Mother Dairy Fruit and Vegetable Pvt. Ltd Vs Commissioner of Central Excise (CESTAT Mumbai)
CESTAT Mumbai held that the goods are to be assessed in the form they are produced for assessment. Accordingly, goods cleared as ‘fruit pulp’ cannot be assessed and duty cannot be demanded on the basis of sale price of ‘fruit juice’.
Facts-
Appellant is an 100% Export Oriented Unit. They had cleared the “fruit pulp” were not liable to excise duty as such to the job worker of their sister DTA unit for further processing as per the agreement and direction of their sister concern. The Appellant reversed the duty forgone in terms of the paragraph 6.8(j) of the FTP 2004-09 read with the proviso to the clause 6 of the Notification No.22/2003-CE dated 31.03.2003 read with the proviso to the clause 3 of the Notification No.52/2003 Cus dated 31.03.2003. For determining the duty forgone they took the value at which they had cleared the “fruit pulp”.
Revenue was of the view that the value adopted for determining the duty forgone, should be of the “fruit juice” cleared by the job worker/ processor.
Accordingly a show cause notice was issued to the appellant asking them to show cause as to why the amount of duty foregone should not be determined on the basis of value of “fruit juice” at which the job worker – processor of their sister concern was clearing the goods after processing, and the differential amount of the duty foregone should not be recovered from them.
This show cause notice was adjudicated by the additional commissioner as per the order in original referred in para 1, above. Appeal filed by the appellant, was dismissed by Commissioner (Appeal) as per the impugned order. Aggrieved appellant have filed this appeal.
Conclusion-
Held that it is settled principle that the goods are to be assessed in the form they are produced for assessment. The goods cleared in the present case are ‘fruit pulp’ and not the ‘fruit juice’ hence the entire proceeding which seek to demand the duty on the basis of the sale price of ‘fruit juice’ cannot be sustained.
In this case fruit juice produced from the fruit pulp supplied by the Appellant, to the M/s Godrej Hershey was processed on job work basis under the instructions of the sister unit of the appellant. It is nobodies case that M/s Godrej Hershey was related person of the appellant. The MOU dated 01.04.2007 clearly provides that the Appellant would only be clearing the “Fruit Pulp”.
FULL TEXT OF THE CESTAT MUMBAI ORDER
This appeal is directed against order in appeal No. YDB(32)MV/2012 dated 29.05.2012 passed by the Commissioner of Central Excise (Appeals), Mumbai-I, upholding order in original No. 442/07/1/2011/ADDL/AGS dated 13.12.2011 of the Additional Commissioner of Central Excise. By the order in original, the Additional Commissioner has held as follows:
“ORDER
In the facts and circumstances of this case, as discussed, analyzed and found above –
1. I determine and confirm the amounts of unpaid differential duties of excise of 28,16,877/- [Rupees twenty eight lakh sixteen thousand eight hundred seventy seven only) under Section 11A(2) [now Section 11A(10)] of the Central Excise Act, 1944 for being recovered from M/s Mother Dairy Fruit & Vegetable Private Limited, NDDB Campus, Near Mahananda Dairy, Western Express Highway, Goregaon (East), Mumbai -400 065 along with accrued interest thereon under Section 11AB [now Section 11AA] of the Central Excise Act, 1944; and
2. 1 Impose a penalty of 28,16,8771- [Rupees twenty eight lakh sixteen thousand eight hundred seventy seven only] upon M/s Mother Dairy Fruit & Vegetable Private Limited, NDDB Campus, Near Mahananda Dairy, Western Express Highway, Goregaon (East), Mumbai-400 065 under Section 11AC [now Section 11AC(1)(a)] of the Central Excise Act, 1944.”
2.1 Appellant is an 100% Export Oriented Unit. They had cleared the “fruit pulp” were not liable to excise duty as such to the job worker of their sister DTA unit for further processing as per the agreement and direction of their sister concern. The Appellant reversed the duty forgone in terms of the paragraph 6.8(j) of the FTP 2004-09 read with the proviso to the clause 6 of the Notification No.22/2003-CE dated 31.03.2003 read with the proviso to the clause 3 of the Notification No.52/2003 Cus dated 31.03.2003. For determining the duty forgone they took the value at which they had cleared the “fruit pulp”.
2.3 Revenue was of the view that the value adopted for determining the duty forgone, should be of the “fruit juice” cleared by the job worker/ processor.
2.4 Accordingly a show cause notice was issued to the appellant asking them to show cause as to why the amount of duty foregone should not be determined on the basis of value of “fruit juice” at which the job worker – processor of their sister concern was clearing the goods after processing, and the differential amount of the duty foregone should not be recovered from them. Show Cause notice was issued invoking extended period of limitation and also proposed for recovery of interest and imposition of penalty.
2.5 This show cause notice was adjudicated by the additional commissioner as per the order in original referred in para 1, above. Appeal filed by the appellant, was dismissed by Commissioner (Appeal) as per the impugned order.
2.6 Aggrieved appellant have filed this appeal.
3.1 We have heard Shri P K Shetty and Virat Chanda, Advocates for the appellant and Shri Deepak Bhilegaonkar, Additional Commissioner, Authorized representative for the revenue.
3.2 Arguing for the appellants learned counsels submit that
> in the paragraph 41 of the Order-in-Original dated 12.12.2011 it is held that the goods cleared by the Appellant (EOU) were not liable to excise duty and as such, the Appellant (EOU) had reversed the duty forgone in terms of the paragraph 6.8 (j) of the FTP 2004-09 read with the proviso to the clause 6 of the Notification No.22/2003-CE dated 31.03.2003 read with the proviso to the clause 3 of the Notification No.52/2003 Cus dated 31.03.2003.
> the aforesaid manner of assessment was done only after taking specific permission from the jurisdictional customs authority by virtue of its letter F. No. S/16-EOU-01/96-992 VI dated 19.09.2008 confirming the quantum of duty payable in respect of the goods cleared by the Appellant (EOU) to the DTA.
> Larger Bench of this Hon’ble Tribunal in case of Green Brilliance Energy (P) Ltd. V. CCE&ST, Vadodara-l’ has held that when the goods cleared from the EOU to the DTA are non-excisable or even if they are liable to NIL rate of duty, the same are liable to be assessed after reversing the duty forgone in terms of the paragraph 6.8(j) of the FTP read with the proviso to the clause 6 of the Notification No.22/2003-CE dated 31.03.2003 read with the proviso to the clause 3 of the Notification No.52/2003 Cus dated 31.03.2003.
> Memorandum of Understanding dated 01.04.2007 between the Appellant (EOU) and the distinct DTA unit clearly demonstrates that the Export Oriented Unit and the Domestic Tariff Area Unit were distinct entities from the point of view of assessment to central excise and customs duties. It further demonstrates that Godrej Hershey Ltd was a sub-contractor of the DTA unit and not of the EOU (Appellant) and as such, if at all any notice was to be issued for assessment of duty in relation to fruit juices processed by Godrej Hershey Ltd., the same at the highest could have been issued to the DTA unit and not to the Appellant (EOU).
> Besides this, the show cause notice is stale and time barred inasmuch as an earlier show cause notice based on the same set of facts was issued way back on 20.1.2010 as recorded in the paragraph 7 of the show cause notice and the present show cause notice was issued on 1.3.2011 even beyond the period of one year from the date of earlier show cause notice for the same DTA clearances. Appellant relies on the judgment of the Hon’ble Supreme Court in cases of Nizam Sugar Factory [2006 (197)ELT 465] and ECE Industries [2004 (13) SCC 719] categorically holding that a second show cause notice invoking larger period of limitation cannot be issued on a particular set of facts which were basis for an earlier show cause notice.
> Even in case it is assumed without conceding that the valuation of the goods in question was governed by the provisions of Rule 7(3) of the Customs Valuation Rules, the sub clause (b) of the said Rule 7(3) categorically provides for exclusion of the value added by processing or “processing costs’ besides excluding selling & distribution expenses, freight, etc incurred in India and the normal profit margin. The aforesaid position in law is clear from the interpretative note to Rule 7 as well as the decision of this Hon’ble Tribunal in case of DCM Hyundai 2017(358) ELT 785
> Appellant humbly submits that a plain reading of the above provisions shall imply that the impugned order ought to have excluded the cost of processing incurred by the DTA unit besides also excluding selling & distribution expenses, freight, etc and the normal profit margin from the valuation of the fruit pulp cleared by the 100% EOU. Appellant submits that in case the impugned order had strictly applied the provisions contained in aforesaid Rule 7(3), it would have appreciated that the manner of assessment adopted by the Appellant is completely in line with the statutory provisions contained in the Proviso to Section 3(1) of the Central Excise Act, 1944 read with above Rule 7(3) and hence, the whole case against the Appellant deserved to be dropped.
> Neither the impugned order nor the show cause notice lead any evidence to show as to how the assessable value of Rs.1,97,20,400/- was arrived at by the Revenue nor to demonstrate as to how Rule 7 of the Customs Valuation Rules was applied without discussing application of earlier rules. Appellant submits that it is a settled law laid down by the Hon’ble Supreme Court in case of Varsha Plastics (P) Ltd. V. Union that the that the burden to prove the valuation lies heavily on the Revenue which in present case it has failed to discharge.
> The final de-bonding order under F.No.SEEPZ:28:EOU/99 2000/Vol 11/4306 dated 23.4.2010 was issued by the office of Development Commissioner, SEEPZ SEZ pursuant to the ‘no dues’ certificate issued by the concerned revenue authorities and hence, no suppression could be alleged against the Appellant for invoking larger period of limitation in view of the recent ruling of this Hon’ble Tribunal in case of CCE, Aurangabad V. Crompton Greaves Ltd.
3.3 Learned authorized representative reiterates the findings recorded in the impugned order.
4.1 We have considered the impugned order along with the submissions made in appeal and during the course of arguments.
4.2 Commissioner (Appeals) has in the impugned order recorded following findings for upholding the order in original of the Additional Commissioner-
“4. I have carefully gone through the entire records of the case and have also considered the averments made in the appeal memorandum as well as the oral and written submissions made before me during the course of personal hearing. The issue involved in the instant case is under the facts and circumstances of the case, whether it can be held that the appellants have correctly discharged their duty liability without resorting to suppression or misstatement in respect of the quantity and valuation of the fruit pulp and fruit juice at the respective stages of clearances from their units at Mumbai and Delhi and whether the Central Excise duty is correctly discharged by them or otherwise. In this case, in the first place, it is observed that while clearing the fruit pulp from their 100% EOU to the factory of M/s Godrej Hershey Ltd., the appellants had started clearing the consignments of fruit pulp on payment duty worked out by them in the manner prescribed in Sr. No. 2 of the Notification No. 23/2003-CE dated 31.03.2003, but with effect from mid October 2008 onwards, the appellants started clearing their subsequent consignments on payment of the duty forgone’ on the raw materials and the packing materials utilized in the manufacture of final products, instead of sticking to the earlier manner of assessment, they switched over to the assessment in the manner mentioned above.
5. Further, it is also observed that as claimed by the appellants, the DTA unit of the appellants had entered into two different agreements on different dates, one with the 100% EOU on 01.04.2007 and another one with M/s Godrej Hershey Ltd. on 01.04.2008. Even though, there appear to be two different units namely 100% EOU and DTA unit, they are in fact two divisions and not independent legal entities. So far as their inter se relationship is concerned, prior to their amalgamation, both the units were part of M/s Mother Dairy Foods Processing Ltd. It is a forgone conclusion that M/s Mother Dairy Foods Processing Limited had merged with the appellants company namely M/s Mother Dairy Fruit & Vegetable Pvt. Ltd. after the order of Hon’ble Delhi High Court passed on 07.08.2007. The period involved in the impugned order is subsequent to the amalgamation and hence the MOU between the DTA and 100% EOU will become meaningless and redundant, once the amalgamation is effected It is also observed that the EOU arm of the appellants was a division of M/s Mother Dairy Foods Processing Limited, when the MOU dated 01.04.2007 was entered into between the EOU and DTA divisions of M/s Mother Dairy Foods Processing Limited. Therefore, after the amalgamation order was passed by the Delhi High Court. Therefore the status of the terms and conditions of the said MOU dated 01.04.2007 will largely depend upon the said amalgamation order and will lose its independent existence for the purpose of its application. Therefore under such circumstances, the action of making payment of duty only on the cost of pulp and to the extent of duty forgone has resulted in short payment of duty.
6. Further, it is also observed that the lower adjudicating authority has rightly observed that the clearance of the fruit pulp from the 100% EOU to M/s Godrej Hershey Pvt. Ltd. on account of the DTA unit without charging the processing charges and without including the same in the costing of the fruit pulp for the purpose of valuation and without subjecting it to duty at normal rate cannot be viewed as a transaction at arm’s length. Actually the sale of processed fruit pulp has taken place from the Delhi arm of the appellants and the legal status of the unit has remained the same. Further, in this case, the lower adjudicating authority, in his findings has rightly observed that DTA sale of the processed fruit pulp from the Delhi arm of the appellants had occurred during the period of dispute and actually there was no DTA sale of the fruit pulp as such. Hence, the question of taking the prices of contemporaneous imports into consideration did not arise. Further, the lower adjudicating authority has also observed that the MOU dated 01.04.2007 had only limited significance in a limited context in as much as it spoke only of the inter se arrangements for conversion of fruit pulp to juice and consequent receipt of the processed juices by the Delhi unit of the DTA unit for the purpose of sale across India. Therefore, this arrangement cannot be used as a mechanism to circumvent the duty liability and by pass the same. Further, it is also observed that the lower adjudicating authority has fully addressed to all the pleas and arguments made and objections raised by the appellants at the time of hearing at his end. Now, I observe that the appellants have neither advanced any new arguments in their favour nor have pointed out any lacunae in the impugned Order-in-Original or have ever been able to complain that their particular objections or arguments were not considered by the lower adjudicating authority while passing the impugned Order. As to the imposition of penalty under Section 11AC of the Act, it is observed that the lower adjudicating authority has given due justification for his action of imposition of penalty and the appellants have failed to put forth any convincing arguments from their side to point out that the said penalty was unreasonable under the given circumstances and in view of the facts of the case. Also none of the case laws relied upon by the appellants are found to be applicable in the instant case.
7. In view of the foregoing, I observe that the lower authority has fully discussed all the relevant grounds and has also considered the various aspects of the issue involved in this case, in a just and fair manner, before correctly and aptly recording his views and findings and arriving at the final decision as per the impugned Order. I also observe that the appellants have failed to put forth any solid arguments against the allegations made against them in the instant case, as their arguments are found to be devoid of any material substance and hence are found to be incapable of establishing a case in their favour. Therefore, I do not find any reason to interfere with the impugned Order-in-Original.”
4.3 The only issue that is to be decided in this appeal is whether the goods as cleared by the appellant an 100 % EOU to the job worker of their own sister concern in DTA, need to be valued on the basis of the value determined on the basis of the form and manner in which the goods were cleared or they have to be valued on the basis of the value determined on the basis of price at which the job worker/ processor clears the goods.
4.4 Undisputed facts of the case are that appellant is an 100% Export Oriented Unit. They are having units in the DTA also. Appellant entered into an MOU dated 01.04.2007 with their DTA unit. Salient features of the MOU are reproduced below:
“1 EOU unit of Mother Dairy Fruit & Vegetable Pvt Ltd. (MDFPL) is manufacturing fruit Pulp/puree which are exported or sold in DTA.
2 DTA division of (MDFPL) is engaged in Juice Marketing and procures Pulp from EOU Unit on payment of applicable Duty.
3 DTA division (MDFPL) will get pulp from EOU (MDFPL) and the duty as applicable will be paid by EOU.
4 EOU (MDFPL) will obey all the instructions made by DTA (MDFPL) for delivery of Duty paid pulp to the Job workers premises, directly from EOU (MDFPL) premises.
5 The pulp billed by the EOU (MDFPL) to DTA (MDFPL) will include the cost of pulp and the duty.
6 EOU (MDFPL) Sales Price will be as above and all the statutory permission to sale the goods to DTA (MDFPL) will be taken by EOU (MDFPL).
7 DTA division (MDFPL) will be solely dealing with the job worker (M/s Godrej Hershey) for manufacturing juices out of the pulp being supplied by the EOU and instructing the job worker to dispatch the final product (juices) as per the requirements in various parts of the country. EOU will no where in the picture for any transaction related to either processing or selling or distributing the juices. The payment of job processing charges will be the done by the DTA Juice division of MDFPL.
8 It is understood & agreed between the parties that the DTA division (MDFPL) shall be solely responsible for all liabilities or any losses due to delivery and logistics, handling and in no circumstances EOU (MDFPL) will take back any such material since duty on such material may already been paid.”
As per this MOU, appellant was required to clear fruit pulp manufactured of fresh fruits procured from the farmers, and the DTA unit was required to process the fruit pulp to fruit juice.
4.5 The DTA unit entered into another MOU dated 01.04.2008 with Godrej Hershey Ltd, for processing of the fruit pulp received from the appellant into fruit juice. As per these two MOU’s cleared the fruit pulp directly to Godrej Hershey Ltd. It is not in dispute that the appellant had cleared the fruit pulp only and not the fruit juice.
4.5 Fruit pulp is non excisable in nature, in as much as the Custom tariff itself did not prescribe any duty for the same, the tariff rate for the relevant Chapter Sub Heading No. 0804.5040 being nil and hence the DTA clearances were made by the 100% EOU by reversing the ‘duty forgone’ in respect of the duty free inputs procured by it, in terms of proviso to clause 6 of the Notification No.22/2003-CE dated 31.03.2003, read with clarification issued by CBEC by virtue of its Circular No. 54/2004-Cus dated 13.10.2004. Therefore appellant had in terms of para 6.8 (j) of the FTP 2004-09 read with the proviso to the clause 6 of the Notification No.22/2003-CE dated 31.03.2003 read with the proviso to the clause 3 of the Notification No.52/2003 Cus dated 31.03.2003 had reversed the duty forgone. This manner of clearance of the exempted/ chargeable at nil rate, goods to DTA has been done as has been held by the Larger Bench of the Tribunal In the case of Green Brilliance Energy P Ltd. [2015 (325) E.L.T. 351 (Tri. – LB)].
4.6 For determination of the amount of duty foregone, appellant had vide his letter dated 18th July 2008, addressed to Assistant Collector of Customs, New Custom House Ballard Estate Mumbai, has submitted the as follows:
“We have received an order for DTA sale for about 675 mt (3125 drums) of Mango Pulp. We would like to repay back the duty amount being saved by us for processing these quantities and clear the same under DTA sale. We had procured packaging material such as drums, polyliners, Aseptic bags. and thermocol sheets for packing this product.
The work sheet showing the amount of duty saved is enclosed herewith in Annexure I along with the relevant documents such as CT 3, Bill of entry, procurement certificate, copy of Bond register and copy of CT 3 register.
Please also find enclosed herewith a copy of permission for DTA sale being issued by the Development Commissioners Office, Seepz under para 6.8 (a) of the Foreign Trade Policy 2004-09.
Hence, as per the work sheet, amount of duty payable is Rs. 5,74,897.27 (Rupees five lac seventy four thousand eight hundred ninety seven and paise twenty seven only), which works out to Rs. 183.96 (Rupees one hundred eighty three and paise ninety six only) per drum.
Please approve the same to enable us make necessary payments at the time of clearing the material.
