Customs, Excise and Gold Tribunal - Delhi
Vijay Tanks And Vessels Pvt. Ltd. vs Collector Of C. Ex. on 30 March, 1993
Equivalent citations: 1993ECR395(TRI.-DELHI), 2003(162)ELT872(TRI-DEL)
ORDER Lajja Ram, Member (T)
1. This is an appeal filed by M/s. Vijay Tanks and Vessels Pvt. Ltd., Mulund (West), Bombay (hereinafter referred to as the 'appellants' or the 'party'), against the Order-in-Appeal Nos. C-475-476/BI-105-106/83, dated 4-3-1983, passed by the Collector of Central Excise (Appeals), Bombay. Two orders passed by the Assistant Collector, Central Excise, Bombay have been disposed of by the Collector, Central Excise (Appeals), by a single order.
2. The appellants were engaged in the manufacture of metal containers (steel drums) falling under Item No. 46 of the erstwhile First Schedule to the Central Excises and Salt Act, 1944 (hereinafter referred to as the 'Act'). Such steel drums were being manufactured under an agreement for and on behalf of M/s. Hindustan Petroleum Corporation Limited (HPCL) from the steel sheets/coils supplied by them. The assessable value of these steel drums were determined on the basis of the declared cost of the steel sheets and the appellants' fabrication charges, as per Chartered Accountant's certificates, filed from time to time. HPCL used these drums for packing of their asphalt bitumen.
3. A Show Cause Notice was issued to the party asking them to show cause as to why the assessable value of the steel drums manufactured by them for HPCL should not be revised after adding HPCL's notional profit margin of 10%. The Show Cause Notice was also issued as to why the transportation charges and the cost of wrapping material should also not be added to the cost as per Chartered Accountant's Certificate. Transportation charges were incurred on account of transport of steel sheets from railway siding to the factory of the appellants, and were borne by the appellants. The wrapping material was received by the appellants along with the steel sheets/sheet coils, and no separate cost of these wrapping materials was shown, and its cost was already included in the cost of steel sheets/steel coils.
4. The Assistant Collector, Central Excise, Division-III, Bombay held that the addition of 10% notional profit margin to the cost incurred by HPCL and charged to them by the appellants, and the inclusion of transportation charges/cost of wrapping material was fully justified.
5. On appeal, the Collector, Central Excise (Appeals), Bombay rejected the appeal of the party, and confirmed the order of the Assistant Collector, Central Excise. The learned Collector, Central Excise (Appeals) regarding addition of the notional profit margin had observed as under :-
"As the goods have been fabricated by the appellants on behalf of M/s. Hindustan Petroleum the notional manufacturing cost and manufacturing profit of Hindustan Petroleum, that is, the price which Hindustan Petroleum would have realised by selling those drums, would naturally have included their profit, over and above the fabrication charges paid to the fabricator (which becomes an element of cost so far as M/s. Hindustan Petroleum is concerned) and hence the notional profit margin has been rightly added to the total cost including the fabrication charges."
6. In appeal, the appellants have submitted that the learned Collector, Central Excise (Appeals) has failed to appreciate that this was a case where they had fabricated the drums from the steel sheets supplied by HPCL for an agreed fabrication charges which included their manufacturing cost and their manufacturing profit in accordance with the terms of the purchase Order dated 24-10-1978 placed on them by HPCL. They added that on the face of this position, the addition of 10% notional profit margin was wholly unwarranted in law.
7. The case was heard on 18-1-1993 when Shri V. Lakshmikumaran, Advocate, appeared for the appellants and Smt. C.G. Lal, SDR, appeared for the respondents,
8. Shri V. Lakshmikumaran, the learned Advocate, pleaded that the raw material in this case was supplied by the purchaser of asphalt drums i.e. HPCL. The Department was asking for 10% customer's profit which was not includible in the assessable value. He added that the law in this regard is well settled and in no case the customer's profit could be included in the assessable value. He relied upon the following citations :-
(1) Ujagar Prints v. Union of India, 1989 (39) E.L.T. 493 (S.C.) Para 2;
(2) J.B. Kharwar Sons v. Union of India, 1992 (61) E.L.T. 58 (Guj.);
(3) Kwality Silk Mills v. Union of India, 1992 (61) E.L.T. 242 (Guj.);
(4) Collector of Central Excise, Vadodara v. N.J. Metal Screens Manufacturing Company Ltd., 1991 (37) ECR 655 (CEGAT).
9. The learned Advocate also referred to the Tribunal decision in Appeal Nos. 17/79-A and 58/80-A, dated 14-9-1985 relating to Standard Drum and Barrel Manufacturing Company, Bombay v. Collector, Central Excise, Bombay, in which a similar question has been decided, by the Tribunal.
10. Smt. C.G. Lal, learned SDR, mentioned that there was no statutory fixation of price and that 10% profit was reasonable. She referred to the following citations in support of her arguments :-
(1) Union of India v. Bombay Tyre International - 1983 (14) E.L.T. 1896 (S.C.) Para 33;
(2) Food Specialities Ltd. v. Appellate Collector, Central Excise and Customs, New Delhi - 1988 (33) E.L.T. 331 (P & H);
(3) Pawan Biscuit Company Pvt. Ltd. v. Collector, Central Excise, Patna -1991 (53) E.L.T. 595 (T) = 1991 (37) ECR page 315 (CEGAT) Special Bench 'A';
(4) Appolo Zipper Company Pvt. Ltd. v. Collector, Central Excise, Calcutta, 1987 (29) E.L.T. 126 (Tribunal).
11. We have carefully gone through the submissions made on both the sides.
12. According to Section 4(1) of the Act, where the duty of excise is chargeable on any excisable goods with reference to value, such value, shall, subject to the other provision of that Section, be deemed to be, the normal price thereof i.e. to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale. There are separate provisions when the goods are sold to different classes of buyers, where the goods are sold through the related persons or where the prices are fixed by law.
13. It has been further provided in Section 4(1)(b) that where the normal price of such goods is not ascertainable for the reason that such goods are not sold or for any other reason, such value shall be deemed to be the nearest ascertainable equivalent thereof determined in such a manner as may be prescribed.
14. Under Rule 3 of the Central Excise (Valuation) Rules, 1975, the value of any excisable goods shall for the purposes of Clause (b) of Sub-section (1) of Section 4 of the Act, be determined by the proper officer in accordance with these rules. Under Rule 6(b), where the excisable goods are not sold by the assessee but are used of consumed by him or on his behalf in the production or manufacture of other articles, and if the value cannot be determined on the basis of the value of the comparable goods then the value will be determined on the cost of production or manufacture including profits, if any, which the assessee would have normally earned on the sale of such goods. Under Rule 6(c) of the Central Excise (Valuation) Rules, 1975, where goods are sold through related persons and such related person does not sell the goods but uses or consumes such goods in the production or manufacture of other articles, then the value shall be determined as if the excisable goods have been used or consumed by the assessee.
15. Under Rule 7 of the Central Excise (Valuation) Rules, 1975, it has been provided that if the value of excisable goods cannot be determined under any of the Rules of those Central Excise (Valuation) Rules then 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 those rules.
16. The appellants were having a Central Excise L4 Licence No. 87/Metal/70. The steel drums were manufactured by them out of steel coils supplied to them by their customer-HPCL. Such steel drums were used by HPCL for packing of their product-asphalt bitumen. These drums were not sold as such by the HPCL. As the steel sheets/coils were supplied free of cost by HPCL, under an agreement, fabrication charges were paid by HPCL to the appellants. The steel sheets/coils were lifted by the appellants from the railway siding and transported to their factory. These transportation charges were not billed separately by the appellants to HPCL, but these charges were included in their fabrication charges payable by HPCL to the appellants, as per agreement. The steel sheets/coils were received wrapped in wrapping material. The cost of this wrapping material was included in the value of steel sheets/coils.
17. The assessments were made on the basis of a Chartered Accountant's Certificate. The Chartered Accountant's certificate showed cost of the drums and their fabrication charges separately. Different costs were shown for painted drums and the unpainted drums. The cost and the fabrication charges were revised from time to time.
18. The Department has sought to revise the assessable values by adding the customer's notional margin of profit of 10% to the manufacturer's certified cost value of the drums.
19. In this case as steel sheets/steel coils were supplied by the customers-HPCL and the steel drums so manufactured by the appellants from such steel sheets/steel coils, were handed over to the HPCL on receipt of fabrication charges, it could not be said that the aforesaid steel drums have been sold by the appellants to the HPCL at the normal price thereof that is to say that the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade. Further, as it could not be termed as a sale in the normal course of business, there is no price as such which could be considered as the sole consideration for the transaction.
20. Accordingly, it is not the main definition case under Section 4(1)(a) of the Act.
21. The goods have also not been sold to different classes of buyers or under a contract. The prices of such drums were also not fixed under any law. They have also not been sold through any related person. Thus, the case is not covered by any of the three provisions under Section 4(1)(a) of the Act.
22. They were also not sold through sale depots or sales organisation. Thus, the provisions of Section 4(2) of the Act are also not applicable.
23. In our view, the applicable provisions are those under Section 4(1)(b) of the Act which provides that where the normal price of the goods is not ascertainable for the reason that such goods are not sold or for any other reason then the value shall be deemed to be the nearest ascertainable equivalent thereof determined in such manner as may be prescribed.
24. Although it cannot be said that the steel drums were captively used by the appellants, even when excisable goods are used captively and there are no comparable goods produced or manufactured by the assessee or any other assessee, then the value is to be determined on the cost of production or manufacture including profits, if any, which the assessee would have normally earned on the sale of such goods.
25. There is no reference to the customer's profit. The reference is only to the manufacturer's profit.
26. Only for this limited purpose such supply of steel drums to HPCL, the customers, could be considered as a 'deemed sale' as observed by the Hon'ble Supreme Court in the case of Ujagar Prints v. Union of India - 1989 (39) E.L.T. 493 (S.C.). In the context of processing of fabrics on job work basis for the customers (traders) by the processors the Hon'ble Supreme Court observed that 'the assessable value of the processed fabric would be the value of the grey cloth in the hands of the processor plus the value of the job work done plus manufacturing profit and manufacturing expenses whatever these may be, which will either be included in the price at the factory gate or deemed to be the price at the factory gate for the processed fabrics. The factory gate here means the "deemed" factory gate as if the processed fabric was sold by the processor.'
27. In the cost data certified by the Chartered Accountant there is nothing to show that the value of the job work done plus the manufacturing profit and the manufacturing expenses have not been taken into account. In fact, the party has specifically stated that the manufacturer's profit margin has already been included in the cost of the drums as certified by the auditors.
28. At this stage, we may mention that the steel drums fabricated by the appellants for HPCL were not used by them. They were also not used on their behalf. HPCL also could not be considered as a related person and in any case the steel drums in question were not sold as such by even HPCL, but were used for packing of their product-asphalt bitumen.
29. Further, simply by supplying steel sheets it could not be said that the HPCL were the manufacturer of steel drums or, that the appellants were the agents of HPCL. It is not material whether they had taken a loan licence for the manufacture of such product.
30. There are a number of judgments to the effect that a person cannot be termed as a manufacturer under Section 2(f) of the Act merely because he has supplied the raw material to actual manufacturer and has paid the manufacturing charges to him for manufacturing the goods out of the raw material supplied by him.
31. The Collector, Central Excise (Appeals) has observed that though the goods were fabricated by the appellants, since these were manufactured on behalf of the HPCL, they also became de jure manufacturers, and on that account, they had also taken a loan licence for the manufacture of such goods. On the facts of the case, we find nothing on record that the appellants functioned only as an agent for HPCL. They had their own manufacturing facility. They had their own Central Excise licence. They did not manufacture steel drums exclusively for HPCL. Simply because raw material was supplied by the HPCL, it could not be said that HPCL became manufacturer of steel drums. Assessments of these drums were done on the basis of the Chartered Accountant's Certificate under the provisions of Rule 9B of the Rules. In the Chartered Accountant's Certificate the cost of the drums and the fabrication charges were shown separately.
32. In the case - Texmaco v. Collector, Central Excise, Calcutta - 1995 (77) E.L.T. 501 (S.C.) = 1992 AIR S.C.W. 2020, the Hon'ble Supreme Court has observed (in a case where Texmaco pursuant to contracts entered into in this behalf with the railway administration, fabricated and delivered to the railways, wagon bodies mounted on wheel sets supplied by the railways) that consideration of ownership of the goods were extraneous to levy of duties of excise which are imposts on manufacture.
33. In the cases (1) Collector, Central Excise, Madras v. Modoplast (P) Ltd., Coimbatore, 1985 (21) E.L.T. 187 (Tribunal); and (2) Metal Box India Ltd., Calcutta v. Collector, Central Excise, Calcutta, 1986 (23) E.L.T. 187 (Tribunal), the Tribunal held that the goods manufactured out of customer's raw materials cannot be said to have been manufactured on behalf of the customer when the licence for manufacture was taken by actual manufacturer and other statutory requirements for manufacture were complied with by actual manufacturer, when dealings are on principal to principal basis and manufacturing unit was not a nominee or facade for supplier of raw material.
34. In the case of B.S. Rajasekhar v. Collector, Central Excise, 1993 (63) E.L.T. 369 (Tribunal), the point to be considered was whether mere supply of raw material to other units for the manufacture of the goods will make the raw material supplier as manufacturer. The Tribunal has held that mere supplying the raw materials to other manufacturing unit or units for the manufacture of the goods will not make the raw material supplier as manufacturer if dealings are on principal to principal basis and the units are no fake or dummy.
35. Thus, we do not agree with the learned Collector, Central Excise (Appeals) that the notional manufacturing profit of the customer should be added to the cost arrived at after taking into account the profit element of the manufacturer. We also do not agree that the HPCL were de jure manufacturer of the steel drums under consideration.
36. The party has relied upon the Supreme Court's judgments in the case Ujagar Prints v. Union of India, 1988 (38) E.L.T. 535 (S.C), as clarified in 1989 (39) E.L.T. 493 (S.C.), in support of their contention that HPCL profit who got the steel drums manufactured was not includible in the assessable value. In the clarificatory judgment, the Hon'ble Supreme Court has held in the case of processing of fabrics of a trader by a processor on job work basis for such trader that the price or deemed price at which the trader would be selling the processed goods in the market, must be the value of the grey cloth or fabric plus the value of the job work done plus the manufacturing profit and the manufacturing expenses but not any other subsequent profit or expenses. They added that it is necessary to include the processor's expenses, costs and charges plus profit but it is not necessary to include the trader's profits who gets the fabrics processed because those would be post-manufacturing profits.
37. The two Gujarat High Court judgments - (1) J.B. Kharwar Sons v. Union of India, 1992 (61) E.L.T. 58 (Gujarat); and (2) Kwality Silk Mills v. Union of India, 1992 (61) E.L.T. 242 (Gujarat) cited on behalf of the appellants have also been relied upon, in the Supreme Court's decisions in the case of Ujagar Prints v. Union of India (supra).
38. In the case of Collector, Central Excise, Vadodara v. N.J. Metal Screens Manufacturing Company Ltd., 1991 (37) ECR 655 (CEGAT) Special Bench 'A', the dispute related to the includibility of customers profit at 10% in the assessable value of the goods processed on job work basis by the job worker. The Tribunal held that in view of the judgment of the Supreme Court in the case of Ujagar Prints reported in 1989 (39) E.L.T. 493 (S.C), customers profit on notional basis was not includible to the assessable value of the goods processed by the respondents.
39. Smt. C.G. Lal, the learned SDR, had referred to the observations of the Hon'ble Supreme Court in the case Union of India v. Bombay Tyre International, 1983 (14) E.L.T. 1896 (S.C.), that it was not possible to conceive of the price under Section 4(1)(a) being confined to the manufacturing cost and the manufacturing profit and that it was not possible to limit the price to its components representing the manufacturing cost and manufacturing profit
40. In the case before us the assessments were for the period 1-10-1978 to 31-3-1979 and were done on the basis of the Chartered Accountant's certificate dated 27-7-1979 under the provisions of Rule 9B of the Rules. The assessable values were arrived at under the Valuation Rules, 1975. The differential duty demanded on the basis of Chartered Accountant's certificate dated 20-2-1980 for the subsequent period 1-4-1979 to 30-9-1979 was paid by the party.
41. The prices declared were not under the main definition case under Section 4(1)(a) of the Act and hence the above observations of the Hon'ble Supreme Court were not applicable to the facts before us.
42. The Punjab and Haryana High Court decision in the case of Food Specialities Ltd. v. Appellate Collector, Central Excise and Customs, New Delhi -1988 (33) E.L.T. 331 (P & H) relied upon by the respondent related to the captive consumption of metal containers for use in the manufacture of prepared and preserved foods in the same factory of M/s. Food Specialities Ltd. The margin 0f profit @ 10% added by the Assistant Collector was in respect of the cost of article. In that case Metal containers were for use by the manufacturer themselves in their own factory. In the case before us the steel drums were not for captive consumption by the manufacturer - Vijay Tanks and Vessels Pvt. Ltd. The manufacturers have charged their fabrication charges. The assessments were made on the basis of the declared cost of the steel sheets and the manufacturer's fabrication charges. In such circumstances, there is no question of further addition of any profit margin even of the manufacturer, what to talk of the notional profit margin of the customers who have not even sold these drums as such but used them for packing asphalt bitumen. Thus, in our view, reliance by the respondents of this decision of the Punjab and Haryana High Court is misplaced.
43. Similarly, in the case Appolo Zipper Company Pvt. Ltd. v. Collector, Central Excise, Calcutta - 1987 (29) E.L.T. 126 (Tribunal) the value determinable was in respect of aluminium strips captively consumed by the Apolo Zipper Company Pvt. Ltd., for further manufacture of zips or slide fasteners. The Tribunal had held that the normal margin of profit was required to be added to the cost of production under Rule 6(b) of the Central Excise (Valuation) Rules, 1975. The Tribunal was referring to the margin of profit of the manufacturer, and not that of the customers.
44. In the case of Pawan Biscuit Company Pvt. Ltd. v. Collector, Central Excise, Patna, 1991 (53) E.L.T. 595 (T) = 1991 (37) ECR 315 (CEGAT) (S.B. 'A'), the goods under consideration were branded biscuits a consumer and consumable product. These were to be manufactured by the Pawan Biscuit Company, strictly in accordance with the processing details, formulae, recipe and packing specifications provided by M/s. Britannia Industries Ltd. (BIL). M/s. BIL supplied at its own cost to the Pawan Biscuit Company, the biscuit cutters, moulders, ingredients and packing material required for the manufacture of their brands of biscuits. BIL exercised quality control and supervised the manufacture of biscuits by Pawan Biscuit Company. The biscuits were sold in the wholesale market by the BIL. From the circumstances of that case, the Tribunal had come to a finding that the relationship between the Pawan Biscuit Company and BIL was that of Agent and Principal. They had held that the normal price under Section 4(1)(a) of the Act was not ascertain-able on the facts of the case and that the assessable value should be determined on the basis of the comparable sale namely the price at which the BIL were selling the biscuits in the wholesale market.
45. In the case before us, the steel drums were used by HPCL for packing asphalt bitumen. These drums were not sold as such by the customer (HPCL). There is no finding that the appellants before us were Agents of HPCL in the sense in the case of Pawan Biscuits, the Pawan Biscuit Company were Agents of the BIL. We do not find that HPCL exercised any control or supervision or issued any direction with regard to manufacturing of steel drums by the party in the way BIL exercised control or supervision or issued directions with regard to the manufacturing of their branded biscuits by the Pawan Biscuit Company.
46. Further, in the Pawan Biscuits case before the Tribunal, BIL were also independent manufacturers of biscuits having their own factory and possessing Central Excise licence issued under the Act. They were submitting the classification lists and price lists from time to time on the basis of the price at which they - the BIL were selling biscuits in the wholesale market, and they were being approved by the Central Excise authorities from time to time.
47. The facts in the case before us are different and thus in our considered view, the decision in that case is not applicable to the facts before us.
48. We find that in a similar case Standard Drum and Barrel Manufacturing Company, Bombay v. Collector, Central Excise, Bombay, Appeals Nos. 17/79-A and 56/80-A, dated 14-9-1983, the Tribunal has observed that it was not reasonable to add any further margin of profit to the declared value as the same was built into the fabrication charges plus the scrap value which were already included in the value.
49. As regards transportation charges, it has been contended by the appellants that the same was incurred on account of transportation of steel sheets from railway siding to their factory, and that in terms of the agreement, this was to be borne by the appellants and not by the customers-HPCL. There is nothing on record that the appellants have claimed this amount separately from the HPCL and that it is not built into their fabrication charges.
50. Insofar as the wrapping material is concerned, it was claimed by the appellants that its cost was already included in the cost of steel sheets and this cost has been taken note of by the auditors in their certificate.
51. In the circumstances of the case, we find that in the assessable values, based on the Chartered Accountant's Certificates, which took into account the cost of the steel drums and the fabrication charges, separately for painted and unpainted drums, customer's profit was not includible. On the same grounds, we consider that the transportation charges, which already stood included in the fabrication charges claimed by the appellants from the HPCL, and the cost of wrapping material, whose cost formed part of the cost of the steel sheets and which already stood included in the cost of the drums as per Chartered Accountant's Certificate, were not liable to be included again in the assessable values, arrived at in this case and on whose basis the assessments were made.
52. In the result, we set aside the order passed by the Collector, Central Excise (Appeals), Bombay, and allow the appeal with consequential relief to the appellants.