LexCOMMNR. OF CENTRAL EXCISE, CHANDIGARH versus M/S. PEPSI FOODS LTD.
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[2010] 14 (ADDL.) S.C.R. 836 A COMMNR. OF CENTRAL EXCISE, CHANDIGARH B v. MIS. PEPSI FOODS LTD. (Civil Appeal Nos. 1921-1923 of 2003) DECEMBER 10, 2010 [D.K. JAIN, ASOK KUMAR GANGULY AND H.L. DATTU, JJ.] Central Excise Act, 1944 - ss. 4(1)(a)(iii) and 11AC - C Valuation of excisable goods for purposes of charging excise duty - Determination of sale price - Assessee selling its goods to a company, 'related person' - Assessee claiming exclusion of freight charges arising between the factory of assessee to depot of related person as sale occurred at its D factory gate - Revenue's case that sale occurred at the time of purchase of the final products by whole sellers from related person - Show cause notice - Demand of excise duty - Authority holding that freight charges to be included in the sale price as the place of removal of the goods was the depot E of the related person - Tribunal holding that the freight charges should be excluded - Sustainability of - Held: Not sustainable - Provision of s. 4(1 )(iii)(a) (as it was prior to 2000) is applicable and not s. 4(2) - Normal price of sale would deemed to be the one at which the goods are ordinarily sold F by 'related person' to whole sellers - Place of removal for such goods should be depot of the related person from where the goods are sold to whole sellers - There was no finding of fraud or mis-statement against assessee in the show cause notice - Thus, imposition of penalty, equal to the amount of duty in G the order-in-original, not permissible. s. 11AC - Imposition of penalty under - Necessary ingredient - Held: In order to attract the penalty provision ul s. 11 AC, criminal intent or 'mens rea' is a necessary constituent - However, when factually no fraud or suppression H 836 COMMNR. OF CENTRAL EXCISE, CHANDIGARH v. 837 PEPSI FOODS LTD. or mis-statement is alleged by the revenue against assessee A in the show cause notice, imposition of penalty is wholly impermissible. The respondent-assessee was engaged in the manufacturing of edible goods. Till the year 1998, the respondent sold 96% of the goods to 'FL' Company as a 'related person' and 4% to independent wholesal~ buyers. Thereafter, the respondent started manufacturing B the products on behalf of 'FL' Company. As regards the valuation of the goods for charging excise duty, the C Revenue asserted that the sale occurred at the time of purchase of the final products by the whole sellers from 'FL' Company, but the respondent claimed that the sale. occurred at its factory gate. The respondent was issued· show cause notice. The Revenue not being satisfied with the respondent's reply to the notice, demand~d excise duty. The respondent filed an appeal. The appellate authority held that the freight charges arising between the factory of the respondent and the depot of the related person were to be included in the sale price as the place D of removal of the goods was the depot of the related · E person. The Tribunal set aside the order of the appellate authority holding that the place of removal continues to be the assessee's factory, thus, the freight charges were to be excluded. Therefore, the Revenue filed the instant appeal. Partly allowing the appeals, the Court f HELD: 1.1 The transaction between the respondent- assess_ee and 'FL' Company has to be understood as one where sale price cannot be known. In situations G where the assessee sold its goods to a related person, it was prudent to understand that the price in such a sale would be deliberately understated so as to evade taxation within the scheme of the Act. It was to dissuade such H 838 SUPREME COURT REPORTS (2010] 14 (ADDL.) S.C.R. A sales that the legislature decided to deem the price of the goods at the time of their sale by the related persons to wholesale market. The 'normal price' is mentioned in Section 4 (1) (a) of the Central Excise Act, 1944. [Para 9] [843-8-D] B 1.2 In the instant case,. the period in question is between 01.11.1997 and 28.02.1999. It is not disputed that 'FL' Company is the 'related person' of the respondent under Section 4(4)(c) of the Central Excise Act, 1944 . . C Section 4(2) does not apply. The provision of Section 4(1)(a)(iii) as it stood at the relevant time is applicable whereby the normal price of sale would be deemed to be the one at which the goods are ordinarily sold by 'related person' to whole sellers. Therefore, the place of
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