Bombay High Court
Duphar Interfran Ltd. vs Union Of India And Others on 1 January, 1800
Equivalent citations: 1980(6)ELT780(BOM)
JUDGMENT Chandurkar, J.
1. The main question which arises in this petition is, as to whether packing distribution and forwarding costs can be taken into account for the purpose of determining the value under Section 4 of the Excises and Salt Act, 1944 (hereinafter referred to as "the Act") for levying excise duty, really now stands concluded by at least three decisions of this Court, in which it has been held that costs of packing and packing material and post manufacturing expenses cannot be included in the value chargeable to excise duty.
2. The Petitioners are manufacturers of preparations known as Lacto Calamine lotion and Lacto Calamine talcum powder which are subject to payment of excise duty under item 14F of the Tariff to the Act on ad valorem basis. The procedure followed by the Petitioners is to pack the preparation in a consumer pack at the production bench and store in ordinary cardboard cartons in the case of Lacto Calamine lotion and wooden crates in the case of Lacto Calamine powder in the bonded warehouse of the Petitioners without payment of excise duty. Under the price list which is submitted by the Petitioners to the Excise authorities and also circulated to the wholesale dealers, the Petitioners have specified the basic trade price exclusive of excise duty per unit. For example, in the case of Lacto Calamine lotion 110 ml. the price is basic trade price exclusive of excise duty shown as Rs.4.22, the excise duty per unit is shown as Rs. 2.31 and packing and distribution cost per unit is shown as Re. 0.31 The price list contains terms and conditions of sale. Item No. 4 in these terms and conditions reads as follows :-
"An extra charge of 5% would be levied in the invoice for packing and distribution costs which will be a percentage of basic trade price less trade discount plus excise duty."
It is the liability of this extra charge of 5% to excise duty which is in dispute. According to the petitioners, this charge of 5% was clearly a post manufacturing cost, while according to the Excise authorities, this has to be included in the basic price for the purposes of levy of excise duty.
3. With reference to the price list the Assistant Collector informed the Petitioner-company that the company had excluded post- manufacturing charges from the list price shown in column 3 Column 3 referred to the basic trade price referred to above. The Assistant Collector held that since there was no provision for abatement of the same in the amended section 4 of the Act, the prices claimed by the company were not accepted. He positively made an order that after taking into account the post manufacturing expenses, the assessable values have been worked out and accordingly approved.
4. This view of the Assistant Collector was challenged by the company by an appeal before the Appellate Collector, Customs and Central excise, Bombay. It was contended before the Appellate Collector that packing, forwarding and distribution work was done in duty paid premises after the goods were removed from the store rom which meant the bonded warehouse or the boned store room. The Collector held that under the amended provisions of section 4 of the Act there was no provision for abatement of distribution or forwarding charges. He took the view that even the expanses of packing can be excluded only if the packing is of durable nature and is returnable to the manufacturer and it was not s in the present case. The contention that post manufacturing expanse s such are distribution packing and forwarding charges could not be taken into account was no material to show at what stage the particular work had been done for which the charges have been made. Posing the question which fell for determination before him, the Appellate Collector observed, "What is material is whether such charges, if included in the price of other goods in question can be deducted" and held that there was no provision for abatement of such charges from the price of the goods. Similarly, according to him, the cost of transportation from the place of removal to the place of delivery could also not be excluded.
5. We have in a petition just decided (Special Civil Application No. 4683 of 1976 Flexoplast Abrasives (India) Ltd. v. Union of India and others decided on 19th June 1980) [E.L.T. 513] taken the view that even so far as amended provisions of section 4 of the Act are concerned post-manufacturing expenses cannot be taken into account for the purposes of determining the value for levying excise duty. It is too late in the day to agitate the question as to whether packing costs or costs of packing material are post-manufacturing expenses. The matter now stands settled by more than one decision of this Court. See Union of India v. Mansingka Industries Pvt. Ltd. 1979 Excise Law Times (J 158), and Ogale Glass Works Ltd. v. Union of India and others, 1979 Excise Law Times (J 468). Both these decision were considered in great detail by a Bench of this Court to which one of us(myself) was a party in Special Civil Application No. 2118 of 1976. The Associated Bearing Co. Ltd, and another v. Union of India and another, decided on 5th March 1980 [1980 E.L.T. 415].In that decision it has been expressly held that packing costs and costs of packing material cannot be included in the cost of the manufactured article for the purposes of liability t excise duty.
6. Strictly speaking, on this short ground the view taken by the Appellate Authority and the Assistant Collector must fall to the ground. IT is obvious that the only question which was before both these authorities was whether 5% of the extra charge referred to in the price list could be included in the basic price of the manufactured article for the purposes of excise duty. Neither the Assistant Collector nor the Appellate Collector seems to the have disputed the fact that this was in the nature of post-manufacturing cost and in our opinion, rightly so, because it is the cost of packing and distribution which has, on the material on record to be incurred, if necessary, if specially instructed in that behalf by the purchaser. The Petitioners have produced a circular issued by them to the wholesalers which clearly states as follows:-
" We hereby clarify that the packing and distribution costs charged separately at 5% of the invoice value will not be required to be paid in case the goods are taken delivery of by the wholesaler in unit packing from our Bonded Warehouse at the Factory ( situated at Majiwada" Swami Vivekanand Road, Thana, Maharashtra).
This makes it clear that in case the goods are taken delivery of in the unit packing,the wholesaler will not be required to pay an extra charge of 5% It is note in dispute that the basic trade price shown in the price list included the price of unit packing and the petitioners have no dispute with regard to their liability to pay excises duty on the basis of this basic trade price. The petitioners have also put on record certain invoices which show that the price charged to the wholesalers where they collect the goods from the bonded warehouse or from the factory is the basic trade price disclosed in the price list. It is obvious, therefore, that the 5% extra charge is at the discretion of the wholesaler and cannot form a part of the basic trade price. The averments in the petition show that this charge is collected from the wholesaler if the so desires that an additional packing should be made and that this is done only when the delivery is given at the duty paid warehouse. These averments do not seem to have been disputed because there is no return filed on behalf of the authorities in this case. We must, therefore, proceed on the footing that the occasion to charge 5% extra packing and forwarding charges arises only after the goods have reached the duty paid warehouse. The excise duty which can be made payable by the petitioners has t be on the basis of the value of the goods before they reach the duty paid warehouse. It is that price which the petitioners have shown in the duty paid warehouse. It is that price which the petitioners have shown in the price list. Merely because any additional charges are recovered by the petitioners for certain additional packing made available at the express request of the wholesaler, that cannot form part of the price which is liable to excise duty. It was clearly a post- manufacturing cost and the Excise authorities were, therefore, not entitled to recover any excise duty on the basis that this additional charge should be included as a part of the basic price.
7. Mr. Govilkar on behalf of the respondents has contended that before the Assistant Collector or the Appellate Collector the petitioners have failed to show that no delivery to the wholesalers was made at the bonded warehouse with additional packing. It is difficult to see how the authorities cab throw that burden on the petitioners, especially when in this petition material has been produced to show that the occasion to charge additional 5% arises only after the goods have have been removed to the duty paid warehouse. In any case, it is the authorities who have to justify charging all the duty which they have recovered and if the material as it is presented in this petition shows that 5% additional charge is recovered only in case of delivery at the duty paid warehouse, it is obvious that the petitioners have been subjected to a liability to which they could not have been under the law. The view taken by the Assistant Collector and the Appellate Collector is clearly contrary to law and their orders are liable to bee quashed.
8. Consequently, the petitioners will be entitled to the refund of excise duty collected on the footing that the 5% of the price was liable to be included in the basic trade price for the purposes of excise duty. It will be open to the petitioners to approach the appropriate authorities for a refund of the excess duty recovered on the basis indicated earlier. Since the amount has been recovered almost five years back, wee expect that the appropriate authorities will deal with the matter expeditiously preferably within a period of two months from today. The bank guarantee furbished by the petitioners shall stand discharged. The petitioners to get the costs of this petition.