Customs, Excise and Gold Tribunal - Delhi
Colgate Palmolive India Ltd. vs Collector Of C. Ex. on 22 November, 1994
Equivalent citations: 1995ECR387(TRI.-DELHI), 1995(76)ELT186(TRI-DEL)
ORDER K.S. Venkataramani, Member (T)
1. This appeal has been preferred against the order issued on 10-1-1994 passed by the Collector of Central Excise & Customs (Appeals), Pune. The background facts, as summoned up for the impugned order, are as follows :
2. This is an appeal filed by M/s. Colgate Palmolive (I) Ltd. (hereinafter called appellant) against the order in original passed by the Assistant Collector of Central Excise & Customs, Aurangabad II Division, Auran-gabad demanding a duty of Rs. 66,49,829.00 from the appellants.
3. The brief facts of the case are that the appellants are engaged, inter alia, in the manufacture and sale of toilet soaps and tooth powder which are manufactured in their factory at Aurangabad. The appellants filed price list and claimed certain deductions from the assessable value of the goods manufactured and cleared from their factory at Aurangabad. These deductions included distribution cost (warehousing expenses) and secondary packing. The appellants have depots and warehouses all over India and do not make any factory gate sale to their stockists. They were issued show cause notice on 7-3-1992 asking them to show cause as to why the deductions claimed by them in the various price lists filed since 1988 should not be disallowed as they were not considered admissible. The appellants submitted reply to the show cause notice vide their letter dated 17-5-1992. Thereafter, the appellants were issued two further show cause-cum-demand notices dated 20-5-1992 which were issued in respect of period January 1990 to February, 1992 and October, 1990 to February, 1992 respectively whereby the appellants were called upon to show cause why the duty demanded therein should not be recovered from the appellants in respect of said deductions claimed by the appellants. The show cause notices were adjudicated by the Assistant Collector, who vide his order-in-original dated 28th August, 1992 allowed deductions in respect of freight, sales tax, central sales tax, octroi and in transit insurance. The Assistant Collector, however, disallowed the deductions claimed in respect of the cost of secondary packing as also the cost of warehousing. This secondary packing was considered essential for putting the goods in the wholesale market and was not optional at the instance of the customer. The warehousing expenses were incurred after the clearance of the goods from the factory gate. The Assistant Collector, therefore, demanded a duty of Rs. 66,49,829.00 which became payable in view of the denial of the deductions on account of so-called secondary packing and warehousing expenses. It is against this order of the Assistant Collector that the appellants have filed [an] appeal.
4. Ld. Sr. Counsel, Sh. Hidayatullah appearing for the appellants, submitted that in this case there is no factory gate sale at all of their products, namely, soap and tooth powder. The ld. Sr. Counsel submitted the following arguments in respect of the claim for deduction of cost of warehousing from the assessable value. In this connection, the ld. Sr. Counsel submitted that there is one decision of the Supreme Court in the case of Assistant Collector of Central Excise v. M.R.F. -1987 (27) E.L.T. 553 which would go to support the claim for deduction of these elements from the assessable value. Although the Supreme Court has recalled this decision for review, the ld. Sr. Counsel urged that there are subsequent decisions of the Supreme Court which would indicate that recall of the M.R.F. order has made no difference as the Supreme Court/High Court have allowed deduction of cost on account of similar goods removed in other cases even after being informed of the recall in the following cases :-
Kelvinator v. Collector - 1988 (36) E.L.T. 517 (S.C.) Snow White v. Collector: - 1989 (41) E.L.T. 360 (S.C.) Victory Glass v. Union of India - 1990 (47) E.L.T. 540 (Kar.) Indian Oxygen v. Collector - 1988 (36) E.L.T. 723 (S.C.) Hindustan Gas v. Collector - 1992 (59) E.L.T. 306 Plyboard v. Collector -1989 (41) E.L.T. 659 Guljag Chemicals v. Collector - 1993 (63) E.L.T. 710 Tungbhadra Ind. v. Collector - 1992 (60) E.L.T. 512 The ld. Sr. Counsel, further, pointed out that independent of M.R.F. decision, the Supreme Court has in the case of Union of India v. Duphar Interfran Ltd., reported in 1987 (27) E.L.T. 599 (S.C.) permitted exclusion of cost of warehousing and distribution cost in determining the assessable value. It was, further, argued that if after considering the Supreme Court decision in the case of Union of India v. Bombay Tyre International, reported in 1983 (14) E.L.T. 1896 (S.C.), particularly paras 49 & 50), the Supreme Court has allowed post removal expenses, such as loading and handling charges, then on the same analogy the Id. Sr. Counsel urged there is no reason for disallowing expenditure on the warehousing which are the expenses incurred after the goods are removed from the factory gate. He cited, in this context, the Supreme Court decision in the case of Indian Oxygen Ltd. v. Collector of Central Excise, reported in 1988 (36) E.L.T. 723. The Id Sr. Counsel then referred to certain decisions of the Tribunal in which it has been held that the cost of distribution and remuneration to CIF agents is deductible from the assessable value. The Id. Sr. Counsel submitted that these decisions are holding the field and have not been recalled. These are - Hindustan Gas & Industries Ltd. v. Collector of Central Excise -1992 (59) E.L.T. 306; Plyboard v. Collector of Central Excise -1989 (41) E.L.T. 659; & Guljag Chemicals & Plastics Ltd. v. Collector of Central Excise - 1993 (63) E.L.T. 710. Even in respect of M.R.F. order, the Tribunal had held that in the case of Hindustan Gas & Industries Ltd. case (supra) and Tungbhadra Industries Ltd. v. Collector of Central Excise - 1992 (60) E.L.T. 512 that the recall of the M.R.F. order makes no difference for deducting post removal expenses to the assessee like remuneration to C&F agents. In the case of present appellants, this comprises of 61 per cent of the total expenses of warehousing. The Id. Sr. Counsel, further, referred to the Collector (Appeals) order and pointed out that break-up of the individual elements of cost comprising of the warehousing cost was not an issue before the Collector (Appeals) and as such he went beyond the scope of the appeal. Such an aspect was not examined in any reported case nor was the case remanded for that purpose. The Id. Sr. Counsel pointed out that Collector (Appeals) has, in his order, relied upon the Bombay High Court judgment in the case of Garware Paints v. Collector of Central Excise -1993 (67) E.L.T. 241. This decision, however, did not specifically deal with the expenditure of the cost of warehousing and also did not consider the Bombay High Court decision in the case of Duphar Interfran Ltd., which was confirmed by the Supreme Court as regards the admissible deduction on account of cost of distribution through depot/warehousing after removal of the goods from factory.
5. With regard to the claim regarding deduction of the cost of packing, the Id. Sr. Counsel drew attention to the fact that there is no factory gate sale at all and in such a context, the test for includibility of packing charges is as laid down by the Supreme Court in case of Collector of Central Excise v. Ponds India Ltd. -1989 (44) E.L.T. 185 that the real test is not the packing in which goods are being sold in wholesale trade but the packing in which they are generally sold is not capable of being applied to the situation of the appellants. It was urged that since the secondary packing is used to ensure protection against damages during transit, the case of the appellants was covered by the Supreme Court decision in the case of Geep Industrial Syndicate Ltd. v. Union of India -1992 (61) E.L.T. 328 (S.C.) following Supreme Court decision in Godfrey Philips -1985 (22) E.L.T. 306. Their torches and batteries were first packed in polythene boxes and such boxes were then placed in cardboard cartons and the cartons were then placed in wooden boxes. The Supreme Court also held that the use of the wooden boxes is not necessary for putting the goods in wholesale market at the factory gate and that the cost of wooden boxes is excludible even if such boxes are used for delivery of goods in all cases. The Id. Sr. Counsel submitted that what is important is to ascertain the purpose of the packing which is the test laid down by the Supreme Court in the above cases. The Collector (Appeals) in the impugned order has also failed to consider another order of the Collector (Appeals), which being the order of the Coordinate Authority, has to be followed being based on the Supreme Court decision in the case of Ponds India Ltd. (supra).
6. Ld. D.R., Shri Singhal, referred to Section 4(2) of Central Excises & Salt Act, 1944 which lays down that where the price of any excisable goods for delivery at the place of removal is not known and the value thereof is determined with reference to the price for delivery at a place other than the place of removal, the cost of transport from the place of removal to the place of delivery has to be excluded. Therefore, only this element of the cost needs to be deducted from the assessable value. In this case, admittedly, there is no factory gate sale and there are two types of depots. One type owned by the appellants and the second type not owned by them. In respect of the former type of warehousing, the ld. D.R. submitted that it will be part of appellants' own establishment and the warehousing expenses in respect of the warehouses not under their ownership the expenses incurred would be lesser. It is in this context that Collector (Appeals) asked for a break up because without it the Collector (Appeals) could not have made the correct determination of the admissibility and the extent of such admissible deductions. No doubt, the M.R.F. decision of the Supreme Court has been recalled but the Ld. D.R. pointed out the decision of the Supreme Court laying down the basic principles in interpreting Section 4 of the Central Excises & Salt Act, 1944 in the Bombay Tyre International case (supra), still holds the field and this has not been recalled. Paras 49 and 50 of the Bombay Tyre International case still laid down the criteria in respect of the permissible deductions. The Bombay High Court in the case of Advani Oerlikon Ltd. v. Union of India - 1984 (16) E.L.T. 27 (Bom.) held that freight, trade discount, excise duty and other taxes alone are deductible. The lower authorities have allowed these deductions to the appellants in the present case. The Collector (Appeals) has also relied upon Garware Paints case (supra) of the Bombay High Court wherein the Supreme Court decision in Bombay Tyre International case was followed. The decision in the cas.? of Duphar Inter/ran the ld. D.R. urged, is not significant in the facts of this case as it has not laid down any general law. Indian Oxygen case (supra) is also distinguishable as in that case there were ex-factory sales. In the Kelvinator decision of the Supreme Court (supra) also, the Supreme Court has considered the exclusion of costs at the post-warranty period. On the other issue regarding the secondary packing, the ld. D.R. referred to the detailed evidence, as given in the orders of the lower authorities and contended that in this case the transport of the excisable goods is on their own account from the factory to their depots. It is, in fact, evident from the submissions of the appellants made before the Collector (Appeals) as recorded by that authority in the impugned order that if the packing as employed by them was not done, the tins containing goods will get dented and scratched and would become unmarketable. Similarly, without the corrugated cartons the soap would get dented and the wrappers would get torn. There is no evidence of special packing of the articles by the buyer and according to Section 4 of the Central Excises & Salt Act, 1944, only durable and returnable packing cost is to be excluded. It has been laid down that the degree of the packing necessary to put the goods for sale in the wholesale market, is only the criterion and it is evident from the appellants' own submission, as above, that the cartons and the packings are necessary for marketing. The Id. D.R. also referred to the Bombay High Court decision in the case of Patel Aluminium v Union of India - 1991 (56) E.L.T. 303 (Bom.) wherein it has been held that wooden or hessian packing is necessary for the marketing of the goods and, therefore, not to be reduced from the assessable value. So also in the case oiMopeds India Ltd. v. Collector of Central Excise -1991 (56) E.L.T. 241 (Tri.), the Tribunal held that packing cost in wooden crates, was includible.
7. Submissions made by both the sides have been carefully considered. The question is whether the cost of warehousing and the cost of packing of the tooth powder and the soap in corrugated cartons are to be excluded from the assessable value. As regards includibility of the cost of warehousing, the basic criterion has already been laid down by the Supreme Court in the case of Bombay Tyre International (supra). In para 49 of that judgment, the Supreme Court observed that "Where the sale in the course of wholesale trade is effected by the assessee through its sales organisation at a place or places outside the factory gate, the expenses incurred by the assessee upto the date of delivery under the aforesaid heads cannot, on the same grounds, be deducted. But the assessee will be entitled to a deduction on account of the cost of transportation of the excisable article from the factory gate to the place or places where it is sold." The similar position has been reiterated and followed by the Bombay High Court in the case of Garware Paints v. Union of India -1993 (67) E.L.T. 241, which has been relied upon by the Collector (Appeals). The Collector (Appeals) has aptly quoted following observation of the Bombay High Court in his order :
"Secondly, the judgment of the Supreme Court in the case of Bombay Tyres (supra) has clearly laid down that where a sale in the course of wholesale trade is effected by the assessee through its sales organisation at a place or places outside the factory gate, the expenses incurred by the assessee upto the date of delivery under the Heads (which include interest on inventories, stocks carried by the manufacturers after clearances as also marketing and selling organisation expenses) cannot be claimed as an item of deduction. In view of the clear ratio of the Supreme Court in the case of Bombay Tyres (supra) (vide paragraph 50 of the said judgment) the Assistant Collector was right in coming to the conclusion that the Petitioners are not entitled to claim deduction under the above two Heads. In the circumstances, the Petitioners are not enti-tled to claim the said deductions as rightly held by the Assistant Collector."
8. Admittedly, in this case the appellants have submitted that there is no sale to the wholesale trade at the factory gate. In such a context, the ratio of the above said decisions is clearly attracted and it will not be an argument to say that the Bombay High Court judgment in Garware Paints (supra) did not take into consideration the decision of the Bombay High Court as confirmed by the Supreme Court in the case of Duphar Interfran (supra). This is because the Bombay High Court in Garware Paints case (supra) has clearly considered the ratio of the Bombay Tyre International decision of the Supreme Court, which till date holds the field and the Supreme Court judgment in the case of Bombay Tyre International was not available to the Bombay High Court while deciding Duphar Interfran case because that case was decided by the High Court in June, 1980 earlier to the Bombay Tyre International decision. Moreover, the Duphar Interfran case was one where there was only clearance from the bonded storeroom to places outside the factory gate. It was in that context that the decision was given. Hence, factually, it is not parallel to the present case where there is no sale at all at the factory gate and all the sales are only at depot away from the factory. Since the conclusion in this case regarding the includibility flows from the basics laid down in the Bombay Tyre International decision itself, the argument that the subsequent decision of the Supreme Court in M.R.F. case should be considered, notwithstanding, its recall is not acceptable in the light of the discussion above and also considering that the reason for the recall of the M.R.F. decision was that it was not in consonance with the Bombay Tyre International judgment. In such a view of the matter, the finding of the Collector (Appeals) that warehousing expenses are includible in the assessable value is sustainable and is upheld.
9. Regarding the cost of packing, heavy reliance has been placed by the appellants on the ratio of Supreme Court decision in the case of Geep Industrial Syndicate v. Union of India - 1992 (61) E.L.T. 328. In that case, torches and batteries were first packed in polythene boxes. Such boxes were then placed in cardboard cartons and cartons were packed in wooden boxes. It was submitted before the Supreme Court that the goods were delivered in the course of wholesale trade at the factory gate. They were not packed in wooden boxes as a matter of course but they were packed in wooden boxes only in those cases where delivery was taken by the wholesale dealers outside the city of Allahabad. The Supreme Court found that it was not necessary to determine the disputed question of fact and held that even if the cardboard cartons were packed in wooden boxes in all cases, it is clear that the cost of such secondary packing in wooden boxes was not includible in the assessable value of torches and batteries. The Supreme Court agreed with the decision of that Court in the case of Union of India v. Godfrey Philips India Ltd. -1985 (22) E.L.T. 306 (S.C.). Examining the contention herein in this regard, we may now note the position regarding the packing in the present case as brought out by the Collector (Appeals) in this order. It is noted by the Collector (Appeals) as follows in his order regarding the nature of packing :
"Cost of Secondary packing -
The appellants' representative first explained the manner in which their products are packed. They explained that in respect of tooth powder, their clients pack one dozen tooth powder tins in a small carton. These one dozen cartons are thereafter packed into the larger corrugated cartons. Depending upon the size of the tooth powder tin, the larger cartons contain a varied number of one dozen packages. The wrapped soap is directly packed in the large corrugated cartons. The appellants submitted that their clients were only claiming a deduction in respect of cost of the larger cartons and this carton was only used for sale transportation of the tooth powder and the soap. It was explained that if one dozen packs are placed in a truck, such a truck would contain over 3000 of such packs and the small cartons in which they are placed would not take the weight and would disintegrate the tins would get dented and scratched and would become unmarketable. Similarly, without the corrugated cartons, the soaps would get dented and the wrappers would get torn. The packing, therefore, is only for the purpose of safety in transport."
10. From the above, it is seen that the tooth powder tins are packed in a small carton and thereafter packed in larger cartons. In the case of soaps, which are wrapped, are directly packed in the larger corrugated cartons. The goods are then transported in these larger cartons. It we compare the nature of packing considered by the Supreme Court in Geep Industrial Syndicate case (supra), their torches and batteries were first packed in polythene boxes and the polythene boxes were placed in cardboard cartons. The dispute was about the includibility of 3rd degree of packing of these card-board cartons in wooden boxes at the time of delivery at the factory gate. Here in the case of soaps, the wrapped soap cake will be the packing in which the customer will get the soaps in retail and the only other packing used in these soaps is that of the larger cartons. In the case of tooth powder, the smaller cartons are placed in the larger cartons. There is no 3rd degree of packing other than the carton. Therefore, the degree and purpose of packing is to ensure their maintainability. Another feature to be noticed in the present case is that there is no delivery of the goods at the factory gate and it is always a case of stock transfer from the factory to the depot of the appellants. In the Geep Industrial Syndicate case (supra), it,may be noted that the cost of packing the torches in polythene boxes and the further cost of packing in cardboard cartons had, admittedly, been held includible in the assessable value. From the Explanation given by the appellants themselves for the packing in large cartons for the goods, as brought out in the extract from the Collector (Appeals') order, quoted above, it is evident that such packing in the larger cartons cannot be stated to be merely for safety of transport after clearance from the factory gate. As there is no such clearance from factory gate, the goods are to be taken to their own depots. The extract from the Collector (Appeals') order would also indicate that the nature of the packing in this case is such that it cannot be said to be only for the purpose of protection of the goods during transit. It is apparent that such packing will be necessary in order to put the goods, namely, tooth powder and soap in the condition in which they are generally sold in the wholesale market. Therefore, it is reasonable to hold that the degree of packing in this case is one which would be normal packing for the goods in order to avoid any damage to the product as held by the Bombay High Court in the case of Patel Aluminium v. Union of India - 1991 (56) E.L.T. 303. In such a view of the matter, it cannot be held that expenses incurred on account of such packing are liable to be deducted from the assessable value. It may be noted in this case that the sales from their depot is the first point at which the goods manufactured by the appellants enter the stream of wholesale trade. Therefore, the finding of the Collector (Appeals) that the packing charges in this case are includible in the assessable value is well-founded. In this view of the matter, there is no reason to interfere with the order passed by the Collector (Appeals). The appeal is rejected.