Customs, Excise and Gold Tribunal - Delhi
Shree Pipes Ltd. vs Collector Of Central Excise on 2 December, 1991
Equivalent citations: 1992(59)ELT462(TRI-DEL)
ORDER S.V. Maruthi, Member (J)
1. The appeal arises out of an Order-in-Appeal No. 56-CE/JPR/88 dated 27-4-1988.
2. The facts are as follows:
The appellants manufacture Asbestos Cement Pipes. The pipes manufactured by them are as per ISI specification 1592/80. They have full-fledged quality control department with sophisticated costly equipment for testing the characteristics of the rawmaterial as well as the finished product. They also have qualified engineers and other staff to carry out the tests. After the tests are conducted by their own quality control people, ISI Inspectors visited the appellants' factory to check up the quality control of the goods manufactured.
3. The appellants supplied the goods to the Public Health Electric Department (PHED), Rajasthan. The said department required the goods to be inspected on their behalf by DGS & D, Ministry of Works, Housing & Supply, New Delhi. The relevant clause of the contract under which the goods are supplied to the Department reads as follows:
"INSPECTION:
(i) The material will be got inspected by you through DGS & D mentioned below before despatch 5% of the total material inspected shall be stencilled with DGS & D Inspection marks. Individual consignments however may contain less/more of such stencilled mark pipes.
The Director of Inspection, DGS & D, Min. of Works, Housing & Supply, N.I. Circle, Jam Nagar House, New Delhi.
(ii) In case inspection is carried out by DGS & D, the inspection charges shall be borne by the deptt. but the same shall be paid initially by the contractor and shall be claimed in full in their respective bill for 98% payment through bank.
(iii) The inspection certificate shall be submitted by the contractor alongwith 98% bill."
4. The appellants were not including the cost of the inspection charges under the above clause in the assessable value as the inspection was done on behalf of the buyer who was bearing the cost of the said inspection. From 10-7-1985 to 6-9-1985, there was a correspondence where the Superintendent, Central Excise insisted on the appellants to include the cost of the inspection carried out at the request of the PHED in the assessable value while the appellants were not agreeing for the same on the ground that these charges are not includible in the assessable value of the pipes. Finally, the appellants wrote a letter on 25-9-1985 debiting their PLA under protest.
5. On 16-10-1985, the Assistant Collector issued a show cause notice proposing to approve the price lists by including the inspection charges under the clause of agreement referred to in the above paragraphs. On 26-10-1985, the appellants sent a reply. On a consideration of the reply and also after hearing the appellants, the Assistant Collector approved the price list by excluding the inspection charges. The Collector, Jaipur under Sec. 35E(2) of the Central Excises & Salt Act directed the Assistant Collector to file an appeal. Accordingly, the appeal was filed. The Collector (Appeals) allowed the Department's appeal. Hence, the appeal before us by the assessee.
6. The Collector, while allowing the Department's appeal observed as follows:
"In this regard I observe from the copy of the contract filed before me by the respondent that the inspection by DGS & D is obligatory before the goods are in fact purchased by the buyers concerned. In fact as far as the buyers is concerned, unless the goods have been inspected and found satisfactory they are not considered manufactured as per their specifications and to their satisfaction. Also till the inspection is over the goods are not ready for being offered to the concerned buyers. I observe that the inspection charges accordingly are for ensuring quality of manufactured goods and a part of manufacturing cost, forming a specific ingredient of the cost of manufacture of such goods."
Holding as above, he included the cost of inspection charges in the assessable value.
In this context, we may also refer to the order of the Assistant Collector. The Assistant Collector held "the assessee is offering for sale its goods at the time and place of removal without special inspections. The Assessee is covered under ISI specifications and goods are tested as per ISI specifications before delivery to the customers. For the ISI specification tests no Inspection charges are being charged. These charges are included in the value of goods. The State of Rajasthan, in addition to ISI specifications, are getting their goods inspected from DGS & D for which as per contract they are to pay additional charges for inspection. For the sake of convenience, Assessee is paying inspection charges to the DGS & D which are being reimbursed to them by the State of Rajasthan. The Assessee does not charge inspection charges from each independent buyer who purchased their goods but charges inspection charges paid to DGS & D who carries on the specific orders of the customers. These charges, therefore, cannot be treated as value of goods."
7. The main contention of the appellants is that the appellants have adequate testing facility and they were carrying out the tests as per the standards laid down by the I.S.I. Since they were approved by ISI first, the product was tested as per ISI specification and the product was ready for sale and no further testing was necessary and the goods are sold to some parties without any additional inspection and no separate charge had been charged from them. The additional testing at the instance of PHED by the DGS & D is carried out and the appellants pay to DGS & D on behalf of the PHED and get it reimbursed. Therefore, the additional testing is not at all necessary for manufacture and sale of the goods by the appellants. Without the additional testing by the DGS & D, the goods are marketable and, therefore, the charges are not includible in the assessable value. They also submitted that these tests are optional only to PHED.
8. The question, therefore, is whether these testing charges, carried out at the request of customers, are includible in the assessable value.
9. The admitted facts are that the goods are sold after the quality control by the appellants' own quality control department and after certifying by the ISI, The testing in dispute is conducted at the request of the PHED. It is also not disputed that the goods are sold without the testing by the DGS & D to other wholesale dealers as the Assistant Collector gave a categorical finding that the goods are sold to other dealers without subjecting the goods to. the additional testing by the DGS & D. It is also an admitted fact that the customer, namely, PHED in this case, is bearing the expenditure incurred for carrying out the testing by the DGS & D. Although, according to the agreement, the appellants were paying initially and getting it reimbursed by PHED. It is also true that these tests are conducted before the goods are removed from the factory. It is also an admitted fact that the additional testing is optional. It is also not disputed that the normal testing charges to the satisfaction of ISI which are necessary for making the goods marketable are included in the assessable value.
10. In this context, we may refer to the definition of assessable value under Sec. 4 of the Act. Under Sec. 4, the assessable value shall be the price at which the goods are ordinarily sold at the time and place of removal.
11. In this case, the duty is chargeable on the price which the manufacturer gets at the time and place of removal of goods. The appellant is not charging anything from the customers towards the additional testing conducted at their instance. The clause of the contract provides that the inspection charges shall be borne by the department but the same shall be paid initially by the contractor and shall be claimed in full in the respective bill for 98% payment through bank. Therefore, the manufacturer is not getting anything extra except the price which he is getting from other wholesale dealers. Therefore, since the excise duty is payable on the price which the manufacturer gets in the wholesale market at the time and place of removal, the cost of additional testing charges are not includible in the assessable value although the tests are conducted within the factory gate. Further, these are optional. Secondly, it is evident that the price to wholesale dealers does not include the additional testing charges carried out at the instance of PHED. The finding of the Collector that the testing is necessary to make the goods marketable, is based on no evidence as the Assistant Collector gave a categorical finding that there are sales to other dealers without subjecting it to DGS & D test. Further, it is admitted fact that ISI testing is already done. We, therefore, are of the view that the additional testing charges conducted at the instance of customers and whose cost is borne by the customers is not includible in the assessable value. The appeal is allowed and the order of the Collector is set aside.
P.C. Jain, Member (T)]
12. I agree with the conclusion reached by my learned sister in the order proposed by her. There are, however, submissions advanced from both sides which are required to be dealt with appropriately.
13. Learned SDR Shri B.S. Ganu for the respondent-Collector had urged that contract price is acceptable under Section 4 of the Customs Act even if it is different from the wholesale price under Section 4(1)(a). That has been the position accepted by the Courts and the Tribunal in a number of judgments. The contract in this case is that the goods must be subjected to inspection by DGS & D before it is accepted by the Customer, namely, PHED, Rajasthan. The relevant clause of the contract has already been extracted in the order proposed by the learned sister. Learned SDR has, therefore, submitted that whatever price is therefor payable by the customer to the appellant herein on the basis of the contract including the charges for inspection carried out by the DGS & D should be treated as the value for the purposes of Section 4 of the Act. In view of this legal position, submits the learned SDR, the impugned order is correct and deserves to be upheld.
14. Rebutting the said contention in his rejoinder the learned Advocate, Shri L.P. Asthana for the appellant has urged that this is an extra test carried out on behalf of the customer; otherwise even before carrying out aforesaid inspection by DGS & D the goods were fully marketable and had actually been marketed to the other wholesale customers. He, therefore, submits that the cost of this test which is admittedly a post-manufacturing expense and has no relation to the manufacturing of the goods, should be excluded from the assessable value of the goods. He draws analogy from the special secondary packing made on behalf of the customers by a manufacturer on which there is a direct judgment of the Supreme Court in the case of Bombay Tyre International Ltd. - 1983 (14) E.L.T. 1896. He draws attention in particular to paras 51 and 52 of the said Report. The later para i.e. 52 is reproduced below:-
"52. If any special secondary packing is provided by the assessee at the instance of a wholesale buyer which is not generally provided as a normal feature of the wholesale trade, the cost of such packing shall be deducted from the wholesale cash price."
Shri Asthana submits that this ratio should also apply to the cost towards testing/inspection subsequent to the manufacture of goods. Accordingly, he submits that if any special testing is carried out by the assessee at the instance of the wholesale buyer which is not generally provided as a normal feature of the wholesale trade, the cost of such testing should be deducted from the wholesale cash price. He, accordingly, prays that the impugned order be set aside and the appeal be allowed.
15. I have carefully considered the submissions from both sides and I find sufficient force in the plea of the learned Advocate, Shri Asthana. In fact, the case of the appellant is on a stronger footing in respect of testing/inspection charges carried out subsequent to what is necessary for putting the goods in wholesale market that what it is in the case of special secondary packing. In the case of packing there is a legal provision for including the cost thereof and yet the Supreme Court in the case of Bombay Tyre International Ltd. has held that value of special secondary packing which is not a part of the normal feature of wholesale trade should not be included in the value of the excisable goods. Following the same analogy, we are of the view, in the face of the admitted facts that the goods already stood fully manufactured, ready for delivery in wholesale market and were actually sold to other wholesale customers, that cost of testing/inspection carried out by the DGS & D at the instance of specific customers, namely, PHED, Rajasthan should not be included in the value of the goods.