Holding

The appellant wilfully mis‑declared the value of the RCC pipes and collars, knowing comparable prices, and therefore the department was right to invoke the extended limitation period and make a best‑judgment assessment under Rule 7.

Summary

M.K. Kotecha, a manufacturer of RCC pipes and collars, cleared the goods to lift‑irrigation schemes between April 1990 and June 1992, claiming they were captively consumed and filing a price‑list under Part VI(a) stating that comparable prices were not known. In reality, the appellant used a cost‑plus method and was aware of comparable prices through the pricing guidelines of the Maharashtra State Sewerage and Water Board. The Collector issued a show‑cause notice under section 11A(1) of the Central Excise Act for wilful undervaluation and mis‑statement. The Tribunal dismissed the appeal and the matter reached the Supreme Court. The Court examined whether the department could invoke the extended limitation period under the proviso to section 11A(1) for wilful mis‑statement, whether Rule 6(b) of the Valuation Rules applied, and whether a best‑judgment assessment under Rule 7 was proper. It held that the appellant had wilfully mis‑declared the value, knew of comparable prices, and used a prohibited hybrid pricing scheme, so the department was justified in invoking the extended limitation period and making a best‑judgment assessment. The appeal was dismissed.

Issues considered

Whether the department was justified in invoking the extended period of limitation under the proviso to section 11A(1) of the Central Excise Act for wilful mis‑statement or suppression of facts.
Whether Rule 6(b) of the Central Excise (Valuation) Rules, 1975 applies to the appellant’s claim of captive consumption.
Whether a best‑judgment assessment under Rule 7 of the Valuation Rules is appropriate where the price‑list was filed under Part VI(a) but valuation was based on cost.
Whether filing a price‑list under Part VI(a) while using cost‑plus valuation constitutes wilful mis‑statement.

Legislation cited

Central Excise Act, 1944s. 11A(1), s. 11-D, s. 4
Central Excise Tariff Act, 1985s. Rule 17JC
Central Excise (Valuation) Rules, 1975s. Rule 6(b), s. Rule 7

Subjects

Central Excisevaluationcaptive consumptionwilful misstatementextended limitation periodbest judgment assessmentprice listcomparative priceRule 6(b)Rule 7short-levy

Judgment

/
'

A M.K. KOTECHA
v.
COMMISSIONER OF CENTRAL EXCISE, AURANGABAD

JANUARY 4, 2005

B [S.N. VARIAVA, DR. AR. LAKSHMANAN AND S.H. KAPADIA, JJ.]

Central Excise Act, 1944-Section I IA(/}, proviso & Section 4-Centra/
Excise (Valuation) Rules, 1975-Rules 6(b) & 7-Wilful mis-statement and
C suppression offacts-Invocation of extended limitation period for recovery of
duty-Appel/ant-manufacturer cleared goods (RCC pipes and collars) allegedly
not for sale but for captive consumption-Claiming that prices of comparable
goods were not known, he priced the RCC pipes/collars on cost basis without
estimating profits-But he filed price list in Part VJ(a) of price list proforma
which refers to cases where assessee is aware of comparable prices-Held,
D such a hybrid mode of pricing, though not permissible, was adopted by
Appellant to mislead the Department-Further, Appellant knew of the
comparable prices since the pricing was based on pricing guidelines fixed by
a Government agency-Collector was right in invoking the extended limitation
period for demand of duty on ground that Appellant had willfully mis-stated
E and suppressed the facts-Besides, Rule 6(b) of the Valuation Rules pertaining
to captive consumption was not attracted on facts-Hence Department rightly
made best judgment assessment under Rule 7-Centra/ Excise Rules, I 944-
Rule 17JC-Central Excise Tariff Act, 1985-Sub-heading 6807. 00.

Government Revenue-Court conscious of the rise in revenue deficit-
F Slippage of revenue-Additional Solicitor General to bring the present judgment
to the notice of the Finance Ministry.

Appellant manufacturer, during the period April, 1990 to June, 1992, "
cleared RCC pipes and collars falling under Chapter Heading 6807.00 to
various Societies under the Lift Irrigation Scheme, by declaring that the
G RCC pipes and collars were not sold but were captively consumed in the
projects undertaken by him under the works contract. Accordingly, he
filed the price list.

The Collector of Central Excise issued show-cause notice to appellant
under section l lA(l) of the 1944 Act alleging that while making clearance,
H 42
M.K. KOTECHA v. C.C.E. 43
the appellant had undervalued the prices of RCC pipes & collars by mis- A
declaring to the Department that comparable prices were not available.

Appellant replied to the show-cause notice, but the Collector held
that the appellant had misled the Department by declaring that RCC pipes
and collars were captively consumed and that comparative prices were
known to the appellant. B
Aggrieved by order of the Collector, appellant-assessee preferred
appeal to the Tribunal which was dismissed. Hence the appeal.

On facts, the basic question which arises for determination is whether
the appellant knew of the comparability of his goods with those of other C
manufacturers and whether the appellant had misled the Department by
declaring that the RCC pipes and collars were captively consumed,
particularly, when the appellant as a contractor had dr2wn the Tenders
Scales on the basis of pricing guidelines of Maharashtra State Sewerage
and Water Board.
D
Dismissing the appeal, the Court

HELD: 1.1. The particulars required to be given by the assessee
under part VI(a) of the proforma price list are different from the
particulars under part VI(b) of proforma price list. Under part VI( a), the E
particulars are required to be given in respect of excisable goods not for
sale but for captiYe consumption on the footing that the assessee is aware
of comparable prices. In that respect, he is required to give assessable value
of the comparable goods under part VI(a). Similarly, under part Vl(a),
the assessee is required to give particulars of the difference, if any, in the
material characteristics of the goods under assessment and comparable F
goods. On the other hand, in cases falling under part Vl(b), the assessee
is required to furnish particulars of cost of production or manufacture
on a separate sheet, annexed to the price list. The Price List proforma in
part Vl(b) refers to cases where comparable prices are not available and
consequently, the determination of assessable value was required to be G
done on the basis of the total cost. (56-G-H; 57-AJ

Collector of Central Excise, Hyderabad v •. Mis Chemphar Drugs and
Liniments, Hyderabad, 119891 2 SCC 127; Pushpam Pharmaceuticals
Company v. Collector of Central Excise, Bombay (19951Suppl.3 SCC 462;
Cosmic Dye Chemical v. Collector of Central Excise, Bombay (1995) 75 ELT H
/

44 SUPREME COURT REPORTS [2005) I S.C.R.

A 721 and Gwalior Rayon Manufacturing (Weaving) Company v. Union o_flndia
and Ors., (1982) EL T 844 MP, referred to.

1.2. Although, the appellant contended before the Department that
the prices of comparable goods in the present case was not known to him,
he filed the price list under part Vl(a) of the price list proforma. However
B the annexure to the price list indicates that the appellant had mischievously
priced the said RCC pipes/collars on cost basis without estimating the
profits. 156-FI

1.3. The appellant worked out the prices on total cost and used it as
C the basis of valuation in support of part Vl(a) price list proforma. This
hybrid system was adopted by the appellant, though not permissible, to
mislead the Department. In the circumstances, the Court is satisfied that
the appellant had wilfully misdeclared the prices at the lower rate and
consequently, the Department was right in invoking the extended period
of limitation under the proviso to section I IA(I). 157-C]
D
2. The appellant submitted before the Collector that he had
undertaken a composite contract (project) and, therefore, the prices of
· comparable goods were not available. However, as found by the Collector
on evidence, the RCC pipes and collars were manufactured by the three
units of the appellant. The contract price agreed upon was based on
E complete break-up of the charges including the prices of the RCC pipes
and collars. The said pipes were manufactured in the factory of the
appellant and were cleared therefrom. The pricing of RCC pipes and
collars was indicated in the project reports. They were based on the pricing
guidelines fixed by Maharashtra State Sewerage and Water Board. The
F said Board had made rate analysis to arrive at the value of the RCC pipes
and collars. Therefore, the appellant knew of the comparability of his
goods with those of other manufacturers. Hence, the Collector was right
in coming to the conclusion that the appellant had wilfully misstated and
suppressed the facts in order to mislead the Department. Consequently,
the Department was right in invoking the larger period for demand of duty
G under the proviso to section I IA(I). 157-D-Fl
3. Rules I to 6 of the Valuation Rules, 1975 had no application to
the present case. Rule 6(b) was applicable to captive consumption. In this +
case, rule 6(b) was not attracted. Therefore, the Department was right in
making best judgment assessment under the aforestated rule 7 of the
H Valuation Rules, 1975. 157-G-Hl
M.K. KOTECHA v. C.C.E. [KAPADIA, J.] 45
United Glass v. Collector of Central Excise, (1995) 75 ELT 209 and A
ITW Signode India ltd. v. Collector of Central Excise, [2004[ 3 SCC 48,
referred to.

Universal Cables ltd., Satna v. Union of(ndia and Ors., (1977) 1 ELT
and Collector of Central Excise, Baroda v. Cotspun limited, (1999) 113 ELT
353, distinguished. B
4. Under the show-cause notice, the Department had alleged that the
appellant had collected extra amount to the tune of Rs. 21,74,963 in the
guise of central excise duty over and above the duty actually paid to the
Department. The Collector found that the appellant had collected the said C
amount under the guise of central excise duty from his clients, who were
billed for full quantum of duty paid whereas under the relevant
notification, the appellant had paid duty at nil rate or at lower rate. Despite
this finding, the Collector came to the conclusion that the said finding was
based on presumptions and not on evidence and consequently, the
Collector dropped the demand for Rs. 21,74,963 made under section D
11-D as not capable of being substantiated. Surprisingly, no appeal was
preferred by the Department to the Tribunal in respect of the demand
) for Rs. 21,74,963. Even the Collector did not make further enquiries to
substantiate such demand. The Court is conscious of the rising revenue
deficit. In several matters, slippages of revenue on such counts are found.
Therefore, it is expected that the Additional Solicitor General will bring E
the present judgment and order to the notice of the Finance Ministry.
[59-C-E[

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3638of1999.

From the Judgment and Order dated 16.2.99 of the Central Excise F
Customs and Gold (Control) Appellate Tribunal, West Regional Bench at
* Mumbai in A. No. E/776-V/95-Bom in O.No. C-11/374/WZB of 1999.

C.N. Sree Kumar and Mrs. M.L. Shyjatha for the Appellant.

Mohan Parasaran, Additional Solicitor General, A. Subba Rao, Nitesh G
Rana, Gaurav Dhingra, P. Parmeswaran and B. Krishna Prasad for the
Respondent.

The Judgment of the Court was delivered by

KAPADIA, J. This is an appeal under section 35L(b) of Central Excise H
46 SUPREME COURT REPORTS [2005] 1 S.C.R.

A Act. 1944, preferred by the assessee, against the judgment and order dated
16.2.1999 passed by the Customs, Excise & Gotd· (Control) Appellate.Tribunal, x
West Regional Bench at Mumbai, confirming the demand made by the
department for short-levy amounting to Rs. 18,34,464 together with a penalty
of Rs. 2 lacs.

B The short question which arises for determination in this appeal is
whether the department was justified, on facts and circumstances of the case,
in invoking the extended period of limitation under the proviso to section
I IA(!) of the Central Excise Act, 1944 (hereinafter referred to for the sake
of brevity as "the 1944 Act").
c The appellant, M.K. Kotecha, proprietor of Mis Tapi R.C.C. Pipe
Product, Mis Bamnod Cement Pipe Product and Mis Sakri Cement Pipe
Product, is a manufacturer of R.C.C. pipes and collars falling under Chapter
Heading 6807 .00. During the period April, 1990 to June, 1992, he cleared
RCC pipes and collars to various Societies under the Lift Irrigation Scheme,
D by declaring that the RCC pipes and collars were not sold but were captively
consumed in the projects undertaken by him under the works contract.
Accordingly, he filed the price list together with the annexure thereto giving
following particulars:- (See pp. 47-50) J

On 19.8.1994, the Collector of Central Excise, Aurangabad issued show-
E cause notice to the appellant under section 11 A( I) of the 1944 Act alleging
clearance of RCC pipes and collars to various Societies for their projects
under the Lift Irrigation Scheme, during the period April 1990 to June 1992,
by declaring their prices at the lower rates, by filing the price list in part
Vl(b) proforma, on the ground, that, the prices of comparable goods were not
available and the goods cleared were not for sale but were for captive
F
consumption. However, according to the show-cause notice, the contract price
agreed upon by and between the parties indicated complete break-up of the
charges, including the prices of RCC pipes & collars, consequently, it was *
alleged that the appellant had undervalued the prices of RCC pipes & collars
by mis-declaring to the department that comparable prices were not available.
G Accordingly, the department called upon the appellant to show cause why
differential duty of Rs. l 8,34,464 should not be recovered under section 11 A(!)
and why for the period l st April, 1990 to June, 1992, penalty under rule
173-C should not be imposed. +·
By reply dated 27.1.1995 to the show-cause notice, the appellant
H submitted that the RCC pipes and collars were not marketed but used in the
PRICE LIST
s. Excisable Goods Comparable goods if known to Assessee Difference if Value of Value of Re1narks
1'b. any in material the Goods the Goods
characteristics Jn Col.2 in Col. 2
Desc- Tariff of the goods & classified as app-
ription Classi- Descrip· Tariff Assessable Unit assessment of and roved by
ti on Classi- Value as of comparable approved the
fication
ficatior Sale goods proper
officer
I Pipe I Collari I
Pipe Collar
I 2 0
J 4 5 6 7 8 9 10 11
RCC Pipe & Collar 6807.00 No.
Size in mm. & class
I 1200 mm NP3
2 1000
., . ''
..
- - 2838
2060
-
-
2838
2060
-
-
3 900 " !'

,,
1674 - 1674 -
4 800 "
,.
1378 - 1378 -
5 750 '' 1282 - 1282 -
6 700
., .. 1175 - I J 75 -
'
.. -
7 600 " 941 - 941
8 500
,, . 686 - 686 -
9 450 " " 598 - 598 -
llU i4UU Y+'I - )4';1 -
11 350
.. .. 447 - 447 -
12 300
.. .. 394 - 394 -
13 750 mm NP2
.. 1211 121 1211 121
4 700
.. .. 1153 115 1153 115
15 600
,. .. 908 91 908 91
16 500 .. ..
635 64 635 64
17 450 .. .. 517 52 517 52
18 400 .. .. 459 46 459 46
19 350 ~'
.. 359 36 359 36
• .. ..
'0 300 278 28 278 28

The last 'questionnaire' is applicable to this Pricelist.
I/We declare that particulars herein furnished are complete & true to the best of my/our knowledge
& belief.

Sd/-
Signature of Assessee

t
ANNEX URE
PRICE (COSTING DETAILS) OF R.C.C. PIPES & COLLARS: EFFECTIVE FROM 6.5.1989: PIPE LENGTH: 2.5 MTRS.
SL Size of Class Steel Cement Sand & Electricity Labour Super Total Profit Cost of Cost of
No. Pipe Metal Greased Charges vision about Pipe Collar
Etc. Charge 10%
Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs. Rs.
1 1200 mm NP3 1584 642 159 61 75 59 2580 258 2838 -
2 1000 ,, ,, 1125 466 101 59 75 47 1873 187 2060 -
3 900 ,, 836 424 81 59 75 47 1522 152 1674 -
"
4 800 677 340 77 53 66 40 1253 125 1378 -
" "
5 750 640 330 55 45 60 35 1165 116 1282 -
" "
6 700 ,, 568 310 50 45 60 35 1068 107 1175
" .

7 600
"
,, 446 235 47 42 50 35 855 86 941 -
8 500 ,,
"
317 183 44 26 33 21 624 62 686 -
9 450 ,,
"
285 158 35 20 30 16 644 64 598 -
10 400 ,,
"
258 147 29 20 29 16 499 50 549 -
11 350 ,,
"
200 140 21 9 26 10 406 41 447 -
12 300 ,, ,, 182 119 18 8 22 9 358 38 394 -
13 750 ,, P2 575 326 50 35 70 45 1101 110 1211 121
14 700 ,, 556 307 47 30 66 42 1048 105 1153 115
"
15 600 ,, 432 229 33 23 66 42 825 83 908 91
"
16 500 ,, 307 162 23 21 38 26 577 58 635 64
" ,,
17 450 ,, 250 IJJ
'' 18 16 JJ 20 470 47 517 52
"
18 400 244 102 17 11 27 16 417 42 459 46
" "
19 350 183 82 14 8 7'
_J 16 326 33 359 36
" "
20 300 127 72 II 7 22 14 253 25 278 28
" "
RCC Pipe of Class NP3 does not require collar in our L.T. Scheme.
Cost of each collar= 10% of Pipe Cost i.e. one pipe mouse of length 2.5 mm = 12 collars length.
This is to certify that the above cost of each pipe & collar is correctly calculated and the particulars
herein furnished are true & fully stated to the best of my knowledge & belief.

Sd/-
Signature of Assessee

t
M.K. KOTECHA r. C.C.E. [KAPADIA . .I.] 51

Lift Irrigation Scheme: the appellant denied that the contract awarded indicated A
the break-up of the charges, including the prices of RCC pipes and collars;
that in any event, these prices were lower than the prices of comparable
goods and that the comparable prices were not available. It was submitted
that contract awarded to the appellant indicated the price for the project
comprising of cost of material and cost for joining of RCC pipes/collars B
besides job of excavation and, therefore, the appellant had invoked part Vl(b)
proforma supported by a certificate from his Chartered Accountant. It was
further submitted that alleged comparable prices giver: b} DSR and MSSIDC
were not taken into account at the time of giving of tender; that independent
costing was done and that the rates tendered covered the entire job work,
hence, prices of comparable goods did not exist. It was further submitted that C
the RCC pipes and collars, manufactured by the appellant, were not sold as
the appellant had unde11aken a project on turnkey basis and hence, there was
no sale, and, therefore, the appellant had filed the price list in part Vl(b)
proforma on cost basis, particularly, because there was no separate contract
for sale of RCC pipes and collars. It was further submitted that the RCC
pipes and collars were not sold but were used in the project and, therefore, D
the valuation of such pipes and collars was done on the cost basis.

By order dated 22.5.1995, the Collector came to the conclusion that the
appellant was supplying pipes and collars to various Lift Irrigation Schemes;
that in the project reports, the valuation data of such pipes and collars was E
available which was made known to the appellant at the time of negotiations
and that there was substantial difference between the rates quoted by the
appellant and the rates quoted in the project repo11s. It was held, that, the
appellant had misled the department by declaring that RCC pipes and collars
were captively consumed when he knew that part VI(b) speaks of consumption
in the production of other articles. According to the Collector, the said pipes F
and collars were manufactured by the appellant in his factory and cleared
therefrom. It was further held that the appellant had filed a consolidated
tender giving costs estimates which included costs of material, labour,
supervision etc.; that these estimates were based on the pricing of collars and
pipes in the project reports and, therefore, the Collector confirmed the demand G
in terms of the show-cause notice. The Collector further found that the
Maharashtra State Sewerage and Water Board had made the rate analysis and
had arrived at the value of the RCC pipes: that the said Board was a
Government agency: that it was in the business of civil construction and.
therefore, had a fair!y good idea of the standard value of the RCC pipes. The
Collector further found that Tenders Scales were drawn by the contractor on H
52 SUPREME COURT REPORTS [2005] I S.C.R.

A the above price guidelines of the Board. The Collector observed that the RCC y
pipes and collars were standardized products and that what was true of the
pricing by the Board was also applicable to the rate contract price given by
the Director of Industries. In the circumstances, it was held, that comparative
prices were known to the appellant. Accordingly, the demand was made on
B above grounds for Rs.18,34,464/- with penalty of Rs.2 lacs.

Aggrieved by the Order of the Collector, the assessee preferred appeal
to the Tribunal which has been dismissed. Hence, this civil appeal.

Two questions arise for determination in this appeal, namely, whether
C the department was right in invoking rule 7 of Central Excise (Valuation)
Rules, 1975 and whether on facts, the Collector was right in holding that the
appellant had wilfully misdeclared to the depai1ment that prices of comparable
goods were not available and that the goods cleared were not for sale but for
captive purpose.

D In the present case, the department has invoked the proviso to section
11 A(l) of the 1944 Act seeking to recover duty by invoking the extended
period on account of wilful misstatement and suppression of facts resulting
in short-levy of duty.

In the case of Collector ofCentral Excise, Hyderabad v. Mis Chemphar
E Drugs & liniments, Hyderabad, reported in [1989] 2 sec 127, it has been
held, that, in order to constitute wilful misstatement, some positive act other
than inaction, omission or failure on the part of the manufacturer or conscious
and deliberate withholding of information when the manufacturer knew
otherwise, is required to be established before he is saddled with the liability.
Whether in a particular set of facts and circumstances, there was wilful
F 111 isstatement or suppression is a question of fact.

In the case of P11shpo111 Phar111aceuticols Co111pony v. Collector of
Central Excise, Bombay, reported in [1995] Suppl. 3 SCC 462, it has been
held, that, in order to constitute suppression under the proviso to section
G 11 A(l ), there should be facts showing that correct information was not
deliberately disclosed in order to escape from liability to pay duty. Mere
omission is not a deliberate act.

In the case of Cosmic Dye Chemical v. Collector of Central Excise,
Bo111bay reported in ( 1995) 75 EL T 721, it has been held by this Court that
H the word "wilful" qualifies the words "misstatement or suppression of facts"
M.K. KOT EC HA 1·. C.C.E. [KAPADIA. J.] 53
in the proviso. That the word "wilful'' precedes the word ''misstatement". The A
word "wilful" means intention to evade. In the circumstances. it was held that
the department has to establish the intention to evade duty in order to come
within the expression "wilful misstatement or suppression of facts" as
mentioned in the proviso to section 11 A( I).

On facts, the basic question which arises for determination is - whether B
the appellant knew of the comparability of his goods with those of other
manufacturers and whether the appellant had 1nislctl the department by
~ declaring that the RCC pipes and collars were captively consumed, particularly,
when the appellant as a contractor had drawn the Tenders Scales on the basis
of pricing guidelines of Maharashtra State Sewerage and Water Board. C
Chapter VIIA of the Central Excise Rules, 1944 refers to removal of
excisable goods on determination of duty by producers and manufacturers.
Rule 173-C prescribes a procedure regarding valuation of goods assessable
ad va/orem. Under rule 173-C (l ), every assessee who produces, manufactures
or warehouses goods, which are chargeable with duty at a rate dependent on D
the value of the goods, and clears such goods, shall declare the value under
section 4 of the Act in the sale invoice, invoice-cum-challan or like document~
" used by him for sale or removal of goods. Under clause (iv) of the second
proviso to rule 173C, where an assessee removes such goods, in any manner,
which does not involve sale, shall file, with the proper officer, a declaration
in the prescribed form. E
The proforma for determination of value under section 4 read as under:
(See p. 54).

The above price-list proforma is prepared in terms of rule 6 of Central
Excise (Valuation) Rules, 1975. We quote hereinbelow the entire rules 6 and F
7 as the same is relevant for deciding this case.

"Rule 6. If the value of the excisable goods under assessment cannot
be determined under rule 4 or rule 5, and -
(a) where such goods are sold by the assessee in retail, the value G
shall be based on the retail price of such goods reduced by such
amount as is necessary and reasonable in the opinion of the
proper officer to arrive at the price at which the assessee would
have sold such_goods in the course of wholesale trade to a person
other than a related person:
H
Part VI-For excisable goods not for sale but for use or consumption by the assessee/related person for production
or manufacture of other articles (cf. Rule 6 of the Central Excise (Valuation) Rules, 1975].
la) If particulars of comparable goods are known-.
Excisable Goods Comparable goods, if known to Assessee Difference if Value of Value of Remarks
any in material the Goods the Goods
characteristics in Col. I in Col. I
Descrip· Tariff Descrip- Tariff Assessable value of the goods claimed claimed
tion Classi- ti on Classi- under for app- for app-
fication fication Rs. Unit of assessment & roval roval
sale icomparable
goods
I 2 3 4 5 6 7 8 9 IO
(b) If particulars of comparable goods are not known-

Excisable Goods Cost of production or manufacture, Profit that Value Value Remarks
supported by detailed calculations, on a would have claimed approved
separate sheet how the cost has been been normally for app-
Descrip Tariff worked out. earned by the roval
ti on Classi- assessee on
fication sale of such r:J
0
Rs. Unit goods and the 0
v.
basis thereof

I 2 3 4 5 6 7 8
M.K. KOTECHA v. C.C.E. [KAPADIA, J.) 55
Provided that in determining the amount of reduction, A
~
due regard shall be had to the nature of the excisable goods, the
trade practice in that commodity and other relevant factors;
(b) where the excisable goods are not sold by the assessee but are
used or consumed by him or on his behalf in the production or
manufacture of other articles, the value shall be based -
B
(i) on the value of the comparable goods produced or
manufactured by the assessee or by any other assessee:
Provided that in determining the value under this sub-clause,
the proper officer shall make such adjustments as appear to
him reasonable, taking into consideration all relevant factors
and, in particular, the difference, if any, in the material
c
characteristics of the goods to be assessed and of the
comparable goods;
(ii) if the value cannot be determined under sub-clause (i), on
the cost of production or manufacture including profits, if
• any, which the assessee would have normally earned on the
D
sale of such goods;
.,.. (c) where the assessee so arranges that the excisable goods are
generally not sold by him in the course of wholesale trade except
#
to or through a related person and the value cannot be determined
under clause (iii) of the proviso to clause (a) of sub-section (I) E
of section 4 of the Act, the value of the goods so sold shall be
determined-
(i) in a case where the assessee sells the goods to a related
person who sells such goods in retail, in the manner specified
in clause (a) of this rule; F
(ii) in a case where a related person does not sell the goods but
uses or consumes such goods in the production or
manufacture of other articles, in the manner specified in
clause (b) of this rule;
(iii) in a case where a related person sells the goods in the course G
of wholesale trade to buyers, other than dealers and related
persons, and the class to which such buyers belong is known
at the time of removal, on the basis of the price at which the
goods are ordinarily sold by the related person to such class
of buyers.
H
56 SUPREME COURT REPORTS [2005] I S.C.R.

A Rule 7. If the value of excisable goods cannot be determined under
the foregoing rules, the proper officer shall determine the value of
such goods according to the best of his judgment, and for this purpose
he may have regard, among other things, to any one or more of the
methods provided for in the foregoing rules."

B On reading rule 6(b) of the said Valuation Rules, it is clear that the said
rule applies to excisable goods, not sold by the assessee but used or consumed
by him in the production or manufacture of some other articles. Rule 6(b)
refers to valuation of goods which are captively consumed by the assessee.
It is in two parts. Under rule 6(b )(i), the assessable value of goods captively
C consumed is determined on the price at which similar goods are sold by the
assessee and by other manufacturers, subject to adjustment. On the other
hand, under rule 6(b)(ii), the assessable value is determined on the basis of
aggregate cost of raw materials, manufacturing cost and profit margin, if any.
In short, under rule 6(b)(i) of the Valuation Rules, 1975, the value of goods
captively consumed was the value of comparable goods produced by the
D assessee or any other manufacturer. In the absence of such a valuation, the
assessable value had to be done under rule 6(b)(ii) on the basis of cost of
production, including the profits which the assessee would normally earn on
the sale of such goods (See: Gwalior Rayon Manufacturing (Weaving)
Company v. Union of India and Ors., reported in (1982) EL T 844 (MP)].

E On enquiry, learned counsel appearing on behalf of the appellant
produced before us the Price List proforma alongwith the annexure. We have
reproduced the relevant portion of the Price List proforma submitted by the
appellant to the department in this case. Although, the appellant contended
before the departrneni that the prices of comparable goods in the present case
F was not known to him, the appellant filed the price list under part VI(a) of
the price list proforma. However, the annexure to the price list indicates that
the appellant had mischievously priced the said RCC pipes/collars on cost
basis without estimating the profits. The Price List proforma in part Vl(b)
refers to cases· where comparable prices are not available and consequently,
the determination of assessable value was required to be done on the basis
G of the total cost. The particulars required to be given by the assessee under
part VI(a) are different from the particulars under part Vl(b) of proforma
price list. Under part VJ( a), the particulars are required to be given in respect
of excisable goods not for sale but for captive consumption on the footing
that the assessee is aware of comparable prices. In that respect, he is required
H to give assessable value of the comparable goods under part Vl(a). Similarly,
M.K. KOTECHA v. C.C.E. (KAPADIA, J.] 57
under part VI(a), the assessee is required to give particulars of the difference, A
if any, in the material characteristics of the goods under assessment and
comparable goods. On the other hand, in cases falling under part Vl(b ), the
assessee is required to furnish particulars of cost of production or manufacture
on a separate sheet, annexed to the price list. The 3rd and the 4th column of
part Vl(b) refers to computation of assessable value of goods based on the B
aggregate cost, together with the profits that would normally accrue to the
assessee. [See: Column (5) of Part Vl(b)].

In this case, the appellant worked out the prices on total cost and used
it as the basis of valuation in support of part VI( a) price list proforma. This
hybrid system was adopted by the appellant, though not permissible, to mislead C
the department. In the circumstances, we are satisfied that the appellant had
wilfully misdeclared the prices at the lower rate and consequently, the
.department was right in invoking the extended period of limitation under the
proviso to section I IA(!).

Further, in the present case, the appellant submitted before the Collector D
that he had undertaken a composite contract (project) and, therefore, the
prices of comparable goods were not available. However, as found by the
Collector on evidence, the RCC pipes and collars were manufactured by the
three units of the appellant. The contract price agreed upon was based on
complete break-up of the charges including the prices of the RCC pipes and
collars. The said pipes were manufactured in the factory of the appellant. E
They were cleared therefrom. The pricing of RCC pipes and collars was
indicated in the project reports. They were based on the pricing guidelines
fixed by Maharashtra State Sewerage and Water Board. The said Board had
made rate analysis to arrive at the value of the RCC pipes and collars.
Therefore, the appellant knew of the comparability of his goods with those p
of other manufacturers. Hence, the Collector was right in coming to the
conclusion that the appellant had wilfully misstated and suppressed the facts
in order to mislead the department. Consequently, the department was right
in invoking the larger period for demand of duty under the proviso to section
I IA(!).
G
Lastly, on facts, we find that rules I to 6 of the Valuation Rules, 1975
had no application. As stated above, rule 6(b) was applicable to captive
consumption. In this case, rule 6(b) was not attracted. Therefore, the
department was right in making best judgment assessment under the aforestated
rule 7 of the Valuation Rules, 1975.
H
(

58 SUPREME COURT REPORTS [2005) I S.C.R.

A In the case of United Glass v. Collector of Central Excise reported in
[ 1995] 75 EL T 209, this Court held that rule 7 of the Valuation Rules, 1975
was in the nature of a residuary rule, applicable only when valuation cannot
be decided under other rules. In the present case, the department was, therefore,
right in invoking rule 7.

B Mr. C.N. Sree Kumar, learned counsel for the appellant submitted that
since the classification lists and the price list were earlier approved,
subsequently found to be erroneous or defective, reclassification and liability
to pay duty would commence only from the date of show-cause notice and
not for the period prior thereto. He further submitted that the omission to
C enter correct prices in the price list did not amount to contravention of rule
173-C. In support, he relied upon several authorities.

In the case of Universal Cables ltd, Satna v. Union of India and Ors.,
reported in (1977] I ELT page J.92, on which reliance was placed on behalf
of the appellant, it was held that omission to enter correct price in the price
D list was not a contravention of rule 173-C within the meaning of rule I 73Q.
However, on facts, the High Court found that the assessee had filed a list in
the proper form and in the manner prescribed under rule 173-C showing the
price of the goods and, therefore, there was no contravention of that rule. In
the present case, as stated above, there is a contravention of rule 6(b) of the
Valuation Rules, 1975 read with part Vl(a) of the price list proforma. Hence,
E the judgment in the case of Universal Cables ltd. (supra) is not applicable
to the present case.

In the case of Collector of Central Excise, Baroda v. Cotspun limited,
reported in (1999) (113) ELT 353, this Court held that the word "short-levy"
in section 11 A( I) will not apply to cases where excise duty was levied on the
F basis of approved classification list. Learned counsel for the appellant heavily
relied upon on this authority. In our view, the said judgment has no application
to the present case for two reasons: firstly the basis of the said judgment is
obliterated in view of the Amendment Act No. I0 of 2000 by which the
expression "short-levy" has been redefined to include levy resulting from
G mistaken approval granted to the classification list. The validity of this
amendment has been upheld in a recent judgment of this Court in the case
of ITW Signode India ltd v. Collector of Central Excise, reporfed in (2004]
3 SCC 48, to which one of us [Dr. AR. Lakshmanan, J.] was a party. Secondly,
the decision in Cotspun limited's (supra) was confined to interpretation of

H
the word "short-levy" in section l IA(l ). That judgment was not concerned
with the proviso to section 11 A( I). In fact, vi de para 67 of the judgment of ...•
M.K. KOTECHA v. C.C.E. [KAPADIA, .I.] 59
this Court in ITW Signode India ltd. (supra), it has been observed that the A
extended period of limitation under the proviso can be invoked in cases of
positive acts of fraud, collusion, wilful misstatement or suppression of fact
on the part of the assessee and that such a positive act must be in
contradistinction to mere inaction. The present case is not a case of simple
omission. It is a case of wilful misstatement leading to under-estimation of B
value of goods cleared by the appellant. In the circumstances, we do not find
any merit in this appeal.

Before concluding, we may point out that under the show-cause notice,
the department had alleged that the appellant had collected extra amount to
the tune of Rs. 21,74,963 in the guise of central excise duty over and above C
the duty actually paid to the department. The Collector found that the appellant
had collected the said amount under the guise of central excise duty from his
clients, who were billed for, foll" quantum of duty paid whereas under the·
relevant notification, the appellant had paid duty at nil rate or at iower rate.
Despite this finding, the Collector came to the conclusion that the said finding
was based on presumptions and not on evidence and consequently, the D
Collector dropped the demand for Rs. 21,74,963 made under section 11-D as
not capable of being substantiated. Surprisingly, no appeal was preferred by
·the department to the Tribunal in respect of the demand for Rs. 21,74,963
Even the Collector did not make further enquiries to substantiate such demand.
We are conscious of the rising revenue deficit. In several matters, we find E
slippages of revenue on such counts. Therefore, we expect, Mr. Mohan
Parasaran, Additional Solicitor General, to bring our present judgment and
order to the notice of the Finance Ministry.

For the aforestated reasons, we do not find any i~firmity in the judgment
of the Tribunal dated 16.2.1999 passed in Appeal No.E/776-V /95-Bombay, F
and, accordingly, the appeal stands dismissed, with no order as to costs.

B.B.B. Appeal dismissed.