Arijit Pasayat, J. - (1.) CHALLENGE in these appeals is to the orders passed by the Customs, Excise and Gold (Control) Appellate Tribunal, West Regional Bench at Bombay (in short 'CEGAT'). While appellate order dated 13.6.1997 is the subject-matter of challenge in Civil Appeal No.43 of 1998, the other appeal relates to the order dated 28.11.1997 passed on an application for rectification of errors filed by the appellant.
(2.) BACKGROUND facts in a nutshell essentially are as follows: The appellant-company, incorporated under the Companies Act, 1956 is a manufacturer of glass and glassware. It holds license issued under the Central Excise Act, 1944 (in short the 'Act') read with the Central Excise Rules, 1944 (in short the 'Rules'). The dispute relates to the period 1.1.1988 to 28.2.1990. The articles manufactured by the appellant are classified under Chapter 70 of the Central Excise Tariff Act, 1985 (in short ''Tariff Act'). There was a prolonged strike in the factory of the appellant in 1987, which according to the appellant resulted in closure of the appellant's factory and came to a standstill position so far production is concerned. The appellant decided to cut down expenditure in areas like labour, packing, inventory, advertisement etc. M/s Darshak Ltd. who was a bulk purchaser of the appellant's products started advertising to boost its sales in respect of glass and glassware purchased from the appellant. Inquiries were conducted by the Central Excise Authorities regarding expenditure on publicity and sales promotion incurred by M/s Darshak Ltd. on the goods purchased from the appellant. Statements of some of the officials of M/s Darshak Limited and Executive Director of the appellant were recorded during investigation. The appellant received show-cause notice dated 4.4.1991 from the Central Excise and Customs Directorate, Baroda proposing to recover duty amounting to Rs.18,79,775.31 under proviso to Section 11A(1) of the Act. The notice was issued by the Collector, Central Excise and Customs, Baroda. The substance of the notice was that the appellant had gradually transferred the expenditure on sales promotion and/or publicity of its product to M/s Darshak Ltd. The amount spent by M/s Darshak Ltd. was to be included in the assessable value declared by the appellant and, therefore, on the amount spent by M/s Darshak Ltd. being Rs.71,61,049 the duty payable was Rs.18,79,775.31. The appellant submitted its reply to the show-cause notice. It was submitted that the show-cause notice was barred by time; the appellant has been carrying on all of its activities within knowledge of the excise authorities; at every stage of changing the market pattern Department was a party; all sales were being made on principal to principal basis i.e. the appellant and M/s Darshak Ltd. are not related persons. Request was made to examine or cross-examine some persons. A further reply was filed on 21.11.1991 pointing out that the price list submitted by the appellant had been approved by the Department. The stand of the appellant was not accepted by the Collector and order in original confirming the show-cause notice was passed. Reference was made to the statement of Mr. R.S. Guard, General Manager Marketing of M/s Darshak Ltd. to the effect that upward trend in expenses for publicity was attributable to increase in sales. Though the buyer was not incurring any advertisement expenses on their behalf under any express or implied instructions, yet the fact that the advertisement expenses by the appellant were reduced/stopped indicated that the same was part of a well thought out policy. M/s Darshak Ltd. was a customer of the appellant since 1985. Expenses for advertisement and sales promotion were exclusively made by M/s Darshak Ltd. which led to increase in volume of sales. Expenses on advertisement are unavoidable for marketing the goods irrespective of the fact as to who incurs the expenses. It was held that once it is established that the expenses for advertisement are additional considerations, the question of related person is immaterial. It was a case of implied instruction and, therefore, the assessable value was required to be accordingly fixed, and the expenses were required to be included in the assessable value under Rule 5 of the Central Excise (Valuation) Rules, 1975 (in short the 'Valuation Rules'). Demand was confirmed under Section 11A of the Act and penalty of Rs.10 lakhs under Rule 173Q(1) of the Rules was imposed. Land, buildings, plant and machinery belonging to the appellant was confiscated under Rule 173Q(2) of the Rules. However, option was given to pay fine of Rs.2 lakhs in lieu of confiscation. Appellant preferred appeal before the CEGAT. It was the appellant's stand before the CEGAT that there was no special relationship between the appellant and M/s Darshak Ltd. The former was selling goods at the same price to other dealers also. Therefore, there was a factory gate price for the products and that was the assessable value under Section 4 of the Act. Reference was made to the assessee's own case in Commissioner of Central Excise, Vadodara v. Alembic Glass Industries Ltd. (1996) 88 ELT 296) in which CEGAT had given a categorical finding that M/s Darshak Ltd. was not a favoured buyer as there was no evidence of discretion or favoured treatment. It was pointed out that admittedly the advertising expenses were incurred only by the customer M/s Darshak Ltd. and up to the point of clearance, the appellant had not incurred any such expenditure.
(3.) THE expenses incurred towards sales promotion and publicity by both the appellant and M/s Darshak Ltd. were as follows: JUDGEMENT_166_TLPRE0_2006Html1.htm Stand of the Revenue was that initially appellant was incurring advertisement expenses which were gradually shifted to M/s Darshak Ltd. who were purchasing about 98% of its product. Reference was made to a decision of the Tribunal where it was noted that there was understanding over sharing advertisement expenses on 50:50 basis and the expenses were to be added to the assessable value.;