Customs, Excise and Gold Tribunal - Delhi
Siddhartha Tubes Ltd. vs Commissioner Of Central Excise on 16 March, 2000
Equivalent citations: 2000(120)ELT679(TRI-DEL)
ORDER Lajja Ram, Member (T)
1. In this appeal filed by M/s Siddhartha Tubes Ltd., the matter relates to the valuation of the galvanised Mild Steel (MS) Pipes and Tubes fitted with sockets and rubber/plastic rings. The issue regarding inclusion of service charges paid to the Madhya Pradesh Laghu Udhyog Nigam Ltd. (LUNL) and the inspection charges, in the assessable value, is also for consideration. In the show cause notice dated 11-11-1994, central excise duty of Rs. 35,17,731/- and Rs. 41,381/- was demanded and penal provisions were invoked. The period involved in this show cause notice was from May 1994 to August 1994. Subsequently, seven show cause notices were also issued on different dates with the similar allegations for the period from 9.1994 to 7.1996 demanding duty of Rs. 53,82,119/-. All of them were adjudicated by the Commissioner of Central Excise, Indore, who under his order-in-original dated 26-3-1997 confirmed the demand of Rs. 88,49,422/- + Rs. 91,809/- and imposed a penalty of Rs. 10,00,000/- (rupees ten lakh). The benefit was, however, given with regard to the actual expenses subject to verification incurred towards unloading and stacking of the pipes and tubes at the customers site.
2. The issue regarding inclusion of the cost incurred towards galvanisation of the M.S. Pipes and Tubes came up before the Tribunal in the appellants' own case in Siddhartha Tubes Ltd. v. CCE, Indore, 1996 (82) E.L.T. 399 (T), while disposing of the appellants' earlier appeal no. E/2441/94-A. The Tribunal under order dated 4-12-1995 (while affirming that mere galvanisation did not amount to manufacture) held that even when galvanisation was done subsequent to paying duty on MS black pipes, the galvanisation charges were includible in the assessable value of the galvanised pipes. In the assenting decision, the Hon'ble President added, "the cost of galvanising or the enhanced price referrable to galvanisation is one of the components which is related to the value of the galvanised product and this has to be taken into account in its valuation for the purpose of excise duty."
This Tribunal's decision has been confirmed by the Supreme Court vide order dated 3-11-1999. The Apex Court held "the mere fact that the process of galvanisation is carried on in another shed can make no difference. When the assessable value is to be calculated of the galvanised black pipe made by the appellants, the element of the cost of galvanisation must form a part thereof."
3. When the matter was heard on 2-2-2000, Shri Gopal Prasad, advocate, appearing for the appellants, fairly agreed that in so far as the cost of galvanisation was concerned, the matter was already covered by the Tribunal's decision in the appellants' own case in Siddhartha Tubes Ltd. v. CCE, Indore, 1996 (82) E.L.T. 399 (Tribunal), which has been confirmed by the Supreme Court under order dated 3-11-1999 in Civil Appeal No. 7282 of 1996 [2000 (115) E.L.T. 32 (S.C.)]. This according to him, involved duty amount of Rs 39,17,192/-.
He, however, pleaded that the sockets, plastic rings and rubber rings were bought out items; all the pipes were not fitted with such sockets and rings and that their cost was not includible in the assessable value of the pipes. As these sockets and rings were in the nature of accessories, their cost was not includible in the value of the pipes. He referred to the Supreme Court decision in the case of Shriram Bearings Ltd. v. CCE, Patna, 1997 (91) E.L.T. 255 (S.C.).
With regard to service charges, he relied upon the Tribunal's decision in the case of Electrical Products Corpn. v. CCE, 1989 (43) E.L.T. 70 (T).
In so far as the inspection charges were concerned, it was pleaded that these charges were incurred on the request and on behalf of their customers. They were not includible in the assessable value. He referred to the Tribunal's 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 per Court Room Highlights appearing at page A-51 in 1992 (62) E.L.T. He further submitted that there was no case for imposition of penalty.
4. In reply, Shri P.K. Jain, JDR, submitted that sockets were not accessories but part of the pipes. He referred to the Tribunal's decision in the case of Bedi & Bedi (Pvt.) Ltd. v. CCE, Bangalore 1987 (32) E.L.T. 169 (T).
As regards service charges, it was pleaded that Madhya Pradesh LUNP were not a buyer but an agent and that the commission paid to them was not excludible from the assessable value of pipes and rubes.
With regard to inspection charges, the learned DR was of the view that the Tribunal's decision in the case of Shree Pipes Ltd. v. CCE, 1992 (59) E.L.T. 462 (T), was not applicable to the facts and circumstances of this case.
5. It is admitted by both the sides that the issue regarding inclusion of galvanising cost in the assessable value of galvanised pipes and tubes has already been finally settled by the Apex Court under their order dated 3-11-1999 while disposing of the Civil Appeal No. 7282 of 1996 [2000 (115) E.L.T. 32 (S.C.)] of the same appellants, M/s Siddhartha Tubes Ltd. The Hon'ble Supreme Court had confirmed the view taken by the Tribunal in the appellants' own case as reported as 1996 (82) ELT 399 (T) in Siddhartha Tubes Ltd. v. CCE, Indore, wherein the Tribunal had held that the process of galvanising enriches the quality and value of the mild steel pipes and that the cost of galvanising was includible in the assessable value of galvanised mild steel pipes, although the process of galvanisation did not amount to the process of manufacture.
Thus, in so far as the cost of galvanisation is concerned, we confirm the view taken by the learned Commissioner of Central Excise, Indore.
6. The issue for consideration is the inclusion in the assessable value of the pipes and tubes of the following:
(i) Cost of sockets (ii) Service Charges (iii) Cost of rubber, plastic rings (iv) Inspection charges
The Commissioner of Central Excise has already held with regard to unloading/staking charges that the expenses made by the appellants on these accounts were eligible for deduction to the extent of actuals subject to the production of proof.
7. Now, we take up the above items for our consideration.
(i) Cost of Sockets. - Before clearance the pipes were threaded on both ends and the sockets were fitted at one end. These sockets enabled the joining of other pipes to get the required length, without threading and fitting of the sockets, the pipes could not be used. According to the show cause notice dated 11-11-1994, the socket was an essential part of the pipe.
The pipes could not function as pipes without the sockets. These sockets were suitable for use solely or principally with the pipes. According to the Chambers 21st Century Dictionary, Tart' means 'a portion, piece or bit; some but not all and one of a set of equal divisions or amounts that compass a whole." The same dictionary also gives the meaning of Tart' as an essential piece; a component. Since the socket is an essential part of pipe, it satisfies the qualification Tart'.
Although the adjudicating authority had referred to the sockets and rings as accessories, in the show cause notice it was specifically mentioned that a socket is an essential part of the pipe and its value is required to be added in the assessable value of the pipe.
'Accessory' is an extra thing added to help something of more importance; subordinate or non-essential part of detail. In the case of Annapurna Carbon Industries Co. Ltd. v. State of Andhra Pradesh - 1976 (37) STC 378 (SC), the Supreme Court cited with approval the relevant portion of the meaning of the term 'accessory' contained in Websters' Third New International Dictionary, which runs as follows:
"An object or device that is not essential in itself but that adds to the beauty, convenience or effectiveness of something else."
A thing is a part of the other only if the other is incomplete without it; a thing is an accessory of the other only if the thing is not essential for the other but only adds to its convenience or effectiveness (refer Kerala High Court decision in the case of Dy. Commissioner Agricultural Income Tax and Sales Tax v. U.O.I. - 1976 (38) STC 198 (Kerala). The electronic pitch tester attachment was an accessory of helix tester [(refer Collector of Customs Mumbai v. Perfect Machine Tools Co. Pvt. Ltd. - 1997 (96) E.L.T. 214 (S.C.)]. In the case of United Copiex (I) Pvt. Ltd. v. Commissioner of Sales Tax -1997 (94) E.L.T. 28 (SC), the Supreme Court had observed in para-11 as under:
11. Be that as it may, the short question in this case is, having regard to entry 43 in the Schedule to the U.P. Sales Tax Act, can it be said that the "rubber flaps" manufactured by the assessee can come within the phrase "components, parts and accessories of vehicles specified in sub-entry". (1) "Rubber flaps" can hardly be described as an accessory of a vehicle. Meaning of "accessory according to the Webster Comprehensive Dictionary, International Edition "a person or thing that aids subordinately; an adjunct; appurtenance, accompaniment". The "rubber flap", which is used to protect the tubes of the tyres, is not an adjunct, appurtenance or accompaniment to a motor vehicle. At the highest, it can be said that it increases the life of a tube by keeping it away from direct contact with the rim of a wheel. Sub-entry (1) does not include tyres and tubes or any other component, part or accessory within the description of "Motor vehicles". Tyres and tubes have been specifically and separately mentioned in sub-entry (2) along with "components, parts and accessories of vehicles specified in sub-entry (1)". The flap may be used as an adjunct to the tyre or an extra piece of rubber to give additional protection to the tubes. It may, at the highest, be an accessory of an item falling under sub-entry (2) of entry 43, but it cannot be treated as an accessory of the motor vehicle itself which falls in sub-entry (1). Even on the basis of facts as found, it cannot be said that the "tyre flaps" will fall within the description of "components, parts and accessories of vehicles specified in sub-entry (1)".
Car Seat Covers/upholstry were accessories of motor vehicles [Mehra Bros. v. Joint Commercial Officer - 1991 (51) E.L.T. 173 (S.C.). Arc Carbon was an accessory to the cinema projectors or other cinematographic equipment [Annapurna Carbon Indsutries v. State of Andhra Pradesh -1976 (37) STC 378 (SC)]. Leather cases for the radios were accessories to radios. [(Pioneer Electronics v. State of Andhra Pradesh - 1980 (45) STC 14 (A.P., Hyderabad)]. Stands on which gas stoves are kept are accessories of gas stoves. [(Commissioner of Sales Tax, Maharashtra State, Bombay v. L. P. Bhave & Sons 1981 (47) STC 318 (Bombay)]. Plates and black shield were accessories of the photocopying machines. [(Koron Business Systems v. U.O.I. - 1991 (51) E.L.T. 212 (Mumbai-Division Bench). Hour meters and wheel weights were accessories of the tractors [(Union of India v. International Tractor Company - 1985 (22) E.L.T. 780 (Mumbai-Division Bench).
In the case of Precision Rubber Industries v. CCE - 1990 (49) ELT 170 (Bombay), the Bombay High Court had made a pertinent observation that the context in which the words are dealt with had to be considered and that the words are loosely used even by people with technical minds. In the case of a car, a steering will be a component part but a shopkeeper may describe his business to be of selling of car accessories and he might sell the steering wheel as an accessory. The High Court observed that the fact that the shopkeepers describe a component part such as steering wheel as a motor accessory would not make it an accessory. With regard to apron and cots, the rubber products made by cutting of rubber pipes/tubes into small pieces, the High Court observed that the same were component parts of machinery articles and were not the accessories which signified aiding or contributing in a secondary or subordinate way. The accessory is used to denote a role or status which is supplementary or secondary to something of greater or primary importance. The word 'accessory' is used to suggest that something or somebody is incidental to the main subject. In other words, accessory is something which is in-essential and secondary or subordinate or another object. The Hon'ble High Court has also made an important observation that the nomenclatures of the Committee of the ISI by themselves were not determinative of the classification and that the matter had to be decided on the basis of the functions performed by the articles.
In T.I. Miller Ltd. v. Union of India - 1987 (31) E.L.T. 344 (Bombay), the Bombay High Court affirmed the view that the dynamo cycle lamp was not a part of cycle and that a thing is an accessory of the other only if the thing is not essential for the other but only adds to its convenience or effectiveness.
Thus, socket could not be considered to be such an item which is an addition to the pipe, and without socket the pipes could not function as pipes. So it could not be treated as an "accessory" but is to be taken as "part" of the pipes and tubes.
We consider that this matter is covered by the Tribunal's Larger Bench decision in the case of CCE, Bombay v. Fykays Engg. Ltd. Final Order No. 125/2000-B, dated 25-1-2000 in appeal No. E/2518/94-B [2000 (116) E.L.T. 341 (Tribunal)].
The argument that the sockets were bought out items is of no relevance as the pipes were duly fitted with the sockets before clearance and without the sockets the pipes could not be fitted with each other.
In the case of Bedi & Bedi Pvt. Ltd. v. CCE, Bangalore, 1987 (32) E.L.T. 169 (T), the Tribunal had observed that the value of the bought out duty paid items was to be included in the value of fluid bed tea drier since the value of the machine as a whole had to be reckoned for excise purposes. The Tribunal added that if bought out items were not fitted on machine, then the cost of the same was to be deleted from the assessable value.
In the case of Uptron India Ltd. v. CCE, Allahabad, 1994 (73) E.L.T. 848 (T), the Tribunal had observed in para 4 of the order that the cost of the bought out items and accessories fitted or attached to goods before clearance was in-cludible in the assessable value of the goods even if they are not essential for operation of the manufactured goods.
The observations in para 23 of the decision in the case of Diamond Clock Manufacturing Co. Ltd. v. CCE, Pune, 1988 (34) E.L.T. 662 (T), are not applicable to the facts in the present case as the sockets were fitted in the pipes before clearance and these were essential for fitting of one pipe with the other.
Similarly the facts in the case of Shriram Bearings Ltd. v. CCE, Patna, 1997 (91) E.L.T. 255 (S.C.), were distinguishable. In that case the matter related to the value for the purpose of excise duty of ball bearings. It was an admitted position that the snap rings, sleeve lock devices, cup assemblies, oil seals, eccentric collars, dust shields etc. were not parts of ball bearings but were accessories. On the ground that under item No. 49 of the erstwhile central excise tariff only ball bearings and not their accessories were covered, the Supreme Court held that the cost of such accessories was not includible in the assessable value of ball bearings.
We thus hold that the cost of sockets was includible in the assessable value of the pipes and tubes.
(ii) Service Charges. - As regards service charges, we consider that the matter is covered by the Tribunal's decision in the case of Godavari Indus, v. CCE, Aurangabad, 1999 (80) ECR 180 (Tribunal) and Supreme Court decision in the case of Hyderabad Indus. Ltd. v. UOI, 2000 (114) E.L.T. 593 (S.C.).
In the case of Godavari Indus, v. CCE, Aurangabad, 1999 (80) ECR 180 (T), the Tribunal had held that the deduction of service charges from the assessable value was not permissible when the nodal agency was not the dealer and the service charges were in the nature of a commission and not a trade discount. A commission or service charge paid to a selling agent or canalising agency was not deductible from the assessable value.
In the case of Hyderabad Indus. Ltd. v. UOI, 2000 (115) E.L.T. 593 (S.C.), the Supreme Court had held that the service charges paid to the canalising agent were includible in the assessable value of imports. It was also added that the service commission paid to the canalising agent was not to be equated with buying commission.
In the case of Electrical Products Corpn. v. CCE, 1989 (43) E.L.T. 70 (T), it was a case where the appellants were selling a part of their goods to the wholesale dealers allowing discount as mentioned in the price list. A part of the goods were sold to sub-dealers etc., on the advice of wholesale dealers at a lower discount. The plea that the wholesale dealers appointed were functioning as commission agent was not found tenable by the Tribunal in the absence of evidence. The Tribunal observed that it had not been shown that the wholesale dealers were acting as commission agents and that no case had been made out that the wholesale dealers appointed were functioning as commission agents.
In the present case it is an admitted position that the LUNL was not the dealer of the appellants. They were clearly acting as an agent.
Therefore, the reliance on the above Tribunal's decision is misplaced.
We accordingly hold that the service charges were correctly includible in the assessable value of the pipes and tubes.
(iii) Cost of Rubber/Plastic Rings. - The end of the pipe at which the socket was not fitted was covered by a rubber or plastic ring to protect the threading during transportation, handling and storage. According to the show cause notice, this fitting was in the nature of packing.
As the fitting of the rubber/plastic ring was only for safe transportation, we consider that the cost of such rubber/plastic ring was not includible in the assessable value of the pipes and tubes.
(iv) Inspection Charges. - As regards the inspection charges, we consider that the matter is covered in favour of the appellants by the Tribunal's 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 Highlights at page A-51 in 1992 (62) ELT. 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 Tribunal's 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.
The demand of duty as confirmed by the learned Commissioner of Central Excise is to be worked out in the light of our above order.
9. In the facts and circumstances of the case, we reduce the amount of penalty from Rs 10 lakh to Rs 7.5 lakh (rupees seven lakh and fifty thousand only).
In the facts and circumstances, we waive the payment of interest in terms of Section 11-AA of the Central Excise Act, 1944.
11. The appeal is disposed of in the above terms.