Custom, Excise & Service Tax Tribunal
Central Cables Ltd vs Commissioner Of Central Excise on 3 November, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI COURT No. I Appeal No. E/1145/05 (Arising out of Order-in-Appeal No. SVS/6 & 7/NGP-I/2005 dated 12.01.2005 passed by Commissioner of Customs & Central Excise, (Appeals) Nagpur) For approval and signature: Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical) ================================================
1. Whether Press Reporters may be allowed to see : No 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 : No CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : Seen of the Order?
4. Whether Order is to be circulated to the Departmental : Yes authorities?
Central Cables Ltd.
Appellant Vs. Commissioner of Central Excise Mumbai Respondent Appearance:
Shri Bharat Raichandani, Advocate for appellant Shri N.N. Prabhudesai, Supdt. (AR) for respondent CORAM:
Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. C.J. Mathew, Member (Technical) Date of Hearing: 03.11.2015 Date of Decision: 03.11.2015 ORDER NO Per: M.V. Ravindran This appeal is directed against Order-in-Appeal No. SVS/6 & 7/NGP-I/2005 dated 12.01.2005.
2. The relevant facts that arise for consideration in this appeal is whether the additional amount received by appellant towards the third party inspection charges undertaken at the instance of the buyer is includable in the transaction value or otherwise and whether the duty liability arises or not. Both the lower authorities have held that such charges are consideration for the sale of the goods and transaction value has to be increased on the amount received by the appellant for third party inspection charges. Coming to such conclusion the duty liability was confirmed with interest and equivalent penalty has been imposed.
3. Learned Counsel would draw our attention to the show-cause notice and the orders passed by the lower authorities. He would submit that it is not in dispute that the appellant had on instructions and instance of the buyer undertook a third party inspection for which charges were to be paid by the buyer. He submitted that the said charges are paid by the appellant and later-on reimbursed by the buyer. He would submit that their product is marketable as soon as the manufacturing and internal testing is done in their own laboratory, but an additional requirement of inspection by third party is insisted by the buyer. He would submit that the issue is now settled by the Larger Bench of this Tribunal in the case of Bhaskar Ispat Pvt. Ltd. - 2004 (167) ELT 189 (T-LB). He would also submit that the Honble High Court of Madhya Pradesh in the case of Union of India v. Siddharth Tubes Ltd. - 2006 (194) ELT 144(MP) followed the law settled by the Honble Apex Court on this point reported at page A-51 in 1992 (62.) ELT. He would submit that post July 2007 when the provisions of Section 4 were amended the discharge of duty liability on the transaction value, this Tribunal in the case of Grasim Industries Ltd. 2014 (304) ELT 310 and Lubi Submersibles Ltd. - 2015 (317) ELT 299 held the same view and rejected the contention of the department and held third party inspection charges incurred at insistence of buyer is not includable in the assessable value.
4. Learned D.R. would draw our attention to the purchase orders placed on appellant by Thermal Power Station, Faridabad and the South Eastern Coalfields Ltd. It is his submission that both the purchase orders/contracts are very clear that the goods will not be accepted unless the inspection is carried out by third party inspectors. It is his submission that unless the inspection conducted by third party is confirming the specifications, the product does not become marketable hence this charge is includable for discharging Central Excise duty. He would submit that this view has been expressed by the Honble Supreme Court in the case of Southern Structurals Ltd. - 2008 (229) ELT 487 (S.C.) and by this Tribunal in the case of Rai Agro Industries Ltd. 2011 (263) ELT 550 (Tri. Delhi). It is also his submission that these charges are nothing but pre-delivery inspection charges and the issue is now settled by the Apex Court in the case of Maruti Suzuki India Ltd. - 2013 (291) ELT A81 (S.C.) by dismissing the appeal of the assessee wherein the Tribunal held in favour of the assessee as reported at 2010 (257) ELT 226.
4. We have considered the submissions made by both sides and perused the records.
5. The issue, which is to be decided in this appeal is only regarding the includability or otherwise of an amount received by the appellant during the period August 1997 to March 2002 as additional inspection conducted on the products at the instance of buyer. Undisputed facts are the appellant is conducting his own inspection on the finished goods as a manufacturer would do so before clearance and the products are further tested on the specific instruction of various buyers. All buyers do not insist on third party inspection. The charges which are to be paid to the inspecting authorities is borne by the buyers and not by the appellant as the amounts paid as third party inspection chargers are reimbursed by the buyers.
6. The entire arguments of the learned D.R. as well as the impugned orders is that these inspection charges are to be considered as pre-requisite or pre-delivery inspection charges incurred on the goods which do not become marketable till such inspection is carried out. In our considered view the lower authorities have misconstrued the entire issue while upholding the demand, interest thereof and penalty for more than one reason.
6.1 Firstly, we notice from the purchase orders placed that the said orders are given by the Government authorities to the appellant and one of the order of the Thermal Power Station specifically talks about the material should be despatched after inspection by the representative of Thermal Power Station while the South Eastern Coalfields Ltd. purchase order talks about the inspection of the goods by third party inspectors as per the instructions of South Eastern Coalfields Ltd. We see from the orders that the said orders are specific inasmuch as their cables have to meet standards of ISI which according to the appellant is done so by their in-house laboratory and undisputed by the Revenue.
6.3 Secondly, we find strong force in the contentions raised by the learned Counsel that the Honble High Court of Madhya Pradesh in the case of Siddharth Tubes Ltd. (supra) were considering similar issue. Respectfully we reproduce the ratio:-
4. So far as the issue in relation to inspection charges is concerned, the Tribunal recorded the following finding :
Inspection Charges -
As regards the inspection charges, we consider that the matter is covered in favour of the appellants by the Tribunals decision in the case of Shree Pipes Ltd. v. CCE - 1992 (59) E.L.T. 462 (T), which has been confirmed by the Supreme Court as reported in the Court Room Highlighted at Page A-51 in 1992 (62) E.L.T. The Tribunal had held that the additional testing/inspection charges for the tests/inspections conducted by the Directorate General of Supplies and Disposals at the request of the specific customers were not includible in the assessable value when cost of such additional testing/inspecting was being borne by the customers. The Supreme Court dismissed the Civil Appeal No. 2465 of 1992 filed by the CCE against the aforesaid Tribunals decision as reported in the Court Room Highlights at page A-51 in 1992 (62) E.L.T. Thus, we hold that the cost of galvanisation and that of the sockets and the service charges were includible in the value of the pipes and tubes, while the cost of rubber/plastic rings and the inspection charges were not includible in the assessable value of the pipes and tubes. 6.4 We also note that in an identical issue this Tribunal in the case of Grasim Industries Ltd. (supra) held as under:-
6. In this case, the fact that liquid Chlorine? manufactured by the Respondent is being sold by them either in their own tonners or in the customers tonners or even through pipeline, shows that Chlorine is marketable as such. It is also not disputed that testing is optional and the testing charges have been charged only in those cases where the liquid chlorine was supplied in the tonners brought by the customers and the customers had requested for testing of their Cylinder/tonners. In these circumstances neither the cost of tonners nor their testing charges would be includible in the assessable value of liquid chlorine. In fact, in this case, the testing of the tonners belonging to the customers on their request is an activity different from the sale of Chlorine which is marketable as such and, hence the charges for such testing cannot be said to be for the reason of or in connection with sale of Chlorine, as the customers could have got the testing of their tonners done from other persons also.
7. The judgment of the Tribunal in case of? Kota Oxygen (P) Ltd. v. CCE, Jaipur, reported in 2000 (121) E.L.T. 369 (Trib.) cited by the learned DR is not applicable to the facts of this case, as in case of Kota Oxygen (P) Ltd., the assessee was charging amounts towards fixed cylinder rental and Cylinder maintenance charges even from the customers who lifted Oxygen gas manufactured by the assessee in their own cylinders and the amounts charged as cylinder rental and cylinder maintenance were several times higher than the actual costs incurred and on this basis the Revenue had alleged that part of the value of the Oxygen Gas was being collected as cylinder rental and maintenance charges and this allegation of the Revenue had been upheld by the Tribunal. In this case, there is no such allegation.
8.? In view of the above discussion, we hold that the cylinder testing charges are not includible in the assessable value of the liquid chlorine and there is no infirmity in the impugned order. The Revenues appeal is therefore dismissed.
6.4 This Tribunal in the case of Lubi Submersibles Ltd. (supra) (wherein one of us M.V. Ravindran was a Member) on the very same issue held as under:-
4.?Heard both sides and perused the case records. The issue involved in the present appeal filed by the revenue is whether PDI charges incurred only at the instance of the buyer are required to be added to the assessable value under Section 4 of the Central Excise Act, 1944 or not. The first appellate authority has rejected revenues appeal on the ground that as per Larger Bench judgment in the case of Bhaskar Ispat Pvt. Ltd. (supra) PDI charges at the option exercised by the buyer are not required to be included in the assessable value. It is also observed that this issue is no more res integra as this very bench in the case of CCE, Ahmedabad-II v. Johnson Pumps (I) Ltd. (supra) has held as follows in paragraph 4 and 5 :
4.?Apart from the various decisions discussed by the Commissioner (Appeals), we also note that he has taken note of the Boards Circular which is in favour of the assessee. For better appreciation, we reproduce the relevant paragraph of his order as under :
I further find that under erstwhile Section 4, which existing prior to 1-7-2000.
(i) The Honble Supreme Court of India in case of Collector of C.E., Jaipur v. M/s. CIMMCO Ltd. - 1996 (84) E.L.T. 167 (S.C.) has upheld the Tribunal Order Nos. 296-301/94-A, dated 19-10-94 reported in 1994 (74) E.L.T. 687 (Tribunal), holding that inspection charges incurred by the customers are not includable in assessable value especially when they have a full-fledged quality assurance department.
(ii) The Honble Supreme Court of India in case of Collector v. Hindustan Development Corpn. Ltd. - 1996 (86) E.L.T. A162 (S.C.), has upheld Tribunal Order Nos. 209 & 210/95-A, dated 8-3-95 which held that expenses incurred on account of additional tests conducted on customers requisitions are not includible in the assessable value.
(iii) The Honble Supreme Court in case of Commissioner v. Hindustan Motors Ltd. - 2002 (140) E.L.T. A81 (S.C.), has held that pre-delivery inspection charges and after sales service charges incurred by dealer are not includible in assessable value of vehicles.
Further, the Honble Tribunal under erstwhile Section 4 of the Act in following cases has held that cost of additional inspection charges borne by the customers carried out by a third party, is not includible in the assessable value.
(i) M/s. Choksi Tube Co. Ltd. v. CCE, Ahmedabad, 2003 (153) E.L.T. 178 (Tri.-Del.)
(ii) M/s. Sunrise Structurals & Engg. P. Ltd. v. CCE, Nagpur - 2003 (152) E.L.T. 387 (Tri.-Mumbai)
(iii) M/s. Southern Structurals Ltd. v. CCE, Chennai-II - 2002 (146) E.L.T. 678 (Tri.-Chennai)
(iv) CCE, Jaipur-II v. M/s. A. Infrastructure Ltd. - 2003 (16) E.L.T. 549 (Tri.-Del.) As regards reliance on C.B.E. & C. Circular No. 3/88-CX, dated 16-2-88 by the adjudicating authority, I find that the circular dated 16-2-88 issued under erstwhile Section 4 of the Act in respect of Pre-delivery Inspection charges has not stood the test of legal scrutiny as Tribunals judgment has been otherwise and consequently C.B.E. & C. withdrew its subsequent Circular No. 355/77/97-CX, dated 19-11-97 and 435/I/99-CX, dated 12-1-99 vide Circular No. 681/72/2002-CX, dated 12-12-02 in the context of old Section 4 of CEA, 1944. The C.B.E. & C. has issued a Circular dated 12-5-00 [2000 (118) E.L.T. 45] in which in Para 2.2 it has been clarified that the concept of new transaction value under Section 4 has same scope as that of old Section 4 of the Act and Valuation Rules.
Hence, respectfully following the ratio of the above decisions, I hold that the third partys inspection charges initially paid by the appellants and subsequently reimbursed by the buyers is not includible in the assessable value of the goods. I, therefore, hold that duty demand of Rs. 25,125/- on inspection charges along with interest is not sustainable.
5.?As against the above, learned JDR relied upon another circular of Board being No. 643/34/2002-CX., dated 1-7-2002. However, we find that reference in the said circular is to the pre-delivery inspection charges incurred by the dealer during the warranty period. The same does not relate to the pre-inspection conducted by the manufacturer at the behest of their buyer. The issue stands discussed in detail by Commissioner (Appeals), who has followed the precedent decisions of the Tribunal as also Boards circular. We find no infirmity in the said order of the Commissioner (Appeals). We also note that this Judgement has clearly distinguished the judgement of the Larger Bench of the Tribunal in the case of Maruti Suzuki India Ltd. (supra) in para 5 which also is reproduced. 5.?Before we proceed to analyse their contention in relation to the issue referred for consideration, it would be appropriate to record the undisputed facts of the case wherein the issue has arisen for the consideration. 6.5 From the foregoing, it is very clear that the inspection charges received as reimbursement by the appellant on third party inspection charges at the instance of the buyer is not includable in the assessable value of the products cleared by them.
6.6 As regards the various case laws cited by learned D.R. in respect of Maruti Suzuki India Ltd. (supra) which has been already distinguished by the Tribunal in the case of Lubi Submersibles Ltd. (supra) on factual matrix. As regards the judgement cited by learned D.R. in the case of Southern Structurals Ltd. (supra), we note that Lordships in para 6 has recorded the factual findings that the cost of testing at Government expenses could be on the assessees account and will not be borne by anyone which would mean that the manufacturer has to pay the charges to third party in addition to normal inspection. This ratio is deduced from the para 12 of the judgement.
6.7 In the case of Rai Agro Industries Ltd. (supra) we find that factually the issue was valuation in respect of packing material supplied by the buyers and not in respect of final product manufactured by the appellant. In short, the factual matrix of the case which was cited by learned D.R. was different than the factual matrix in the case in hand and various case laws which have been cited by learned D.R. which covered in their favour. In view of the foregoing, we find that the impugned order is not sustainable and liable to be set aside and we do so.
7. Impugned order is set aside and the appeal is allowed.
(Dictated in Court) (C.J. Mathew) Member (Technical) (M.V. Ravindran) Member (Judicial) nsk ??
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1 11Appeal No. E/1145/05