Customs, Excise and Gold Tribunal - Delhi
Collector Of Central Excise vs Taparia Tools Ltd. on 10 September, 1999
Equivalent citations: 2000(67)ECC646, 2000ECR56(TRI.-DELHI), 2001(131)ELT306(TRI-DEL)
ORDER
K. Sreedharan, J. (President)
1. An interesting question of law arises in these appeals. The question is whether there can be different values for the same goods manufactured when they are sold in wholesale at the factory gate and at depots to different classes of buyers as provided by Section 4 of the Central Excise Act, 1944, hereinafter referred to the Act. The transactions involved in these appeals relate to periods prior to the amendment of the Section by Act 33 of 1996 which came into force with effect from 28-9-1996.
2. These appeals came up before a bench of two Members. Learned Counsel representing the respondents and learned Departmental representative contended that there is apparent conflict in the decisions of two Members benches regarding the true scope and ambit of Section 4 of the Act. In order to have a closer scrutiny of those decisions and the scope and effect of Section 4 of the Act, these appeals were placed before a larger Bench of three Members. This is how they came before us. Arguments advanced by learned Departmental Representative and learned Counsel were heard in detail. We are disposing of the appeals.
3. For a proper understanding of the actual issue raised, it is necessary to refer to the facts. Since facts in these appeals are almost similar, except in the case of Taparia Tools which will be referred to hereinbelow we consider it advantageous to state the facts in one case viz. Appeal No. E/907/97-A, Collector of Central Excise, Chandigarh v. Royal Biscuits Pvt. Ltd. Respondents are engaged in the manufacture of Biscuits assessable to duty under Chapter Heading 1905.11 of the Schedule to Central Excise Tariff Act, 1985. Manufacturer filed price lists in Part I for sale of their produce to independent buyers through their sales depot located in various States. In those lists different prices were shown by allowing different trade discounts for wholesales to dealers from different regions. Manufacturers were selling their produce at factory gate as well to independent buyers and as such normal factory gate price was also available. In such a situation a notice was issued to the manufacturer to show cause why price available at factory gate should not be applied to goods cleared through depot covered by the price lists. Assistant Commissioner, Central Excise, Shimla took the view that normal factory gate price should apply to the clearances effected to wholesale dealers through sales depots and varying trade discounts to wholesale dealers located at different stations are not permissible. He further held that deduction on account of freight where goods are sold in course of wholesale trade at places outside the place of removal is permissible. Aggrieved by this decision of the adjudicating officer, the manufacturer went in appeal before the Commissioner (Appeals). That appeal was allowed by the Commissioner relying on his earlier decision on the issue (the earlier order is the subject matter of Appeal E/265/95-A taken up by us), taking the view that dealers of different regions are differently placed from each other and are to be treated as different class of buyers. Accordingly, it was taken that prices charged to dealers at sales depots may vary from State to State and varying rates of trade discounts are admissible on sales to dealers of different States on commercial considerations. Maintenance of sales depots and grant of varying rates of trade discount are commercial requirements, according to the appellate authority. This decision of the Commissioner (Appeals) is under attack in this appeal.
4. Main argument advanced by the learned Departmental Representative is that though Section 4(1)(a)(i) of the Act contemplates different normal prices for different classes of buyers, wholesale dealers in India belong to one class even if they are located in different regions or States. Different normal prices and value to those wholesale dealers are not contemplated by the Act. When factory gate sales to independent buyers are available, that value should be the basis for assessment in case of clearance made to buyers located anywhere in the country. Ex-factory price should be the basis of the value for assessment even in relation to the goods sold from depots. The further argument was that wholesale dealers will not become different classes of buyers merely because they are situated in different States in India and regional discounts are not permissible to be deducted from normal ex-factory price to arrive at the assessable value for levying Central Excise duty.
5. Section 4 of the Act provides for the assessment of the value of excisable goods for the purpose of charging excise duty. It states that where duty of excise is chargeable on any excisable goods with reference to value, such value shall be deemed to be the normal 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. The buyer should not be a related person and price should be the sole consideration for the sale. Place of removal has been defined to mean a factory or any other place or premises of production or manufacture of excisable goods or a warehouse or any other place where excisable goods have been permitted to be deposited without payment of duty, from where such goods are removed. Prior to the amendment of 1996 a depot was not a place of removal. So removal of goods to depot entails payment of duty. Duty has to be calculated at the point of time of removal of goods. At that point of time duty can be levied by calculating the duty on the basis of sales made to independent customers.
6. In Indian Oxygen Ltd. v. Collector of Central Excise, 1988 (36) E.L.T. 723, their Lordships of the Supreme Court were concerned with the situation where the manufacturer partly sold goods from factory and partly from depots situated away from factory to Government Undertakings and others at various prices on slab basis. Slab basis was on quantitative discount. For this manufacturers claimed abatement on account of freight and handling charges which was disallowed by the Department because of lack of evidence to establish the same. Court held that:
"5. The Tribunal noted that the appellant had not come forward to offer concrete evidence of actual freight charges etc. It, however, emphasised that the price at the factory gate is ascertainable. Assessment should, therefore, be made in terms of that price. Hence, there was no scope of deduction from that price. It, therefore, directed that if the ex-factory prices were not ascertainable and the goods were to be assessed ex-depot then it would be for the manufacturer to claim on the basis of actual evidence. It remanded the case to the Asstt. Collector to refix the assessable-value as directed. It is necessary to reiterate the principle upon which the assessable value have to be determined in this case. The cost of transportation from factory at Visakhapatnam and the depot at Vijayawada cannot be included normally in computation of the value. The value has to be computed under Section 4 (1)(a) read with Section 4(4) (d)(i) of the Act, where the wholesale price is ascertainable at the factory gate the question of transportation charges becomes entirely irrelevant. The cost of transportation from the factory gate to the place of delivery and transit expenses were not to be added to the wholesale price at factory gate for purposes of duty under the Act. In this case the price of the goods at the factory gate Visakhapatnam is known. It is clear from Section 4 that the delivery and collection charges have nothing to do with the manufacture as they are for delivery of the filled cylinders and collection of the empty cylinders. These charges have to be excluded from the assessable value. Insofar as the loading charges incurred for loading the goods within the factory are concerned, they are to be included in the assessable value irrespective of who has paid for the same but the loading expenses incurred outside the factory gate are excludible. Duty of excise is a tax on the manufacture, not a tax on the profits made by a dealer on transportation."
7. The question whether different classes of buyers can have different prices was not an issue in that case. As per that decision, if ex-factory prices were not ascertainable and goods were to be assessable ex-depot, then it would be for the manufacturer to claim, on the basis of actual evidence, deductions admissible from the price list. It was decided therein that where ex-factory price is ascertainable that price should be the basis upon which value of the goods should be determined for assessment. This decision, according to us, is not an authority for the proposition that ex-factory price to a particular class of buyers can be the basis for forming the value for assessment in respect of sales to different classes of buyers.
8. In Metal Box India Ltd. v. Collector of Central Excise, Madras, 1995 (75) E.L.T. 449 their Lordships approved the following observations made by the Gujarat High Court in Gujarat State Fertilizers Co. Ltd. v. Union of India, 1980 (6) E.L.T. 397 :-
"Section 4 of the Central Excise Act does not in terms enact that trade discount in order to quantify for deduction thereunder should be on a uniform basis to all wholesale purchasers at the factory gate. Any such view would require the addition of word 'uniform' before the words "trade discount' occurring in Section 4 which is not evidently permissible. Nor it would be advisable to read the requirement of uniformity even by implication. Even if trade discount is not uniformly given or is given at different rates to different purchasers, it cannot by itself disqualify it from being excluded for arriving at the assessable value so long as the lack of uniformity is not founded on any extra commercial considerations. To ignore the deduction of trade discount would amount to adding a non-existent fraction to the manufacturing profit which will artificially inflate the net assessable value for the levy of excisable duty which is not legally permissible having regard to the basic consents of excise levy."
9. From this it is evident that different classes of wholesale dealers may have different prices on account of different trade discounts offered to them purely on commercial considerations. The only duty that is cast on the manufacturer under such circumstances is that he should establish by cogent evidence that such deductions were in fact granted based on commercial considerations.
10. Same issue was dealt with by the Supreme Court in Govt. of India v. Madras Rubber Factory Ltd., 1995 (77) E.L.T. 433. Manufacturer in that case sold a small quantity of the produce to Government at the factory gate and the remaining quantity to other classes of dealers in wholesale from various depots. It was contended on behalf of the manufacturer that the price at which goods were sold to Govt. at factory gate should be taken as normal price of all the goods sold for the purpose of Section 4(1)(a). This argument was advanced on the basis that Department had no case that the sale to Govt. are not normal or genuine transactions. Their Lordships rejected this plea relying on the 1st proviso to Section 4(1)(a). Government being a class of buyer by itself, the price charged to it cannot be taken as the price in the case of sales to different classes of wholesale buyers. It was observed in that case :
"By virtue of proviso (1) to Section 4(1)(a) the Govt. would be a class by itself and the price charged to it would be relevant only to the goods sold to it. So far as depot sales are concerned, they are to a different class or classes of buyers and in respect of the goods sold to them, the price charged to each of such class of buyers would be the normal price. The price charged to one class of buyers cannot, therefore, be directed to be adopted as the price in respect of all the classes of buyers."
11. In this view, their Lordships held that where goods are sold in the course of wholesale trade at place or places outside the place of removal the expenses incurred for transportation of the goods together with cost of insurance on freight can be deducted. This decision is authority for the proposition that there can be different classes of wholesale buyers and the exfactory sale price to one class cannot be taken as the price in respect of goods sold to another class of buyer.
12. It is settled law that duty has to be calculated at the point of time of the removal of the goods. At that point of time duty can be levied by calculating the value on the basis of sale to independent wholesale dealers. Price realised from one class of wholesale dealers or from a special customer like Govt. cannot be the basis for assessment. Sale on a date subsequent to the date of removal of the goods from factory to any particular class of buyer will not alter the incident of duty. As per Rules framed under the Act no excisable goods shall be removed from the place of manufacture until the excise duty leviable thereon has been paid. Rate of duty should also be that in force on the date of actual removal of the goods from factory. So normal price of the goods sold to wholesale buyers on the date of removal of the goods from the factory has to be found out in terms of Section 4 for assessing the goods to duty (vide IDL Chemicals Ltd. v. C.C.E. -1997 (92) E.L.T. 289). Ex-factory price in the case of sale to one class of wholesale buyer cannot be blindly followed in assessing the value of goods sold to another class of buyer.
13. Value of excisable goods is determined with reference to the normal price at which such goods are sold. Where goods are not sold at the factory gate to any particular class of wholesale buyers, duty on the value of the goods sold to that class cannot depend on the price at which sale was effected to another class of buyers. When the price of the goods sold to such a class is not ascertainable under Section 4(1)(a) then provisions contained in Section 4(1 )(b) have to be invoked. As per that clause the nearest ascertainable equivalent price has to be ascertained by complying with the Rules framed in that behalf. Resort to that provision can be had only when normal price is incapable of being ascertained.
14. Rate of sales tax varies from State to State. So also liability to pay octroi. Dealers may be from different parts of the country. Some may be having their place of business near the factory where the goods are manufactured. Others may have their activities in other corners of this vast country. Depending on the geographical location, the manufacturer will be compelled to sell the goods at different prices. Fixation of different prices to those different classes of wholesale buyers can certainly be on commercial considerations. In such a situation duty can be assessable on the basis of the different prices which will be the normal price of the goods. In other words, wholesale dealers of a particular region can constitute a separate class of buyer. When sale at factory gate is to one class of such buyers and sale from depot, to which stock has been transferred, takes place to other class of buyers, exfactory price charged cannot be relevant normal price for assessing duty on those goods. Question whether a wholesale buyer or dealer is a separate class or not is a question of fact and it has to be decided on an appreciation of the entire evidence made available by the manufacturer. Prior to the amendment of the Act, Depot cannot be treated as an extended arm of the factory or an extension of the factory where manufacturing process is undertaken.
15. In all the appeals before us the stand taken by the Department, appellant, is that wholesale dealers in India cannot be considered as belonging to different classes on the ground that they are located in different parts of the country and that when factory gate sales to independent buyers are available the same value should be applicable for all clearances. These arguments cannot stand in view of the conclusions reached by us earlier in this judgment. Consequently, the appeals have to fail.
16. In view of what has been stated, we find no reason to interfere with the orders passed by the Commissioner (Appeals) impugned in appeals in the cases of Collector of Central Excise, Chandigarh v. Royal Biscuits (P) Ltd.,Parwanoo and Collector of Central Excise, Chandigarh v. Bakemans Industries (P) Ltd., Patiala, they are dismissed.
17. The facts in Collector of Central Excise, Aurangabad v. Taparia Tools Ltd., Nasik are different from those in the above appeals. In Taparia's case the manufacturer was transferring stock to their consignment agent M/s. M.J. & Sons where from goods were sold at a discount of 31% to wholesalers, the same rate of discount as in the case of sales to other wholesalers. Discount allowed in wholesale trade was only 31%. Transfer to a consignment agent was not a sale. We find no justification in allowing a higher deduction of 35% in relation to goods transferred to M/s. M.J. & Sons. The differential discount in relation to goods transferred to M/s. M.J. & Sons should also constitute the assessable value of the goods. In this view this appeal of the Revenue is allowed.