Monday, November 30, 2015

Valuation of DTA clearances of 'tea' by EOU to be valued as per Excise law: Apex Court

Central Excise: Where, as per exemption notification, DTA clearances by EOU are liable to excise duty equal to duty on clearances by non-EOUs, said DTA clearances are to be valued as per Central Excise Valuation rules.


a)     Assessee was a 100% EOU engaged in manufacture of instant tea. It cleared tea manufactured wholly out of indigenous raw materials, to its sister concerns in EOU.

b)   Since, as per Notifications 8/97 and 23/2003, said clearance of tea was liable duty equal to ‘excise duty’ and any excess was exempted, assessee valued said tea as per rule 8 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.

c)    Department argued that since DTA clearances by EOU are liable to excise duty equal to ‘customs duty leviable’, tea was to be valued as per customs law.

d)   Tribunal decided in favour of assessee and aggrieved department filed civil appeal in Apex Court.

Apex Court decided in favour of Assessee as under:

1) There is no doubt that the duty of excise leviable under Section 3 would be on the basis of the value of like goods produced or manufactured outside India as determinable in accordance with the provisions of the Customs Act, 1962 and the Customs Tariff Act, 1975. However, the notification states that duty calculated on the said basis would only be payable to the extent of like goods manufactured in India by persons other than 100% EOUs.

2)    It is clear that in the absence of actual sales in the wholesale market, when goods are captively consumed and not sold, Rule 8 of the Central Excise Rules would have to be followed to determine what would be the amount equal to the duty of excise leviable on like goods.

3)   It is also clear that the said notification has been framed by the Central Government, in its wisdom, to levy only what is levied by way of excise duty on similar goods manufactured in India, on goods produced and sold by 100% EOUs in the domestic tariff area if they are produced from indigenous raw materials.

4)    Therefore, DTA clearances by assessee are rightly valued as per Central Excise Valuation rules. Appeal is, accordingly, dismissed - Commissioner of Central Excise v. Nestle India Ltd.
[2015] 63 312 (SC) 

Buy-back price to be disclosed even if promoter is exempt from public announcement under takeover code

SEBI: Where appellant-promotor bought back its shares from State Financial Institution, no public announcement was required as same is being protected under regulation 3 of the SEBI (SAST) Regulations, 1997, however, rate at which shares were bought back had to be disclosed.


a)    In respect of an acquisition which was in excess of 15% of the total shareholding of the Target Company, the appellant neither in the public announcement nor in the letter had disclosed the fact that he and his associates had already bought back the shares of the Haryana State Industrial Development Corporation Limited (‘HSIDC’).

b)   The appellant had vainly and incorrectly attempted to justify his act of non-disclosure by stating that the transaction with HSIDC was protected by Regulation 3, which placed it beyond the ambit of Regulations 10, 11 and 12.

c)   Appellant had also issued post dated cheques towards the purchase consideration for the buy-back of equity of shares held by HSIDC in the Target company which were later on dishonoured.

d)    The appellant contended that the amount deposited with HSIDC via post-dated cheque was not in consideration for the buy-back of shares but were deposited by way of security for the buy-back obligation. Further, the appellant contented that cheques presented had been dishonoured on presentation, the transaction did not culminate in an acquisition.

The Supreme Court rules as under:

1)    Regulation 3 only protects a transaction between a co-promoter and a State financial institution to the extent that for such transaction a public announcement would not be required to be made as provided under Regulations 10, 11 and 12. However, it does not imply that the said transaction is to be protected from the rigours of other Regulations provided for under the Act.

2)    Thus, the transaction between the Appellant and HSIDC would have to be subject to Regulations 16 and 20, and the rate at which the Appellant bought back the shares from HSIDC had to be disclosed in the public announcement.

3)   With regard to appellant’s contention on post-dated cheque, the Apex Court said the post-dated cheques amounted to a promise to pay and that promise would be fulfilled on the date mentioned on the cheque. Thus, this promise to pay amounted to a sale of shares/equity. The subsequent dishonouring of the post-dated cheque would have no bearing on the case.

4)   At the time of making the public announcement the Appellant had bought back the shares of HSIDC by making payment via the said post-dated cheques. Further, as the buy-back was in pursuance of an agreement, there was consensus ad idem. The Appellant had subsequently shirked his responsibility and had tried to slither away from honouring the agreement, which he could not be allowed to gain from, as is established by the legal maxim commodum ex injuri su non habere debet.

5)    Under Regulation 2 clause (1) Sub-clause (a)- ‘acquisition’ means directly or indirectly acquiring or agreeing to acquire shares or voting rights in, or control over, a Target Company. This definition clarifies that an acquisition takes place the moment the acquirer decides or agrees to acquire, irrespective of the time when the transfer stands completed in all respects. The definition clarifies that the actual transfer need not be contemporaneous with the intended transfer and can be in future. - A.R. DAHIYA v. Securities Exchange Board of India [2015] 63 332 (SC)