Allegations are purely conjectural and ipse dixit in nature - It is trite law that it is for Revenue to substantiate allegations and not for assessee to prove the contrary - Revenue loses Rs 5.6 Cr Central Excise undervaluation case at hands of Tribunal
By TIOL News Service
MUMBAI, NOV 25, 2008 : IPSE DIXIT– He said it himself, i.e., there is no other authority for it.
[The Law Lexicon by P.Ramanatha Aiyer]
It is so easy to raise a demand notice alleging undervaluation, confirm the same with lots and lots of penalty and interest and then let the Tribunal decide the fate of the same. Probably, such demand notices invoking extended period are issued under the umbrella of ‘safeguarding government revenue’ when either the Audit or the CERA or the Anti evasion authorities highlight the enormity of the alleged duty evasion. And the moment the same is confirmed by the adjudicating authority, it is job well done!
One such demand notice for the period 01.07.2000 to 07.01.2005 came to be issued to an assessee who is engaged in the manufacture and sale of P&P medicaments to M/s USV Limited, Mumbai and one M/s Lifeon Paediatrics Ltd. (now merged with USV Limited) . Revenue has alleged that the expenses such as storage, outward handling, distribution, marketing and other expenses, which would form part of the intrinsic value of the said products had been incurred by the said buyers and that these expenses would have otherwise formed part of the assessable value, had the appellants (brand owner) directly engaged themselves in the marketing of the said product. It was further alleged that there was a wide difference between the price claimed as assessable value and the wholesale price at which they were sold by the buyers in wholesale and that the appellants had suppressed the above fact from the Department namely that their buyers had incurred further expenses for the distribution, marketing, etc. for these products.
All said and done, the adjudicating authority had no qualms in upholding the charges leveled and confirming a duty demand of Rs.5.62 crores against the assessee along with penalty and interest.
The assessee is before the Tribunal contending that the sales were at arm’s length and on principal to principal basis; once they sold the said goods to their buyers, they were not concerned with any further expenditure which may have been incurred by the said buyers in selling the said medicaments.
The Tribunal after hearing both sides and on perusal of records observed -
- Although allegation leveled is that the appellant’s buyers have incurred expenses on account of several heads “such as storage, outward handling, distribution, marketing and other expenses”, the specific heads of expenditure have not been particularized in the Show Cause notice.
- It was incumbent upon the Revenue to specify the expenditure incurred by the appellants under each specific head, pointing out the amount of differential duty payable in respect of each such head.
- It was also incumbent upon the Revenue to establish with cogent evidence that such expenditure has, in fact, been incurred by the said buyers on behalf of the appellants but no material evidence is forthcoming from the side of the Revenue on both the counts.
- The allegation of the Revenue is, therefore, purely conjectural and ipse dixit in nature; it is for the Revenue to establish that the statutory definition to the term “transaction value” and provisions of Rule 6 of Valuation Rules 2000 are applicable to the facts of the appellants case by producing evidence in this behalf, which has not been done.
- The Commissioner, in his findings, has held that the transactions between the appellants and the buyers were governed by the provisions of Section 4(1)(a) of the Central Excise Act, 1944 and that these were on principal to principal basis. In that event if the said buyers were to incur an expenditure whatsoever after purchasing the said medicaments from the appellants on their own account, to further their own sales, it cannot be held that these expenses had been incurred on behalf of the appellants.
- It is trite law that it is for the Revenue to substantiate its allegations and not for the assessee to prove the contrary.
The Tribunal also found something interesting in the Annexure ‘A’ to the demand notice which indicated the calculation of the differential Central Excise duty, and that is -
- It appears that the Revenue has assumed that the entire difference between the Maximum Retail Price (MRP) at which the goods were sold and the selling price of the appellants represented only the expenditure incurred by the buyers on account of the various selling and distribution expenses on behalf of the appellants.
The Bench, therefore, observed –
- It is common knowledge that the MRP comprehends several downstream sale elements such as wholesaler’s margins, retailer’s margins, the margins of the said purchasers, as also the elements of local taxes, freight etc., all of which will form part of the MRP.
- It is not correct to assume that the entire difference between the appellant’s sale price to their buyers and the MRP represented only the expenditure incurred by the said buyers.
On the Commissioner’s bombastic observations that a “novel modus operandi” was adopted by the appellant for evading duty, the Tribunal noted -
- These observations of the Commissioner lack substance once he has held that the transactions between the buyers and the appellants are on principal to principal basis.
On the casual attitude of the adjudicating authority that ‘though it is customary to pin point an exact quantum of duty liability in the show cause notice yet it would not be great shortcoming of the notice so long as the ways and means of working the differential value is evident from the notice itself’, that is to say, the transaction value has been arrived at by deducting element of duties and taxes from the MRP, the Bench expressed its disagreement with these observations and held –
- It is fundamental that a show cause notice is required to be extremely exact in making specific and cogent allegations, in pin pointing and producing cogent evidence, in support thereof, and finally in setting out the exact calculations of duty together with the evidence to support such calculations, when it proposes recovery thereof from the assessee.
Yet another reason given by the adjudicating authority for confirming the demand notice that ‘there was wide difference between the price claimed as assessable value and the wholesale price at which the goods were sold by the buyers’, the Tribunal commented thus –
- If there existed difference between the prices claimed as the assessable value by the appellants and the wholesale price at which the buyers sold the goods, it was for the Revenue to have established that the said difference represented first, expenditure on account of the heads set out in the show cause notice, and second, the same w as incurred on behalf of the appellants, neither of which has been done in this case.
Holding that it was wholly untenable on the part of the Commissioner to have upheld the demand of Rs.5.62 Crores raised in the show cause notice, the Tribunal set aside the order and allowed the appeal.
What next? After all, it is 5.62 crores…!
(See 2008-TIOL-1924-CESTAT-MUM in 'Excise' + 2008-TIOL-1924-CESTAT-MUM in 'Legal Corner')
