PSL LTD. Vs. COMMISSIONER OF CUSTOMS

JUDGEMENT

(1.) THIS appeal arises from Order -in -Appeal No. 20/2006 dated 16.1.2006 by which demands have been confirmed in terms of Order -in -Original No. 60/2004 -05 dated 30.3.2005 passed by the Additional Commissioner. The appellants are manufacturers of spirally welded MS Pipes and Cement guniting of said pipes falling under Chapter Sub Heading No. 7305.90 of the Schedule to CET. The Department verified the records and found that they had executed the work order of M/s. L&T, Chennai in respect of their water supply project to the Visakha Industrial Water Supply Company Limited in terms of mutually agreed rate. It is alleged that M/s. L&T while purchasing HR coils from SAIL, the invoice of SAIL shows M/s. L&T as the buyer and the appellant is the consignee. It was found that landing cost of HR coils, which is being paid by M/s. L&T to SAIL is varying and always more than what M/s. L&T is charging from the appellants out of the agreed upon contract price. The appellant had taken credit on these coils based on the price shown in the SAIL invoices, though M/s. L&T has deducted lesser price from the bill of appellant towards HR coils. Therefore, they were issued with show cause notice alleging undervaluation and raising demands.

(2.) THE appellants contended that the findings of the adjudicating authority that there is no sale but transfer of HR coils between the appellants and M/s. L&T is factually not correct and without evidence. In July 2003, the appellants entered into a forward contract with L&T for sale of HR coils at a fixed and firm price. The price so fixed was the prevailing market price. The essence of any forward contract is that any subsequent increase/decrease in price would be on seller's account and not on buyer's account. It was clearly agreed that any subsequent increase/decrease in price of HR coils would accrue to L&T's account. Accordingly L&T sold HR coil at a fixed basic price of Rs. 15,000/ - per M.T. Once there is a sale price available between two independent parties, such sale price cannot be ignored. Merely because the seller of raw material happens to be buyer of final product does not make any difference. The appellants could have placed forward contract with any manufacturer of HR coil, for sale of HR coils at a fixed and firm price. Since the appellants were sub -contractor and L&T were the main contractor, it was prudent that L&T sell to the appellants the coils of required specification and in turn purchase pipes of required specification. Price at which pipes is being sold by the appellants to L&T Limited is the sole consideration. They further contended that he Rule 6 of the Central Excise Valuation Rules 2000 is not applicable to the present case. "Where the excisable goods are sold in the circumstances specified in Clause (a) of Sub -section (1) of Section 4 of the Act, except the circumstances where the price is not the sale 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". The Central Excise Act 1944 in general and Rule 6 in particular, makes a clear distinction between sale and supply. Rule 6 applies only when goods and services are supplied free of cost at reduced cost by the buyer to the seller. The law consciously provided that the goods and services of the nature enumerated in Clauses (i) to (iv) should be supplied and not sold by the buyer of final product, either free of cost or at reduced cost. The HR coils are not supplied but sold by the buyer of final product. This proves that Rule 6 is not applicable. The additional consideration dealt by Rule 6 should be apart from the sale price which the buyer is required to pay to the seller. The alleged additional consideration was never supposed to be paid by the appellants to L&T. Hence, Rule 6 is not applicable. The contract clause between the appellants and L&T that "..you shall be returning surplus materials/waste and will present each running bill to us with proper reconciliation for all the materials issued to you every month if any". The fact that surplus coils are to be returned does not mean that sale of price of coils is not genuine. The buyer only wants to ensure that such coils are not used for purposes other than manufacturing the pipes required by the. Further, the waste generated fro coils has been sold to L&T and cleared on payment of duty. Therefore, there is no loss of revenue. The measure of price does not determine the nature of contract. Whether there is any transfer of property or not from one person to another person determines the nature of contract. Undisputedly, property in the form of coils has been transferred to the appellants and the appellants transferred the property in the form of pipes to L&T. As regards the imposition of penalty, the appellants contended that they have not suppressed any facts from the department with intent to evade payment of duty. Further, there is no reason for the appellants to evade payment of duty because ultimately entire duty is to be reimbursed to the appellants by L&T. Finally the appellants contended that they have not contravened any of the provisions of Central Excise Act 1944 read with Central Excise Rules 2002 at any stage.

(3.) THE above submissions made by the appellants have not been accepted by the Commissioner. He has noted that the assessee ought to have taken the value of HR coils in terms of price shown in the SAIL invoices.