30 crores and may be maintenance will cost another Rs. 20 crores. A total cost of Rs. 50 crores or may be even a hundred crores. Even assume it costs 500 crores. Certainly a small price to pay for such convenience especially be a department that collects over 50,000 crores. Our shortfall this year is likely to be over 5,00 crore. Assume it to be 5,500 crores and let this department go totally electronic by the beginning of the next century.

        Where duty is paid correctly and the head is held high

            Where knowledge is free and online

        Where the department and the assessee are not locked up

            In endless and meaningless litigation

        Where laws come out from the depth of experience and expertise

                Where the tireless striving is for nation's good

            Where the clear stream of reason has not lost its way

        Into the dreary desert of loophole detection and endless litigation

                Where accounting is transparent

            Where profit is made by industry and not evasion

                Into that computerized haven of a new era,

    My God let my Central EXCISE awake awake (with apologies to GURUDEV EXCISE LAW TIMES – 15.02. 1999 – A 7

Valuation of Physicians’ samples.

by

 

K. Vijay Kumar, MA, Bl, B.Ed, MBA

Superintendent of Central Excise, Hyderabad.

 

This has reference to Mr. HK Maingi's article on the above subject – 2001(127)ELT A134.

 

The learned advocate has at length explained the position referring to the case of Cheryl Laboratories v CCE – 1997(93) ELT 129(Tribunal). He had come to the conclusion that now the value of physician's sample has to be determined on the basis of Rule 8 ( 115% of the cost) read with rule 11( by using reasonable means consistent with the rules and section 4).

 

He had another argument that " since the cost of the free samples is not separately charged, but is already included as advertisement cost in the price of other goods sold by an assessee, no duty should be charged on the physicians' samples cleared free of cost. Since duty has already been paid on the other goods which includes the cost of free samples given as a sort of advertisement, payment of duty separately on free samples would amount to payment of double duty".

 

He bases his argument on a news report in Pharma Pulse that the Supreme Court has disallowed deductions of the cost of samples on the ground that it is a sort of advertisement and the cost is already loaded in the sale price. He argues that if such a view was taken in Income tax, the same view would have to adopted for Central Excise also.

 

The learned advocate is aware that this theory of advertisement was raised in the Cheryl Laboratories case referred to by him. But more clearly and specifically, the CEGAT in a very recent order reported in the very issue of ELT which carried Mr. Maingi's article held {CCE, Mumbai-I v Charak Pharmaceuticals – 2001(127)ELT 748(Trib.-Mum)} " it is no doubt true that the cost of these goods is included in the cost of goods which are sold, since these are distributed free of cost. We are however unable to see how this is relevant for the purpose of valuation."

 

As the Tribunal says, the fact of the value being included in the subsequent clearances for sale is immaterial. Samples are cleared not for sale. So the value has to be arrived at based on the valuation rules. That is the simple and sound logic and that is also the LAW. When duty is paid, the assessee would include the cost of the free sample, inclusive of duty on the goods, which are later sold.

 

In spite of the fact that no deduction was allowed in Income Tax, as this is treated as advertisement and that the value is included in the sale of other goods, the position in Central Excise would not change. The latest order of the Tribunal upholds this position.

 

EXCISE LAW TIMES 15 09 2001 – A 250

UNJUST ENRICHMENT – UNENDING LITIGATION

BY

K.Vijay Kumar, M.A.,B.Ed., B.L.,

SUPERINTENDENT OF CENTRAL EXCISE

 

 

 

    "Nor is there any provision under which the court could deny refund of tax even if the person who paid it has collected it from his customers and has no subsisting liability or intention to refund it to them or for any reasons it is impracticable to do so" was the helpless view of the Supreme Court in D.Cowasji & Co. v. State of Mysore. It was to overcome this difficulty that the Central Excise & Customs Laws' (Amendment) Act, 1991 was passed where by an identical sub-section (3) was included in Section 11B of the Central Excises and Salt Act, 1944 and the Customs Act, 1962 which reads.

 

    "Notwithstanding anything to the contrary contained in any judgment, decree, order or direction of the Appellate Tribunal or any Court or in any other law for the time being in force, no refund shall be made except as provided in sub-section (2).

 

    Sub-section (2) says that refund if due shall be credited to the fund. It further says that the refund shall instead of being credited to the fund, be paid to the applicant, if such amount is relatable to:

 

• in the case of Customs "to the duty paid by the importer if he has not passed on the INCIDENCE of such duty to any other person " (this also has an interest clause, which is beyond the purview of this article);
  

  
   

• in the case of Central Excise " to the duty of Excise paid by the manufacturer if he had not passed on the INCIDENCE of such duty to any other person". It was also provided that an application for refund made prior to the commencement of the Act (20-9-1991), will be deemed to have been made under this Act and will be dealt as per the provisions of sub-section(2)
  

  
   

  
   

Two new Sections 28D and 12B were added to the Customs Act and CESA respectively which made a legal presumption that " any person who has paid duty under the Act shall, unless the contrary is proved by him, be deemed to have passed on the full incidence of such duty to the buyer:

 

    In a nutshell it means that:

1. refund shall be made only if the applicant proves that the incidence of duty has not been passed on to any other person;
   
2. any order of a Tribunal or Court does not alter the above position;
   
3. All pending applications to be dealt with under the new provisions. When this becomes law with effect from 20-9-1991, it was felt that the amendments are draconian and un-constitutional. The writ jurisdiction of the High Courts under Article 226, cannot be curtailed and it was a legal contradiction to say no refund will be given, notwithstanding any order of a Court. It was also believed that litigationi n Customs and Excise cases would come down drastically as no body would be interested in litigation, if there is no refund. Many felt that consultants would be now out of jobs Of course nothing of the sort happened. In fact this amendment itself created a lot of fresh confusion and conflicting judgments.
   

    The following are some of the questions agitating legal brains:

1. Is the Act valid?
   
2. Can High Courts pass refund orders under Article 226?
   
3. What about goods captivety consumed and / or distributed as free samples?
   
4. Does the act apply retrospectively?
   

 

Let us see the judgments on these and other related topics.

 

As expected the validity of the 1991 amendment Act has been challenged in various High Courts and Supreme Court. In fact recently the Union of India in a transfer petition sought for the transfer of the Writ Petition No. 3973/91 pending in the Bombay High Court. The Supreme Court declined to transfer the writ petition but stated that "it is open to the petitioner (G.O.I.) to ask for stay of hearing in the High Court pending a decision of this Court on the validity of 1991 Amendment to the Central Excise Act (Relating to unjust enrichment)". 1995 (75) E.L.T. A113.

    In anther recent caser the Supreme Court admitted aN S.L.P. on the order of the High Court granting refund while exercising its extra ordinary writ jurisdiction. The SCI order said "Leave granted. List after the judgment of the Nine Judge Bench on the question of unjust enrichment" [1995 (77) E.L.T.A136]. Two other SLPs were admitted against the Bombay High Court's judgments ordering refund if money paid under a mistake of law. 1995 (76) E.L.T.A 166 and 1995(77) E.L.T.A 70. So the issue is yet to be finally decided by the Supreme Court, but in the meanwhile there are conflicting judgments from various High Courts, Tribunal etc.

    The Rajasthan High Court in Adarsh Metal Corporation v. Union of India [1993 (67) E.L.T.483 (Raj.)] held:

1. that even after20-9-1991, no application was required to be made for a claim arising our of an order passed in appeal or revision;
   
2. Section 11B applied only to cases where an application for refund is required to be filed;
   
3. It is the duty of the State to refund the duty collected unauthorisedly as it is prohibited to collect any tax which is not authorized under Article 265 of the Constitution;
   
4. The presumption under section 12B that duty is deemed to have been passed on is not applicable retrospectively;
   
5. Passing of incidence of an 'illegal duty is not relevant.
   

 

But this decision of the High Court has been almost totally reversed by the Supreme Court in "Union of India v. ITC Ltd." [1993 (67) E.L.T.3 (S.C.)]. Before dealing with this case it would be relevant to look at the facts of the case in U.O.I. v. Jain Spinners [1992 (61) E.L.T.321(S.C.)] which are very interesting and worth recalling.

 

 

A refund was allowed by the Assistant Collector. Subsequently based on a chemical analysis, the department took the view that refund was erroneously granted. A show cause notice was issued to recover it, and the Assistant Collector confirmed the demand. The assessee challenged the order of the Assistant Collector in a writ petition before the High Court and also filed an appeal before the Collector (Appeals). The High Court issued an interim stay but directed the assessee to deposit the amount in Court (which the Government was subsequently allowed to withdraw on the condition that it would pay interest at Bank rate and refund the amount if the petitioner ultimately succeeded). The Collector (Appeals) passed an order in favour of the assessee with consequential relief. The assessee filed an application for refund with interest and also approached the High Court for a direction to the respondents to pay the amount with interest. On 19.9.1991, the High Court directed the Union of India to refund the amount to the assessee. On 20.9.1991, the amendment act came into force, whereby notwithstanding any order of any Court, refund cannot be made except in accordance with the provisions of sub-section (2) of Section 11B. On 13.4.1992, the Assistant Collector passed an order rejecting the refund as the incidence of duty has been passed on, as per the new Section 11B. The assessee again approached the High Court and High Court ordered the Government to deposit the entire amount of refund with interest. Against this order of the High Court, the Union of India appealed to the Supreme Court where it succeeded. The Supreme Court rules that "Section 11B(3) would apply to all cases which were pending notwithstanding any order or decree or judgment of a Court of Tribunal". So in the Jain Spinners case the question of retrospectivity of Section 11B(3) has been finally settled.

 

This has been reiterated by the Hon'ble Supreme Court in the ITC case. This was a case decided by the High Court in 1982 and the case came up for hearing in appeal before the Supreme Court in 1993, when Union of India raised the point of unjust enrichment and Section 11B(3) for the first time. The respondent objected that since plea of unjust enrichment was not made before the High Court or in the Special Leave Petition or by way of an additional ground before the Supreme Court, they should not be allowed to revise it at the belated stage of hearing. The Court held that a statutory provision which comes into existence during the pendency of an appeal can always be permitted to be raised during the hearing.

 

While the Supreme Court had settled one part of the issue, there are other left open and there have been a plethora of judgments of the High Courts and Tribunal.

 

In Orissa Cement Ltd v. Collector , 1995 (75) ELT 486 (Ori.)., the Orissa High Court recently ordered that the Assistant Collector had no power to invoke the principle of unjust enrichment. Perhaps this is a decision before the amendment, reported now.

 

The Bombay High Court in an order dated 25.6.1993 [1993 (66) ELT 614 (Bom.) refused to vary or modify its order dated 9^th July, 1991 granting refund even thought he Amendment Act came into force on 20^th September, 1991. It was perhaps not necessary for the department to approach the Court to modify its order, as anyway notwithstanding any order of any court, refund would not have been granted except under Sec.11B(2). On the same day in another order [1993 (66) E.L.T. 601 (Bom)] the Bombay High Court directed the Assistant Collector to pay refund within a week and also fined the Assistant Collector for contempt of Court. Here the Court observed that after the amendment, the Union of India have not taken out any proceedings in the court seeking any variation of its earlier order granting refund. The Court did not accept the claim that writ issued by the court stands cancelled after amendment. (Notwithstanding any order of any Court etc).

 

Is pre-deposit of disputed amount before filing appeal to be treated as duty an will the restrictions on refunds apply to such deposits?

 

'No' said the High Court of Calcutta in "Super Cassettes Industries v. Collector of Customs" [1993 (66) E.L.T. 557 (Cal.)]. The Court held that Section 27 (of the customs Act) is not applicable to refund of amount deposited under Section 129E, when the assessee succeeds at the Appellate stage.

 

Take another case.

 

An Assistant Collector passed an order in March, 1991 granting refund to an assessee. Even the cheque was got ready, but before the cheque could be issued, the Collector reviewed the order and directed the Assistant Collector to appeal to Collector (Appeals). Because the matter was in appeal, the cheque was not given to the assessee. The Collector (Appeals) and later CEGAT upheld the order of the Assistant Collector. By this time, 1991 Amendment act has been passed and the Asst. Collector now says, no refund can be given except under section 11B(2). Is he right ?

 

In Gange-Shavar Ltd v. Union of India [1995 (76) E.L.T. 515 (All)], the Allahabad High Court held that refund claim is not rejectable for bar of unjust enrichment when there are specific directions from the High Court.

 

What about imported goods not sold but captively consumed?

 

Even on this issue there are conflicting views. The Calcutta High Court in "Assistant Collector of Customs v. East Anglia Plastic (India) Ltd." [1994 (74) E.L.T. 29 (Cal.)] held that the bar inserted by Customs Laws (Amendment) Act, 1991, with effect from 10.9.1991 is not applicable to cases where imported goods are either consumed by the importer or are used by him in the manufacture of other products, where there is nothing on record to show that assessee had passé don incidence of duty to other persons.

 

The Punjab and Haryana Court in "Indian Woollen Textile Mill s(P) Ltd v. C.C.E, Chandigarh" placed reliance on the Jain Spinners case and held that refund is not allowable if the applicant failed to plead that he has not passed on the burden of duty to others.

 

In "Vardhman Spg. & General Mills v. Collector of Customs [1993 (68) E.L.T. 919 (Tri.)] CEGAT ordered that when goods are not sold, no question of passing incidence of duty arises and therefore bar of unjust enrichment is inapplicable.

 

In a recent case [1995 (78) E.L.T. 636 (Coll. Appl.)], the collector of Custom s(Appeals), Madras took a different view. He stated that "the onus in terms of Section 28D lies squarely on the appellant to establish beyond doubt that incidence of duty in respect of the imported goods in question has not been passed on". In this case also the importer had captively used the imported goods and had not sold them. The Collector (Appeals) rejected their appeal as they failed to prove that the incidence of duty has not been passed on.

 

So where do we stand ? It is difficult to arrive at any conclusion from this maze of conflicting decisions. Perhaps, we will have to wait till the Hon'ble Supreme Court gives a final and conclusive verdict.

 

In conclusion, the words of the Collector(Appeals) referred to above, are worth recalling.

 

"The underlying spirit of the concept of unjust enrichment is that the one who has passed on the incidence of duty to another person should not be allowed to be enriched by way of refund of the amount so passed on".

 

That is what unjust enrichment is all about or is it all?

EXCISE LAW TIMES – 01.02. 1995 – A 168

TRANSACTION VALUE – INTERST - WHOSE INTERESTS?

by

 

K. VIJAY KUMAR¹

MA, BL, B.Ed, MBA

Superintendent of Central Excise, Hyderabad

 

Interest is of two types. Interest on delayed payments which the assessee receives and interest on advances which the assessee may or may not pay. There may be an intrinsic or notional value of the interest. Inclusion or otherwise of interest in the assessable value has been a bone of contention between the department and the trade for quite a long time and the law is fairly settled on this count. Or is it?

    The new concept of transaction value does not explicitly mention interest. How ever Board's circular F. No. 354/81/2000 – TRU dated 30.6.2000 - 2000(119)ELT T-22, para 8 deals with interest on delayed payments. The circular says that such interests will not form part of the assessable value provided that

1. the interest charges are clearly distinguished from the price actually paid or payable for the goods;
   
2. the financing arrangement is made in writing; and
   
3. where required, assessee demonstrates that such goods are actually sold at the price declared as the price actually paid or payable.
   

 

According to this, every time there is a deduction of interest charged for delayed payments, we in the department are to see that the interest is clearly distinguishable, that there is an agreement in writing and where required, (it is not clear at what level this requirement is and how should I decide where it is required) the assessee demonstrates that the goods are actually sold at the declared prices. All this is fine. There is only a small problem. I do not get the invoices from the assessees. I come to know this only when I call for the records for a random check or when my auditors go for an exhaustive study. At the time of clearance, there is no assessment by the department. Or are we to follow Provisional Assessments here too? This is the problem of trying to import Customs procedures into Central Excise. Unlike in Central Excise, in Customs there is an assessment before the goods are cleared and the officer can get all these points cleared while there is no such chance in Central Excise.

In fact the above para 8 instructions of the Board is a straight lift from Decision 3.1 of the CCC Technical Committee which reads as follows:-

1. the charges are distinguished from the price actually paid or payable for the goods;
   
2. the financing arrangement is made in writing; and
   
3. where required, the buyer can demonstrate that
   

• such goods are actually sold at the price declared as the price actually paid or payable, and
  
• the claimed rate of interest does not exceed the level for such transactions prevailing in the country where, and at the time when the finance was provided.
  

    But here also unfortunately, there has been a slip. Under clause C above, in decision No.3.1 of the CCC technical Committee, there are two clauses, the second (highlighted above) is glaringly missing from the Board circular. And this can play a lot of mischief. Now if there is a written arrangement between the assessee and his buyer that for delayed payments, he has to pay interest at the rate of 100% per month, this 100% interest as per Board Circular is excludable from the assessable value. That is why the second clause to C of the CCC decision is important. The interest claimed should not exceed the level for such transactions prevailing in the country where, and at the time when the finance was provided. In India, say the normal rate of interest charged for delayed payments is 24% pa. Therefore the interest claimed should not exceed 24%. This vital point is absent in the Board's circular.

    It may be pertinent to know what the position is in the United States of America. Section 53.91 of the CFR Title 27 declares "In the case of sales on credit, a carrying, finance, or service charge is excludable from the sale price if it is reasonably related to the costs of carrying the deferred portion of the sale price (such as interest on the deferred portion of the sale price, expenses of bookkeeping necessary to keep the records of such sales, and expenses of correspondence and other communication in connection with collection)"

 

As per the American law, not only the interest but also the expenses of book keeping and correspondence relating to collection of such interest, are deductable from the price for arriving at the taxable value.

 

While the Board circular clarified that interest paid by the buyer for delayed payments is not includable, it has not been clarified as to what the position is regarding interest on advance deposits. The law is almost settled with the Metal Box decision but still there is a lurking fear in the department as to what the real consequences are. This could have been clarified in the new section or the rules.

There is yet another angle. Damages for delayed delivery. When the assessee is not able to supply a product within the stipulated time a percentage of the agreed price is cut as penalty for delayed deliveries. Is this excludable from the Value?

 

                        Any Clarification?

 

 

EXCISE LAW TIMES – 01.10. 2000 – A 7

TRANSACTION VALUE – amount paid to a third party

by

 

K. VIJAY KUMAR¹

MA, BL, B.Ed, MBA

 

Transaction Value means the price actually paid or payable for the goods when sold and includes in addition to the amount charged as price, any amount the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty.

 

In simple English, this means that any amount payable by
the buyer or on behalf of the buyer to the assessee (with of course certain exceptions which are not within the purview of this article) is the TRANSACTION VALUE. The question this article poses is, " What about the amount payable by or behalf of the buyer to a person other than the assessee?"

 

Let us see an example.

 

A is the assessee. He has an agreement to sell his products to B for Rs. 100/-. C pays to A Rs. 20/-. B pays to D Rs 30/-. Assume A, B, C and D are not related and the price is the sole consideration for sale and the sale is for delivery at the place and time of removal. Here the buyer is liable to pay Rs. 100 and on his behalf another person C pays Rs. 20. By reason of and in connection with this sale another person D gets Rs. 30/-. D could be a temple, a charitable trust, a state agency like JPC, an extortion mafia etc. Now as per the definition of Transaction value, the price paid by B ie Rs 100/- and the amount paid by C ie Rs. 20/- are includible. Therefore the Transaction value in this case is Rs. 120/- But the actual value of the transaction is Rs 150/-. though Rs. 30/- actually goes to a person other than the assessee. As per the law, only the amounts payable by the buyer or on behalf of the buyer is includible in the value. The "on behalf " is for the buyer and not the seller/assessee.

 

This was explained in Board's circular F. No.B-10/1/2000 dated 12.5.2000 – 2000 (118) ELT T.45 in para 2.2 which said, …" Any amount paid by the buyer himself or on his behalf to the assessee by reason of, or in connection with the sale, would form part of the transaction value. Any amount that is charged or recovered from the buyer on account of factors like advertising…. Will also form part of the transaction value…………". Here also the question of including some amount which a third party realises from the buyer is not clarified.

 

Transaction value under the Customs Valuation Rules is the price actually paid or payable for the goods when sold …………. adjusted in accordance with the provisions of Rule 9…

such a definition in Central Excise would
have been better as there would have been less confusion.

 

The American Excise laws define the price as

In general. the ``price'' for which an article is sold includes the total consideration paid for the article, whether that consideration is in the form of money, services, or other things. ……Any charge which is required by a manufacturer.. to be paid as a condition of its sale of a taxable article and which is not attributable to an expense falling within one of the exclusions provided in section 4216 of the Code or the regulations thereunder is includable in the taxable sale price. It is immaterial for this purpose that the charge may be paid to a person other than the manufacturer…, or that it may be separately billed to the purchaser as a charge earmarked for expenses incurred or to be incurred in his behalf, such as charges for demonstration or display of the article, for sales promotion programs, or otherwise …….

 

(If not anything the above extract proves that the American laws are as confusing as ours, but their language appears to be more understandable than ours. After all we speak better English than the queen!)

 

When I discussed this point with some colleagues and senior officers, they told me

1. The words "by reason of, or in connection with" take care of the situation. Any amount paid in connection with or by reason of the sale is includable.
   
2. A sale where a third party gets some money is not a sale where the price is the sole consideration for sale and so this would go out of the scheme of transaction value.
   

Both the arguments are specious. Any amount by reason of or in connection with the sale is includable if it is paid by the buyer or on his behalf to the assessee. Certainly not if it is paid to somebody.

And here the price IS the sole consideration; there is absolutely no dispute on that.

 

In this connection a look at Rule 6 of the valuation rules is pertinent. Where the excisable goods are sold in the circumstances specified in clause (a) of sub section 4 of the Act except the circumstance when the price is not the sole consideration for sale, the value of such goods shall be deemed to be the aggregate of such transaction value and the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee. Here also only the consideration flowing from the buyer to the assessee is covered, not the additional consideration flowing to another person.

 

The simple problem is " why the law has not made it clear that when an amount payable on behalf of the buyer is includable, an amount payable to sombody for the seller is not includable?

 

Is this not an unintented benefit which may become the subject of litigation in future. I think it is better to rectify and clarify the position now than make Parliament pass a law with retrospective effect that it was never the intention of the Government to exclude such charges.

 

**** EXCISE LAW TIMES – 15.11.2000 – A13