Customs, Excise and Gold Tribunal - Mumbai
Savita Chemicals Ltd. vs Commissioner Of Central Excise on 13 July, 1999
Equivalent citations: 1999ECR845(TRI.-MUMBAI), 2000(119)ELT394(TRI-MUMBAI)
ORDER J.H. Joglekar, Member (T)
1. These five appeals arise out of the same impugned order and are, therefore, taken up together for disposal.
2. M/s. Savita Chemicals Ltd. the present appellants manufacture lubricating oil (automotive oil). The goods are cleared in four different ways :-
(1) packed in 20 Itrs & 210 Itrs containers and sent to wholesale dealer;
(2) packed in 20 Itrs & 210 Itrs containers and sent to their depots on stock transfer;
(3) cleared in bulk in tankers to buyers; and (4) cleared in bulk in tankers to M/s. Unique Packers, job workers, who repack the bulk oil in tins of 5 Itrs., 1 Itr and .5 ltr capacity and despatch them to the depots of M/s. Savita Chemicals Ltd. from where they are sold.
3. The dispute in the present appeals relates to (4) above. Sometime ago, such oil in bulk was sent by the appellants to M/s. Unique Packers under the procedure prescribed in Rule 57F(3) of the Central Excise Rules, 1944, where the job workers would return the lubricating oil packed in smaller containers to M/s. Savita Chemicals Ltd. M/s. Savita Chemicals would then transfer the smaller containers to their depots and would sell from there. Similar procedure was adopted by M/s. Castrol India Ltd. It appears that in February, 1996 the department objected to this procedure. Vide letter, dated 25-10-1994, , the department directed M/s. Castrol India Ltd. to clear the goods on payment of duty to their job workers holding that the activity of repacking in smaller containers did not amount to manufacture. The present appellants came to know of this development and therefore from February 1996 adopted the department's advice to M/s. Castrol India Ltd. for their clearances also. The goods were thereafter cleared in bulk to the packers on payment of duty.
4. Four show cause notices were issued to M/s. Savita Chemicals Ltd. alleging that the clearances of oil in bulk to M/s. Unique Packers did not involve a sale but that it was only a stock transfer. It was alleged that the value of the bulk lubricating oil should be arrived at taking as basis the price at which the oil packed in smaller containers was sold from the depot. Differential duty totally amounting to Rs. 99,82,967/- was demanded. Allegations as to penalty were made vide show cause notice dated 6-6-1997. It was alleged that apart from the assessee company, the Dy. General Manager (Works) Shri Satish Talwar was also liable to penalty. The noticees put forth their case before the Commissioner. The Commissioner in the common impugned order confirmed the duty demanded. He imposed a penalty of Rs. 31,11/015/- on M/s. Savita Chemicals Ltd. under Section 11 AC of Central Excise Act, 1944. He also imposed a separate penalty under Rule 173Q of Rs. 70,00,000/- on M/s. Savita Chemicals Ltd. and a penalty of Rs. 50,000/- on Shri Satish Talwar. These five appeals are against this common order.
6. The case for the appellants was argued by Shri V. Lakshmikumaran, advocate along with Shri Nambirajan. The Revenue was represented by Shri A.K. Charterjee, SDR.
7. The first submission of Shri Lakshmikumaran is that the difference in value of oil sold in bulk as against that sold in containers is equal to the value of the containers. By the assistance of some charts, he established that the value of the bulk lubricating oil had been calculated in this manner. His second submission is that apart from transferring the bulk oil to the packers the assessee also sell oil in bulk to industrial consumers. He submits that the factory gate price is thus available and states that this value must be applied to the clearances made to the packers. His third contentions is that the provisions of Section 4 do not rule out the situation where there is no sale. Therefore, the clearances to the packers would continue to fall under the provisions of Section 4(1) (a) as the department, where such price was available, could not go to the provisions of Section 4(1 )(b). His fourth submission is that packing of lubricating oil in tins does not amount to manufacture. His fifth argument is that the department has based its case on the amended provisions of Section 4 with effect from 28-9-1996, whereby, "the place of removal" has been defined as "depot from where the excisable goods are to be sold after their clearance from the factory". It is his next submission that since the form of lubricating oil is changed between its clearance from the factory and the removal from the warehouse, the amended provisions would not apply. His concluding submission is that the duty payable has been wrongly calculated as part of the demand in the show cause notice, dated 6-6-1997 is barred by limitation and that the assessees were acting on good faith and on the basis of the department's advice to M/s. Castrol India Ltd. the levy of penalty was not warranted.
8. Shri Chatterjee advanced arguments rebutting the contentions made by Shri Lakshmikumaran and supporting the impugned orders.
9. We have carefully considered the submissions advanced by both the sides and have perused the citations.
10. The department's mind is reflected in the following paras of the show cause notice, dated 3-7-1998:
"The clearance from M/s. Savita Chemicals Ltd. to M/s. Unique Packers are merely a transfer of goods to the said packer for repackaging into smaller pack transfer to various depots consignments agents etc. of M/s. Savita Chemicals for further sale by M/s. Savita Chemicals. Section 4(1)(a) of Central Excise Act, 1944 provides that duty of excise is chargeable on the excisable goods at normal price which is the price at which the goods are ordinarily sold by the assessee to buyer in the course of wholesale trade for delivery at the time and place of removal where buyers is not related persons and price is the sole consideration for the sale. Since the goods in bulk are first cleared to M/s. Unique Packers for repacking into smaller packs and are thereafter transferred to depots and consignment agents and then these are actually sold from those depots and consignment agents, the price charged at the place of removal, i.e., depots and consignment agent should form the basis for normal price for charging of duty under the existing circumstances. This is so as definition of place of removal as provided under Section 4(4)(b) of Central Excise Act has been amended on 28-9-1996 and inter alia which defines place of removal to include depots, premises of the consignment agents or any other place or premises from where the goods are sold. Removal of the goods from the premises of M/s. Savita Chemicals to the premises of packers cannot be treated as goods sold in the course of wholesale trade and further in view of the fact that higher price have been charged by M/s. Savita Chemicals for these goods from the depots after getting these repacked from M/s. Unique Packers."
The allegation is that the goods so removed to M/s. Unique Packers could not be treated as the goods sold to the wholesalers. This might have been correct if there had been no other clearance of such goods i.e. lubricating oil. But it is not so. At all times, it has been contended by the assessees that there were sales to independent buyers of bulk lubricating oil. Shri Lakshmikumaran placed reliance on such clearances at 2% of the total clearances. Shri Chatterjee contested it and stated that it was only limited to two instances and not to two percentage. He, however, does not refute the claim that lubricating oils in bulk was sold from the factory gate to bulk buyers. In this situation, the law laid down by the Courts is very clear and that is where the ex-factory normal price is assertable, it would apply to all the removals.
11. The Karnataka High Court in the case of State of Karnataka v. U.O.I. 1978 E.L.T. (J 564) held that the percentage of sale at the factory gate was not material. The same view was held by the Tribunal in the case of Southern Bottlers P. Ltd. v. C.C.E. 1989 (43) E.L.T. 427 (Tri.). In terms of these judgments, the Tribunal in the case of Indian Aluminium Cables Ltd. 1989 (40) E.L.T. 86 (Tri.) held even a single sale would constitute the basis for determination of wholesale cash price. In making this, the Tribunal had relied upon the Supreme Court judgment in the case of Voltas Ltd. 1(1977 E.L.T. (J.177)].
12. Thus where the price at which the sale is made to an independent buyer is available, that price becomes the basis of sale to other similar consumers and also for stock transfers to depots. Thus, if the sale price from the depot is higher than the price at which the stock transfer is made, the department cannot demand differential duty.
13. Nowhere in the proceedings had the department claimed that the price at which the sale of lubricating oil in bulk made to independent buyers as contrived or fake. Therefore, those prices would form the basis for valuation of the goods cleared for repacking.
14. In this situation, it is not material, whether the goods are sold or not. In the case of Collector of Central Excise v. Ashok Leyland Ltd. 1987 (29) E.L.T. 530 the Tribunal was examining the valuation of stock transferred to regional sale offices. Such stock transfer could not be called as "sale". How ever, the Tribunal ruled that such stock transfer should also be assessed at price at which such goods were sold to wholesale dealers. Therefore, not much can be made of the fact that the transfers of lubricating oil in tankers sent to M/s. Unique Packers were not sale.
15. In fact the scheme of Section 4 does not require that each clearance or removal should be a sale. In fact Section 4(1)(b) advises recourse to the Valuation Rules where the goods are not sold and therefore, the normal price is not available. The provisions of Section 176C also brings out this very clearly. This Rule requires valuation to be made in terms of Section 4 and prescribes a particular declaration where the goods are removed in a manner which does not involve sale. Thus the valuation under Section 4 is not limited to situation only where there is a sale but do extend to the situation as it exists in the present case.
16. Therefore, if the bulk oils were transferred in tankers from the factory premises at the same price at which such bulk oils were sold to the independent buyers, then that price cannot be questioned.
17. The law narrated in the preceding paragraphs held sway before the amendment made to Section 4 vide the provisions of the Finance (No. 2) Act, 1996. We shall discuss at a later stage as to the situations in which the law would still hold good.
18. The ld. Commissioner in seeking to establish this allegation in the show cause notice has gone beyond the scope of the show cause notice. He has questioned the very marketability of the oils in bulk form. It is his case that such oils cannot become marketable unless they are packed. He held that packing of such bulk oils into tins amounts to process of manufacture and therefore, duty was payable by the present appellants on the value of the lubricating oils packed in tins as sold from the depots. This belief of the Commissioner will have to be examined.
19. The Commissioner had relied upon two judgments in establishing that lubricating oils could not be marketable unless packed. In Hindustan Polymers v. C.C.E. 1989 (43) E.L.T 165 (S.C.), the Supreme Court was discussing the provisions of Section 4(4)(d)(i) of the Act and was determining as to which packing was includible in the assessable value. In the second case of Ahmedabad Mfg. & Calico Packing Co. Ltd. v. U.O.I. - 1982 (10) E.L.T. 821 (Guj.), the Gujarat High Court had undertaken a similar exercise. The ratio of these two judgments is not even remotely applicable to the belief of the Commissioner that after packing only, the lubricating oils became marketable. Before the Commissioner, three orders were cited to show that packing did not amount to manufacture. In the case of Indian Oil Corporation Ltd. v. C.C.E. 1987 (27) E.L.T. 482, the Tribunal had held that where the goods were cleared in bulk from the refinery and where they were later repacked and sold in packing, the valuation should be made in the form in which it was removed from the factory and that its subsequent repacking in containers was not a material aspect. The assessees had cited two other judgments also viz. in the case of ED Parry Ltd. v. U.O.I. 1978 (2) E.L.T. (J 18) and Prabhat Packaging Corpn. 1990 (47) E.L.T. 102. The ld. Commissioner overcame this hurdle by holding in para 44 as under:
"Therefore, what was done by the job worker was packing and not repacking".
20. In specific circumstances by virtue of Section notes and Chapter notes, packing is equated to the activity of repacking where the goods in bulk form would pay duty and thereafter would be liable to duty when later packed. As the ld. Advocate stated, there are no such provisions in Chapter 27. Therefore, the activity of packing or repacking of bulk lubricating oil cannot be held to amount to manufacture.
21. Shri Lakshmikumaran points out an anomaly in the Commissioner's order. If it is held that the bulk oil cleared by the appellants was not manufactured, then it would appear that the department had wrongly charged the duty from them and if it is held that the Packers viz. M/s. Unique Packers were the manufacturers, then applying the ratio of the Ujagar Prints judgment, the show cause notice issued to the present appellants is without basis. We find that this submission of the ld. Advocate is correct. It would appear that the Commissioner was so determined to establish the case made out in the show cause notice that he did not pay heed to this pitfall. But since we have held that the goods in bulk were marketable and that repacking or packing would not amount to a process of manufacture, this argument of the ld. Advocate need not engage our attention for long.
22. We would now come back to the main allegation in the show cause notice on which charge of short levy of duty is based. The relevant portion is reproduced below:
"The clearance from M/s. Savita Chemicals Ltd. to M/s. Unique Packers are merely a transfer of goods to the said packer for repackaging into smaller pack transfer to various depots consignments agents etc. of M/s. Savita Chemicals for further sale by M/s. Savita Chemicals. Section 4(1)(a) of Central Excise Act, 1944 provides that duty of excise is chargeable on the excisable goods at normal price which is the price at which the goods are ordinarily sold by the assessee to buyer in the course of wholesale trade for delivery at the time and place of removal where buyers is not related persons and price is the sole consideration for the sale. Since the goods in bulk are first cleared to M/s. Unique Packers for repacking into smaller packs and are thereafter transferred to depots and consignment agents and then these are actually sold from those depots and consignment agents, the price charged at the place of removal, i.e. depots and consignment agent should form the basis for normal price for charging of duty under the existing circumstances. This is so as definition of place of removal as provided under Section 4(4)(b) of Central Excise Act has been amended on 28-9-1996 and inter alia which defines place of removal to include depots, premises of the consignment agents or any other place or premises from where the goods are sold. Removal of the goods from the premises of M/s. Savita Chemicals to the premises of packers cannot be treated as goods sold in the course of wholesale trade and further in view of the fact that higher price have been charged by M/s. Savita Chemicals for these goods from the depots after getting these repacked from M/s. Unique Packers.
As the assessable value of the said goods i.e. Lube oil as per amended provisions of Section 4 of Central Excise Act, 1944, should be the invoice price charged at depot for the retail packs. Therefore, for the purpose of determining Central Excise duty under Rule 173F read with Rule 9(i) depot should be considered as a place of removal and duty should be determined accordingly as such they have contravened the provisions of Rule 9(i) read with Rule 173F by not determining the duty correctly at the factory gate."
23. To determine the merit in the charge, it is necessary to see the relevant provisions which are reproduced below:
"Section 4(1)(a) : Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value, shall, subject to the other provisions of this section, be deemed to be-
the normal price thereof, that is to say, the 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, where the buyer is not a related person and price is the sole consideration for the sale:
(2) Where, in relation to any excisable goods the price thereof for delivery at the place of removal is not known and the value thereof is determined with reference to the price for delivery at a place other than the place of removal, the cost of transportation from the place of delivery shall be excluded from such price.
Section 4(4): For the purposes of this section -
(a) "assessee" means the person who is liable to pay the duty of excise under this Act and includes his agent;
(b) "place of removal" means -
(i) a factory or any other place or premises of production or manufacture of the excisable goods;
(ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty;
(iii) a depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory and from where such goods are removed.
24. What the show cause notice seeks is to determine the price at which the packed goods are sold from the depot as the basis of valuation of the oil sold in bulk. No other construction can be put on the phrases used in the show cause notice.
25. Before the amendment made on 28-9-1996 whereby Clause (iii) was inserted in Section 4(4)(b), the factory gate was the place of removal for the determination of normal price. Where the goods were bonded, the warehouse gate was the place of removal. Where the goods were not at all sold at the factory gate but only at the depot gate, the depot gate price was adopted as the factory gate price after deducting cost of transportation from the factory gate to the depot gate.
26. The effect of the amendment was brought out in the C.B.E.C. Circular No. 251/86/96-CX, dated 14-10-1996, as reproduced in 1996 (87) E.L.T. (T) 48. The extract read as under:
"In the Finance Act of 1996, definition of 'place of removal' has been amended to include depot, consignment agents or any other place or premises from where the goods are sold by or on behalf of the assessee within its scope. However, time of removal for these other places of removal added in Section 4 shall be deemed to be the time at which such goods are cleared from the factory.
The significance of these changes is that sale price at any of these "places of removal" will be the normal price for levy of excise duty and there can be different assessable values for the same excisable goods depending upon the place of removal. It also means that duty will be required to be paid at the time of clearance of goods from the factory for those goods which are sold by the manufacturer at depot, consignment agents or any other place etc. at a sale price of the place of removal i.e. depot, consignment agents etc. Where the goods are sold at the factory gate, there would be no problem."
27. This amendment has taken away the basis of the judgments which dictated that where the factory gate price was available that price would apply to all clearances, including those made from the depots. The effect of the amendment would be that at the factory gate itself the same goods would be valued differently, depending upon their final place of removal. The findings of the Collector reproduced in Para 22 above would seem to suggest that the goods which are destined to be sold from the depots would be leviable to the duty at price charged at such depots when assessed at the factory gate. Where the goods so moved from the factory gate are the same which were sold at the depot gate, this judgment cannot be faulted. But in the present case what was removed from the factory gate was oil in bulk in tankers and what was sold at the depots was oil packed in tins.
28. Section 4(1)(a) extracted above in Paragraph 23 speaks of "such goods". What is the interpretation of "such"? The New Shorter Oxford Dictionary defines this word as "Of the same kind or degree as something previously specified or implied contextually". The Law Lexicon by T.P. Mukherjee (Vol. 2) cites a number of judgments. The extract from the Rajasthan High Court in the case of Union of India v. Wajir Singh holds :
"Generally, the word 'such' refers only to previously indicated, characterised or specified. "Such" is an adjective meaning the one previously indicated or refers only to something which has been said before."
29. Shri Laxmikumaran cited departmental clarifications cited vide File No. 312/1/75/CX 10, dated 8-8-1975, when Section 4 was substituted in 1973 vide Section 22 of the Central Excise and Salt (Amendment) Act, 1973. The phrase "such goods" has continued to remain in the Section therefrom. In describing the expression "such goods", the Ministry gave the following clarification:
"(a) Such goods : The expression 'such goods' has been used in the generic sense and means not only the goods under assessment but also other goods of the same class. In other words, the same goods manufactured by an assessee will be considered, as 'such goods'. The same goods manufactured by the assessee may be cleared at different times in different lots and different consignments and the goods of each lot or consignment will be 'such goods'. To illustrate, a company manufactures refrigerators of a particular brand and capacity: each of these refrigerators will fall in the category of 'such goods' (emphasis supplied).
Similar goods, for example, goods of different brands manufactured by another assessee are also not 'such goods'. Similar goods manufactured by another assessee are also not 'such goods': that may fall in the category of 'comparable goods'. Even homogeneous goods e.g., sugar or cloth manufactured by different manufacturers would only be comparable goods and would not constitute 'such goods'."
30. Thus the grouping of the goods was to be as per brands or capacities. Goods falling in a particular group would become "such goods" as far as the other goods in the same category or group are concerned. When these goods are placed in juxtaposition with the goods from another group they would not remain 'such goods' but would become comparable goods.
31. Following these guidelines, oil packed in containers of different sizes also would not become 'such goods' in relation to each other but would become comparable goods. Continuing this logic further, the goods which are cleared in bulk cannot be even comparable goods, let alone by entitled to the term "such goods".
32. Therefore, in the present case the attempt of the Commissioner to apply the price at which containerised goods are sold from the depot gate to the bulk oil sold at the factory gate has no basis in law.
33. Where the oil is sold in bulk only at the factory gate and not at the depot gate, there shall be a single price that is prevelant at the factory gate. That price being available has to be adopted.
34. In view of this clear findings in law, we do not find it necessary to dwell on the other submissions of Shri Laxmikumaran.
35. In the result the appeals succeed and are allowed with consequential relief.