Custom, Excise & Service Tax Tribunal
M/S. Goyal M.G. Gases Pvt. Ltd vs Cce, Ghaziabad on 23 April, 2014
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE
TRIBUNAL, PRINCIPAL BENCH NEW DELHI, COURT NO. 1
Date of Hearing/Decision: 23.04.2014
For approval and signature:
Honble Mr. Justice G. Raghuram, President
Honble Mr. Rakesh Kumar, Member (Technical)
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Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2
Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
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Whether Their Lordships wish to see the fair copy of the Order?
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Whether Order is to be circulated to the Departmental authorities?
Excise Appeals Nos. E/5180, 5181 & 646/2006-EX(DB)
[Arising out of Order-in-Originals Nos.13/COMM/GZB/04 dated 15.07.2004 passed by the Commissioner of Central Excise, Ghaziabad in Appeals Nos. E/5180 &5181 of 2004 and order-in-original no.23-27/Commr./GZB/2005 dated 21.11.2005 passed by the Commissioner of Central Excise, Ghaziabad in Appeal No. E/646/2006).
M/s. Goyal M.G. Gases Pvt. Ltd. Appellant
Vs.
CCE, Ghaziabad Respondent
Appearance:
Rep. by Shri B.L. Narsimhand, Advocate for the Appellants. Rep. by Shri Yashpal Sharma, DR for the Respondent Coram :
Honble Mr. Justice G. Raghuram, President Hon'ble Mr. Rakesh Kumar, Member (Technical) FINAL ORDER NO.52299-52301 /2014 Rakesh Kumar:
The facts leading to these appeals are, in brief, as under:-
1.1 The appellant are manufacturers of various industrial gases viz. Oxygen, Nitrogen, Hydrogen, Helium, Argon and also mixture of these gases. These gases are chargeable to central excise duty under Chapter 28 of the Central Excise Tariff. Oxygen gas being manufactured and cleared by them is of various grades - industrial grade and medical grade. The oxygen meant for medical uses has to conform to the standards prescribed for the same in Indian Pharmacopeia and accordingly, it has to be not less than 99% pure. According to the appellant, the medical grade oxygen being manufactured and cleared by them is of 99.5% of purity and this fact is not disputed. The period of dispute in these appeals is from April 1997 to December 2004.
1.2. The appellant sell gases manufactured by them in their own cylinders in which case they charge a separate amount towards cylinder rental and maintenance in addition to the price of gases and also in the cylinders brought out by their customers. In the latter case while no rental for cylinder is charged, sometimes at the request of the customers, the testing of the cylinders is done and for this, separate amounts are charged. About 40% of the appellants sales of gases are in their own cylinders and about 40% to 45% of the sales of gases are in the cylinders brought by their customers. In the remaining 15% to 20% cases, the gas is cleared either through pipe line or in tankers. The appellant also arrange transportation of the gases to the customers premises whenever a request for this in made by the customers for which they separately charge some amount from them.
1.3 There are four points of dispute in these appeals.
1.3.1 The first point of dispute is as to whether the cylinder rental and maintenance charges in cases of supply of gases in the appellants own cylinders and the charges for testing of the cylinders in the cases of supply of gases in the cylinders brought by the customers would be includible in the assessable value of the gases sold or not? The Department is of the view that these charges would be includible in the assessable value.
1.3.2 In respect of the transportation charges, the objection raised by the department is that actual expenses incurred by the appellant for arranging the transportation of gas filled cylinders are less than the amount charged by the appellant from their customers for transportation and as such, the according to the department, the excess amount of transportation charges would be includible in the assessable value.
1.3.3 The third point of dispute is regarding classification of the medical grade oxygen. According to the appellant, this oxygen is of 99.5% purity and this fact is not disputed. The department, however, seeks to classify this oxygen as Industrial grade oxygen under sub-heading 2804.19 and charge duty on the same. While according to the Appellant, this oxygen being medical grade oxygen is classifiable under sub-heading no. 28041.11 and would not attract any duty, as the tariff rate for medical grade oxygen itself is nil. The department seeks to classify this oxygen as Industrial grade oxygen under sub-heading no. 2804.19 on the ground it is not being supplied in cylinders but has been supplied in cryogenic tankers and inquiry with some of the customers revealed that such oxygen supplied to them in cryogenic tankers had been sold to the buyers for non-medical use.
1.3.4 The fourth point of dispute is about Cenvat Credit in respect of cryogenic tank. In respect of certain cryogenic tanks, the appellant have availed Cenvat Credit of Rs.9,05,981/-. These cryogenic tanks after being used for several years were disposed of. The Departments view is that at the time of clearance of these used cryogenic tanks, the Cenvat Credit originally taken should have been reversed, while according to the appellant, the correct amount of Cenvat Credit availed is Rs.8,64,890 and not Rs.9,05,981/- and at the time of clearance of the tank, they had deposited an amount of Rs.4,24,062/- and the balance amount of Rs.4,94,303 had been debited by them in the PLA on 8.10.2000 when the department had pointed this out to the appellant and had asked for reversal of entire amount of Cenvat Credit of originally taken.
1.4 The above disputes were adjudicated by the Commissioner by two orders. The order-in-original dated 29.06.2004 is in respect of the period for April, 1997 to October, 2001 by which Commissioner has confirmed a total duty as well as Cenvat Credit demand of Rs.75,57,795/- against the appellant along with interest under Section 11 AB and besides this, imposed penalty of equal amount on them under Section 11AC and penalty of Rs.50,000/- on Shri P.K. Gupta, Vice President of the appellant company. The amount of demand confirmed along with interest includes the Cenvat Credit demand of Rs.9,05,971/- on the cryogenic storage tanks. The dispute in respect of period from 1.11.2002 to 31.12.2004 for which 5 show cause notices had been issued were adjudicated by the Commissioner vide order-in-original dated 22.11.2005 by which total duty demand of Rs.1,95,85,117/- along with interest under Section 11 AB was confirmed and besides this, penalty of equal amount under Section 11AC was imposed. In both these orders, the Commissioner held that cylinders rentals and maintenance charges in the cases where gases were supplied in the appellants own cylinders, the cylinder testing charges, in the cases where the gases were supplied in the cylinders brought by the appellants and the differential freight i.e. the difference between the freight expenses actually incurred by the appellant and the amount charged by the appellant towards freight would be includible in the assessable value of the goods. On the question of classification of medical grade oxygen, the Commissioner held that the same having been supplied in cryogenic tankers and not in cylinders, is classifiable as Industrial grade oxygen under Heading No. 2804.19 and not heading no.2804.11 and accordingly, would be chargeable to duty. Against these two orders of the Commissioner, these appeals have been filed.
3. Heard both the sides.
4. Shri B.L. Narsimahan, Advocate, ld. Counsel for the appellant pleaded that so far as the inclusion of freight differential in the assessable value is concerned, it is not disputed that the sales of the oxygen gases were at the factory gate and in view of this, the freight charges for transportation of the goods from the factory to the customers premises were not includible in the assessable value, that when the freight was not includible in the assessable value, it is not material as to whether the amount charged by the Appellant towards freight is more than the expenses incurred by them in this regard and as such, the freight differential would not be includible in the assessable value, that in this regard, he relies upon the Apex Courts judgement in the case of Baroda Electric Meters Ltd. reported in 1997 (94) ELT 13 (SC) and also the Apex Court judgement in the case of CCE, Noida Vs. Accurate Meters Ltd. reported in 2009 (235) ELT 581 (SC), that it is also not the allegation of the department that the appellant had depressed or underdelcared the assessable value of the goods and had charged part of the value of the goods in form of freight by inflating the freight expenses, that in view of this, the impugned order confirming the duty demand on the freight differential by including the same in the assessable value is not sustainable, that as regards the inclusion of cylinder rental/maintenance charges in the cases where gases were supplied in the appellants own cylinders, since the gases were marketable as such, without being packed in cylinders inasmuch as a substantial quantity of the gases is sold in the cryogenic tankers as well as through pipe line, the cylinder rental and maintenance charges would not be includible in the assessable value as in such a situation, filling the gases in the cylinders cannot be said to be essential to make the goods marketable, that in this regard, he relies upon a recent judgment of the Tribunal in the case of CCE, Indore Vs. Grasim Industries Ltd. reported in 2014-TIOL-573-CESTAT-Delhi, wherein the Tribunal, in para 5.1 of the judgement, relying upon the Apex Court judgement in the case of Bombay Tyre International reported in 1983 (14) ELT 1896 (SC) had held that if some goods are marketable without being put into containers, the cost of containers including their testing charges would not be includible in the assessable value, that the ratio of this judgement is squarely applicable to the facts of this case and accordingly, the cylinder rental and maintenance charges in the case where the gases are supplied in the appellants own cylinder would not be includible in the assessable value, that in any case, in respect of the period prior to 1.7.2000, the issue of inclusion of cylinder rental/maintenance charges in the assessable value stands decided by the Apex Court in the appellants favour in its judgement in the case of Indian Oxygen Ltd. reported in 1988 (36) ELT 730 (SC), that as regards cylinders testing charges in cases where the gases were supplied in the cylinders brought by the customers, the same would not be includible in the assessable value in view of the above mentioned judgement of the Tribunal in the case of CCE Vs. Grasim Industries Ld. (supra), that as regards the classification of the medical grade oxygen, the same is of 99.5% purity and this fact is not disputed by the department, that in terms of the Indian Pharmacopeia, the medical grade oxygen must be not less than 99.0% pure, that it is not necessary that the medical grade oxygen has to be packed in the cylinders, that once the oxygen gas conforms to the standard of purity prescribed in the Indian Pharmacopeia, the same would be classifiable as medical oxygen under heading no. 2804.11, that just because some dealers who purchased the medical grade oxygen from the appellant sold the same to some buyers, who have put to it non-medical uses, the classification of the oxygen cleared cannot be changed into industrial grade oxygen, that as regards Cenvat Credit of Rs.8,64,890/- the same had been availed in respect of the cryogenic tanks, which after use for some years, have been cleared by reversing Cenvat Credit equal to the duty on the depreciated value, that since in this case at the time of clearance of the used tankers, the Cenvat Credit equal to the duty on the depreciated value had been reversed, the department cannot insist on reversal of Cenvat Credit originally taken and in this regard, he relies upon the judgement of the Honble Madras High Court in the case of CCE, Salem & Rogini Mils Ltd. reported in 2011 (264) ELT 367 (MAD) and also the judgement of the Punjab & Haryana High Court in the case of Raghav Alloys Pvt. Ltd. reported in 2011 (268) ELT 161 (P&H), and that in view of this, the Cenvat Credit demand is not sustainable. Shri Narsimhan, therefore, pleaded that in the above circumstances, the impugned order is not sustainable.
5. Shri Yashpal Sharma, ld. Departmental Representative, defended the impugned order by reiterating the findings of the Commissioner and pleaded that the issue of inclusion of cylinder rentals/cylinder testing charges in the assessable value in respect of the period w.e.f. 1.7.2000 has been referred by the Apex Court to a Larger Bench in its judgement in the case of CCE, Indore Vs. Grasim Industries 2009 (241) ELT 321 (SC), wherein the Apex Court expressing doubts about correctness of its decision in the case of CCE Vs. Acer India reported in 2004 (173) ELT-289 (SC) has referred the questions as to whether the concept of transaction value, makes any material departure from the deemed normal price concept of the erstwhile Section 4(1)(a) of the Central Excise Act and whether the Section 4 of the Central Excise Act, 1944 as substituted w.e.f. 1.7.2000 and the definition of transaction value in Section 4 (3)(d) are subject to Section 3 of the Act, to a Larger Bench. With regard to the inclusion of the differential freight in the assessable value, he pleaded that the same would be includible in the assessable value of the goods and the judgement of the Apex Court in the Baroda Electric Meter being with regard to the provisions of Section 4, as the same stood during the period prior to 1.7.2000, would not be applicable to the facts of this case. On the question of classification of medical grade oxygen, he pointed out to the statements of certain dealers who have stated that the medical grade oxygen purchased by them from the appellant in cryogenic tankers had been sold by them to several buyers for non-medical use. He emphasized that since this oxygen had not been supplied in cylinders, its use for medical purposes cannot be insured and hence, it would not be classifiable as medical grade oxygen under heading no.2804.11 and would be correctly classifiable under heading no.2804.19. With regard to Cenvat Credit on used cryogenic tanks cleared on payment of duty on their depreciated value (transaction value) instead of payment of an amount equal to Cenvat Credit originally taken, he pleaded at in terms of provision of Cenvat Credit Rules at the times of removal of Cenvat Credit availed used cryogenic tanks, the Cenvat Credit originally taken was required to be reversed. He, therefore, pleaded that there is no infirmity in the impugned order.
6. We have considered the submissions from both the sides and perused the records.
7. Coming, first, to the question of inclusion in the assessable value of the differential freight i.e. the difference between the freight expenses charged by the appellant from their customers for transportation of the goods from factory to the premises of their customers and the actual expenses on freight incurred, we find that it is not disputed that the sales of the gases were at the factory gate. During the period prior to 1.7.2000, the assessable value was the normal price at the time and place of removal and during the period w.e.f. 1.7.2000, the assessable value is the transaction value at the time and place of removal. The place of removal is the factory gate and, therefore, whether during the period prior to 1.7.2000 or during the period w.e.f. 1.7.2000, the freight expenses incurred on transportation of the goods from the factory to the customers premises would not be includible in the assessable value and as such, the appellants activity of arranging transportation of the goods from the factory to the customers premises does not add to the value of the goods, which in this case, for the purpose of assessment of duty has to be the value at the factory gate. Therefore, even if the appellant make profit from their activity of arranging transport by charging higher amount than the expenses actually incurred on transportation, the differential freight would not be includible in the assessable value and in this regard, the Apex Court judgement in the case of Baroda Electric Meter(supra) would be applicable. The situation would be different if there is an allegation that the appellant have under declared the assessable value of the goods at the factory gate and part of the value of the goods is being recovered in form of inflated freight expenses but this is not the departments case and there is neither any allegation and nor any evidence in this regard. In view of this, the impugned orders confirming duty demand on the freight differential are not sustainable.
8. As regards the inclusion in the assessable value of the cylinder rental and maintenance charges in the case where the gases were supplied in the appellants own cylinders and the charges for cylinder testing done at the request of the customers, in the cases where the gases were supplied in the cylinders brought by the customers, it is not disputed that the gases, in question, were marketable as such inasmuch as a substantial quantity of the gases was being supplied in tankers as well as through pipe line and also in the cylinders brought by the customers and such, the packing of the gases into cylinders is not necessary for making the gas marketable. In view of this factual matrix, the ratio of the Tribunals decision in the case of CCE Vs. Grasim Industries Ltd. reported in 2014-TIOL-573-CESTAT-Del would be applicable to this case and these charges would not be includible in the assessable value.
9. Coming to the classification of the oxygen which according to the appellant is medical gas oxygen falling under sub-heading no.2804.11 and which according to the department is of industrial grade covered by sub-heading no. 2804.19, we find that according to the appellant, the oxygen is of 99.5% purity and this fact is not disputed by the Department. In terms of Indian Pharmacopoeia, the medical grade oxygen should be of not less than 99% purity and on this basis, the 99.5% pure oxygen would have to be treated as medical grade oxygen. The department seeks to classify this oxygen as other than medical grade under sub-heading no. 2804.19 and demand duty on the same on the ground that direct supply of oxygen to hospitals for medical use which could not be proved by the appellant company and some of buyers have stated that the 99.5% pure oxygen purchased by them from the appellant company was sold them as industrial grade. The tariff sub-heading no. 2804.11 covers the medical grade oxygen for which the tariff rate of duty is nil and sub-heading no.8804.19 covers other oxygen for which rate of duty is prescribed. Since there is no definition of medical grade oxygen, the meaning of this term should be understood from how it is described in Indian Pharmacopoeia. In terms of the Indian Pharmacopoeia, the medical grade oxygen must be not less than 99% pure. Though the Indian Pharmacopoeia mentions that oxygen for medical purpose is stored under pressure in metal cylinders of the type conforming to the appropriate safety regulations and valves and taps should not be lubricated with oil and grease, in our view, this cannot be construed to infer that the medical gas oxygen cleared by a manufacturer must necessarily be sold in the cylinders, as hospitals do purchase the medical grade oxygen in bulk quantity in cryogenic tankers for centralized supply of medical oxygen to the wards and operation theaters. When the tariff does not provide that the classification would be determined by the condition of the end use, the condition of end use cannot be brought in for deciding the classification and just because the medical grade oxygen manufactured by a manufacturer and sold by him to his customers was further sold to other dealers for non-medical, use the classification of the oxygen manufactured and cleared by the manufacturer cannot be changed to non-medical oxygen. Same view has been taken by the Tribunal in the case of BOC India Ltd.; K.S. Rao & Kalyan Mukhopadhyay Vs. CCE, Jamshedpur, reported in Manu/CK/0230/2007. Therefore, notwithstanding the statement of some of the dealers that the medical grade oxygen purchased by them from the appellant company was sold by them to some other persons for non-medical use, the oxygen gas, in question, would be correctly classifiable as medical grade, oxygen under sub-heading 2804.11, as the fact that it is more than 99.5% pure is not disputed. Therefore, the duty demand confirmed by the Commissioner on this count is also not sustainable.
10. As regards the Cenvat Credit demand on the used cryogenic tanks, which have been removed, it is not disputed by the department that the appellant at the time of clearance of the used cryogenic tanks had reversed the Cenvat Credit equal to the amount of duty paid on the transaction value. In view of this, no amount over and above amount already reversed would be recoverable from the appellant in view of the judgments of the Honble Madras High Court in the case of CCE, Salem Vs. Rogini Mills Ltd. (supra) and the judgement of the Honble Punjab & Haryana High Court in the case of Raghav Alloys Pvt. Ltd. (Supra).
11. In view of the above discussion, the impugned orders are not sustainable. The same are set aside. The appeals are allowed.
[operative part already pronounced] (Justice G. Raghuram) President (Rakesh Kumar) Member (Technical) Ckp.
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