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Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.1829 OF 2008

Commissioner of Central Excise,  Appellant(s) Pune

Versus

Hindustan National Glass and            Respondent(s) Industries Limited

O R D E R  

Dipak Misra, J.

A  show  cause  notice  under  F.  No.

Prev/CEX/AEI/OBL/ 141/99/797 dated 16th August, 2002,

was  issued  to  M/s.  Owens  Brockway  (I)  Pvt.  Ltd.,  the

predecessor-company of the respondent which is presently

known as Hindustan National Glass and Industries Limited,

by the Commissioner of Central Excise, Pune-I, alleging that

the manufacturing company was not adding the additional

consideration received from the customers in the form of

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advance  and,  therefore,  the  notional  interest  accrued

thereon  is  to  be  added  to  the  sale  price,  for  such

non-addition had resulted in depression of the assessable

value of the goods, namely, the bottles manufactured by the

respondent-assessee.   

2. In the show cause notice, it was mentioned that the

assessee had short paid the duty on its products, that is,

printed glass bottles, by under-valuing the same at the time

of  clearance  from its  factory  inasmuch as  it  did not  add

“additional  consideration”  received  from  M/s.  Coca  Cola

India and M/s. Pepsico India Holdings Pvt. Ltd.  The show

cause  notice  referred  to  the  statement  of  the  Manager

(Sales) of the Company from which it was discernible that

the  respondent-assessee  had  received  90% advance  from

M/s. Coca Cola India and 100% advance from M/s. Pepsico

India Holdings Pvt. Ltd. for the goods and it was giving 3-4%

discount to the said Companies.

3. After  the  reply  to  the  show cause was received,  the

adjudicating authority passed an order on 28th November,

2003,  making  a  demand  of  Rs.  33,91,934,00/-  under

Section 11A(1)  of  the Central  Excise  Act,  1944 (for  short

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“the  Act”)  being  the  duty  payable  on  the  additional

consideration received by the assessee from the customers

in  the  form  of  notional  interest  accrued  on  advance

payments and also imposed penalty for the same amount

under  Section  11AC  of  the  Act.   Apart  from  that,  the

adjudicating authority confirmed certain other demands.

4. Being grieved by the aforesaid order of the adjudicating

authority,  the  respondent-assessee  preferred  an  appeal

before  the  Customs,  Excise  and  Service  Tax  Appellate

Tribunal,  West  Zonal  Bench,  Mumbai  (for  short,  'the

tribunal').  Initially, the matter was heard by two Members

consisting  of  Member  (Judicial)  and  Member  (Technical).

The Member (Technical) came to hold that the revenue had

not  been able  to  discharge  the  onus  by  adducing  cogent

material evidence that the advances obtained from a buyer

had  really  been  instrumental  in  depression  of  the  price.

Learned Member further opined that there was no nexus of

interest  with  the  price  and  hence,  the  demand  was  not

acceptable and consequently, no penalty could be levied.

5. The Member (Judicial) adverted to the order passed by

the  Commissioner  wherein  the  statement  of  the  Manager

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(Sales) had been adumbrated in detail, referred to the other

documents that had been put-forth by the revenue before

the  adjudicating  authority  and  in  course  of  discussion

adverted  to  the  principle  stated  in  Commissioner  of

Central Excise, New Delhi vs. Hero Honda Motors Ltd.1

and opined as follows:

“In view of the above decision, I am of the opinion that  the  matter  needs  to  be  remanded  to  the Commissioner for fresh examination in the light of the observation made by the Hon'ble Supreme Court in the case of Hero Honda Motors Ltd. vs. CCE  referred  supra  and  after  examining  the entire aspect of the use of the advances, income generated  from  the  said  advances,  their contribution  of  the  pricing  structure  and  their reflection  in  the  Balance-sheet  or  the  Annual Reports of the appellants, and the deployment of the funds so received by them, as I agree with the learned brother Shri Sekhon that onus to prove so is on the Revenue.  However, the appellants would be at liberty to produce relevant evidences before  the  adjudicating  authority  in  support  of their  contention  that  the  interest  accrued  on such advances have not in any way resulted in depreciation of the price.  All other issues are left open  for  the  appellants  to  address  before  the adjudicating authority.”

6. As  there  was  difference  of  opinion,  the  matter  was

referred to the third Member and the third Member, who 1  (2005) 4 SCC 182

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was a Judicial Member, vide order dated 29th August, 2007,

cogitated on the concept of assessable value under the Act,

the concept  of  two prices and eventually  opined that  the

decisions in  Hero Honda Motors Ltd. (supra) and  Metal

Box India Ltd. vs. Collector of Central Excise, Madras2

are  not  applicable  to  the  case  at  hand  and  accordingly

concurred  with  the  opinion  expressed  by  the  Member

(Technical).   Hence,  the  revenue  is  before  this  Court  in

appeal.

7. We have heard Mr. Yashank Adhyaru, learned senior

counsel  for  the appellant-revenue and Mr.  Aarohi  Bhalla,

learned counsel for the respondent-assessee.

8. On a scrutiny of the factual score, it is noticeable that

the  respondent-assessee  had  obtained  certain  advance

sums from some companies/users to supply the bottles and

on that count it had granted 3-4 per cent discount.  Though

the quantum had not been stated precisely, yet it has been

found as a matter of  fact that M/s. Coca Cola India and

M/s. Pepsico India Holdings Pvt. Ltd. had given advances

for 90% and 100% respectively for their purchases.

2  (1995) 2 SCC 90

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9. In  Metal  Box  India  Ltd. (supra),  the  Court  while

dealing with the transaction between the appellant therein

and M/s. Ponds (I) Ltd., who was a whole-sale buyer of the

appellant's goods, had accepted the view of the tribunal and

expressed thus:

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

10. In Hero Honda Motors Ltd. (supra), the question that

arose for determination is whether receipt of advance and

the  income  accruing  thereon,  had  gone  towards  the

depreciation of the sale price.  In that context,  the Court

opined that there is conspectus of decisions which clearly

establish  that  inclusion  of  notional  interest  in  the

assessable value or wholesale price will  depend upon the

facts of each case.  The three-Judge Bench adverted to the

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facts of the case, the agreement existing between the parties

and  the  lower  price  at  which  the  respondent-assessee

therein had sold the motor-cycles and after analysing the

factual matrix opined as follows:

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

11. In  the  case  at  hand,  the  Member  (Judicial)  has

remitted the matter to the competent authority to deal with

it  afresh  in  the  light  of  the  decision  rendered  in  Hero

Honda Motors Ltd. (supra).

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12. Mr.  Aarohi  Bhalla,  learned  counsel  for  the

respondent-assessee would submit that when no evidence

was adduced by the revenue at any point of time and the

law is settled that the onus is on the revenue to establish

that  there  has  been  depression  of  assessable  value,  the

majority view of the tribunal cannot be found fault with.

13. Mr.  Yashank  Adhyaru,  learned  senior  counsel

appearing for the appellant-revenue would submit that the

documents were produced before the adjudicating authority

as well as the tribunal to show the nature of advance and

the manner of  transaction from which it  is  demonstrable

that there has been depression of the assessable value.

14. On a perusal of the order passed by the Commissioner,

it  is  seen  that  observations  have  been  made  on  certain

aspects and inferences have been drawn. It cannot be said

that  no  material  was  produced  by  the  revenue.  The

concerned Commissioner has taken note of the statement

made by the Manager (Sales) of the assessee-Company.  An

aspect raised relates to percentage of  total  sales made to

two companies, but the core issue is whether there was a

depression  of  the  sale  price  on  account  of  receipt  of

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advance.  In the case of Metal Box India Ltd. (supra), the

facts were extremely clear as there was an agreement that

M/s.  Ponds  (I)  Ltd.  had  given  50%  advance  with  a

stipulation that it would purchase 90% of the manufactured

goods.  It was a case where a separate price was charged.

In the case of  Hero Honda Motors Ltd. (supra), the facts,

as we perceive, were not clear and, therefore, there was a

remit.  Be it noted, sale price agreed between two competing

parties  may  get  depressed,  when  substantial  and  huge

advances  are  periodically  extended  and  given  with  the

objective and purpose that the sale price paid or charged

would be lowered, to set off the consideration paid by grant

of advances.  There should be a connect and link between

the two i.e.  the money advanced it should be established

was a  consideration paid which could  form the basis  for

depression of sale price.  Evidence and material to establish

the said factual matrix has to be uncovered and brought on

record to connect and link the sale price paid on paper and

the “other” consideration, not gratis, but by way of interest

free advances.

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15. In our considered opinion, in the present case, there

has to be application of mind by the tribunal regard being

had to the amount of money paid by purchasers, namely,

M/s. Coca Cola India and M/s. Pepsico India Holdings Pvt.

Ltd.  and what is  the effect  of  the sales  made to the two

companies in percentile terms, whether this had the effect

of depressing the sale price.   The onus would be on the

revenue.   That  being  the  thrust  of  the  matter,  liberty  is

granted to the revenue to produce the documents in this

regard  to  discharge  the  onus.   As  we  are  remitting  the

matter,  we  may  note  one  submission  of  the

respondent-assessee.   It  is  urged by  the  learned  counsel

that when the entire activities were within the knowledge of

the excise authorities, penalty is not leviable.  Needless to

emphasize, the tribunal shall advert to the said submission,

if required, in the ultimate eventuate, in proper perspective.

16. In the result, the appeal is allowed, the order passed

by the tribunal is set aside and the matter is remitted to the

tribunal for fresh disposal keeping in view the observations

made herein-above.  We may hasten to clarify that we have

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not  expressed  any  opinion  on  any  of  the  aspects.  There

shall be no order as to costs.

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

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

New Delhi; January 14, 2016.