Customs, Excise and Gold Tribunal - Calcutta
Boc India vs Commissioner Of Central Excise on 8 November, 2004
Equivalent citations: 2005(183)ELT475(TRI-KOLKATA)
ORDER M.P. Bohra, Member (J)
1. This appeal has been filed against the order dated 31st January, 2003 passed by the Commissioner of Central Excise, Jamshedpur. The Commissioner has confirmed the demand of Central Excise Duty of Rs. 3,96,30,288.68p. and Rs. 14,27,384/- and penalty of Rs. 14,27,384/-. Out of the disputed demand, Central Excise duty of Rs. 3,96,30,288.68p. has already been paid by the appellant under protest. The facts disclosed by the appellant are in brief as follows :
The Appellant is a manufacturer of Oxygen, Nitrogen, Argon gases/liquids. They have a number of plants located at different places in country. In Jamshedpur, one factory is situated at Mona Road, Jamshedpur and at Burma Mines Long Torn area, Jamshedpur. The present appeal relates to Burma Mines factory. The Appellant is manufacturing Oxygen, Nitrogen and Argon in liquid form and the products are sold and supplied to the customer in the following manner:
Supplies through pipelines are made to Tata Iron & Steel Co. (in short TISCO) and Tata Engg. and Locomotive Co. (in short TELCO). The product in liquid form are pumped through the pipeline in gaseous form. The other mode of supply of gases in liquid form are made through Vacuum Insulated Transport Tanks (in short VIST). The supplies are made from appellants' factory to buyers' factories and emptied there in Vacuum Insulated Storage Tank (in short VIST). In such cases, the appellant at this cost and expenses erects and installs VISTs at the factories of the appellants concerned. Such customers buying the goods from the Burma Mines factory are Usha Martin Industries, Chittaranjan Locomotive Works, Eastern Railway, Kanchrapara etc. There are also several buyers who simply buy the goods from the said Burma Mines factory. In such cases, the appellant has not installed any VISTs at the buyers' factories nor has installed any pipelines. Such buyers are Alloy Steel Plant, Deputy Controller of Stores of Eastern Railway, etc. In view of the extremely hazardous nature of the products, there has to be a continuous checking and monitoring of the said facilities so as to ensure that there is no leakage at any point. The Appellant's Engineers and Technicians keep a constant check and watch over the entire facilities on a day-to-day basis. Only huge maintenance expenses are incurred by the appellant. In case of TISCO and TELCO to whom the supplies are made through pipelines, the appellant had also installed measuring meters. In case of TISCO, it is installed within the appellants factory itself and in case of TELCO it is installed in the TELCO's factory. The appellant charges fixed charges/facility charges on monthly basis from the customers to whom the said facilities are provided by the customer. These charges are payable by the Customers at the agreed rates on monthly basis. The facility charges are payable irrespective of fact whether any gases or liquids were purchased by the customers during the month concerned and irrespective of the quantum of purchases. For facility charges, the appellant raises bill on monthly basis to customers concerned irrespective of as to whether the said customer purchased any goods during the month concerned. The appellant enters into contracts with all its major buyers and if any of the aforesaid facilities like erection and maintenance of VIST or Pipeline is required to be provided by the appellant, the agreed Facility Charges payable to the appellant on monthly basis are also mentioned. These are separately mentioned in all the contracts. The buyers are not relative to the appellant in any manner, directly or indirectly. On the instance of Central Excise authority having jurisdiction over the factories of the appellant, the appellant paid various amount towards duty on the facility charges/fixed charges under protest. The Central Excise Authorities issued show cause notices to appellant on various dates. The appellant filed the reply. The adjudicating authority confirmed the demand as mentioned above.
2. Heard Shri S.K. Bagaria, Sr. Advocate and Shri Partha Banerjee, Advocate for Appellant and Shri J.R. Madhiam, JDR for Respondent. Learned advocate submits that the facility charges had nothing to do with and were not in any way relevant to manufacture or sale of liquid/gases by the Appellant. He submits that the facility charges were charged only from those customers on whose factory the appellant had erected and was maintaining VIST or between whose factory and the appellant's factory it had erected and was maintaining the pipeline. For rendering these services towards maintenance and upkeep of VISTs and pipelines, the appellant was required to spend huge expenses and correspondingly charging facility charges. The facility charges had nothing to do with and were not in any way related to manufacture or sale of liquid gases. They are charging on the monthly basis by receiving a separate bill. They only charge from the buyers who had required the appellant to provide the said facility. No facility charges were being taken from other customer to whom no such facility were provided. The facility charges were not connected or related to sale or supply of the goods. The buyers were absolutely free to engage or not to engage the appellant for providing the case. He submits that in the case of TISCO, the meter was located in the appellant's factory and even the goods were cleared from the factory of appellant on sale. In the case of other buyers, there was no Pipeline-and the appellant had only provided and maintaining VISTs on their respective factories and this was the general mode of transport. He submits that the Commissioner has also relied on definition of transactional value. Firstly, the same definition came into force from 1-7-2000 and is not relevant for the earlier periods. Secondly, the facility charges are not payable by reason of or in connection with the sale. They are payable by the buyer even when there are no sales during the month to the buyer concerned. Therefore, he submits that there could be no scope to rely on the definition of transaction value for seeking to demand any Central Excise Duty on the said facility charges. He submits that the purported demand of duty of Rs. 14,27,384/- even otherwise is totally illegal and invalid. The duty of Rs. 4,10,240/- and Rs. 5,12,800/-, these demands have been confirmed on the basis that facility charges from TISCO for the period from April, 2000 to June, 2000 were receivable by the appellant. He submits that during the said period neither any supply of goods were made to the customer nor any bill for any goods or for any facility charges were raised upon. The agreement was terminated in advance on 1-4-2001. Consequently, from 1-4-2001 the appellant was not supplying any goods to customers. Even the pipelines were not being used for any purpose. No facility charges were also charged in respect of this on assumed facility charges. The demand have been confirmed the duty of Rs. 31,801/- relates to the facility charges receivable from TISCO, TISCO Growth Shop and Chittaranjan Locomotive Works. Just like in case of TELCO, the agreements with the aforesaid three parties were also terminated in advance. Consequently, neither any facilities were provided nor any maintenance was provided. Duty of Rs. 4,72,543/- relates to period from April, 2000 to June, 2000 on the facility charges received by the appellant from customers other than TISCO for which the appellant paid duty under protest w.e.f. 1st July, 2000. He submits that there was no contravention of any kind. Provision of law on the part of the appellant purported findings of the Commissioner is perversed. So the levy of penalty upon the appellant under the said provisions was and is fully illegal. Similarly, the direction of payment of interest under Section 11AB was also fully illegal. He, further, submits that the issue relating to the said facility charges is fully covered in the favour of the appellant by the decision of the Hon'ble CEGAT reported in 2002 (144) E.L.T. 359 (Tri. - Mumbai), Inox Air Products Ltd. v. CCE, "Valuation (Central Excise) - Normal price - Commissioner included the hire charges of storage tank in the assessable value in total disregard to Tribunal's earlier judgment - Facility or storage provided to some buyers - Charges not includible and Commissioner bound to follow Tribunal order if he not go for appeal to higher authority - Section 4 of Central Excise Act, 1944 (para 4) 2004 (164) E.L.T. 257 (Tri. - Del.) Grasim Industries v. Commissioner of Central Excise, Indore, BOC (I) Ltd. v. Commissioner of Central Excise, Chennai - Order No. 835/KOL/2003, dated - 20th January, 2004 [2004 (175) E.L.T. 236 (Tri.)], BOC (I) Ltd. v. Commissioner of Central Excise, Chennai - Order No. S-114/A-194/KOL/2004, dated 21st April, 2004. He, further, relies on the following decisions :
(i) 2002 (144) E.L.T. 359 (Inox Air Products Ltd. v. CCE - CEGAT)
(ii) 1988 (36) E.L.T. 730 (CCE v. Indian Oxygen Ltd. - Supreme Court)
(iii) 1997 (89) E.L.T. 3 (PSI Data Systems Ltd. v. CCE - Supreme Court)
(iv) 1998 (99) E.L.T. 481 (Thermax Ltd. v. CCE - Supreme Court)
(v) 1999 (108) E.L.T. 402 (Bharat Petroleum Corporation Ltd. v. CCE) - (CEGAT)
(vi) 1998 (100) E.L.T. 207 (Pla Tex v. CCE) - (CEGAT)
(vii) 1997 (95) E.L.T. 671 (Sunray Computers (P) Ltd. v. CCE) - (CEGAT)
(viii) 1991 (56) E.L.T. 329 (Voltas Limited v. U.O.I) - (Bombay High Court)
(ix) 2003 (158) E.L.T. 361 (T) = 2003 (59) RLT 767 (BPCL v. CCE) - (CEGAT)
(x) 2001 (135) E.L.T. 1124 (Rajasthan Electronics Ltd. v. CCE) (DELHI - CEGAT) Therefore, he submits that the appeal may kindly be allowed with consequential relief to appellants. Mr. Madhiam submits that the distribution facility at purchaser's premises and the commitment by the BOC to maintain reserve capacity on purchaser's premises are required to be carried out prior to the delivery of the goods to the buyer and the above activities are mandatory to provide the said goods to be sold to the respective purchasers. The provision of distribution facility by BOC are an integral part of the sale of the goods by BOC and have nexus with the manufacturer. The distribution facility on purchaser's premises are not going to an expansion of the sale. The sale proceeds complete only after delivery of the goods to purchaser through distribution facility. These facilities are owned by BOC and are required to be carried out on prior to delivery of the goods on sale. Hence the facility charges related to these activities are realised from customers to enrich the value of goods up to point of delivery of the goods. These are collected over and above the sale price and are includible in the assessable value under Section 4 of Central Excise Act, 1944. He also supports the orders passed by the Commissioner of Central Excise, Jamshedpur. Therefore, he submits that the appeal may be rejected.
3. In present case, the facility charges were being charged from the buyer on the agreed rates on monthly basis by a separate bill. These charges were charges only from those buyers who had required the appellant to provide the facilities. On the request of the buyers, the appellant was maintaining VISTs or pipelines. The appellant was also maintaining the upkeep of VISTs Pipelines and for that services and maintenance, the appellant was charging facility charges. Therefore, the facility charges are nothing to do with and were not in any way related to manufacture or sale of gases by the appellant. No such facility charges were being charged from other customer to whom no such facility were provided. The facility charges were not dependent upon to sale or supply of the goods during manufacture concerned. These were payable on the monthly basis irrespective as to whether the buyer had purchased any goods from the appellant during the month concerned and irrespective of the quantum of the goods purchased. Even buyers were free to engage for providing the said services or the said facilities. The VISTs or Pipelines should have been constructed by the buyers themselves or could have been constructed from any outside source. Similarly, maintenance could also be either by the buyer themselves or through any outside agency. Further, a perusal of their contract with different customers also indicates that the facility provided by appellant for storage of gases at the customer's premises were optional to their customers and the charges were not leviable on the customers whether they did not opt for installation and maintenance of such facility by appellant. Therefore, the charges cannot in any way be considered as a condition of sale for the goods. These charges were recovered by the assessee only from those buyers whose premises they had provided extra facility like pipeline system or VISTs. The Appellant has constructed storage tank at the buyers' premises. The storage tanks were highly capital intensive and were required regular maintenance/inspection and for that the facility charges were recovered by them. The facility charges were passed on the cost of the investments made on the storage tanks and other equipments installed at the buyers premises. The supply of the gases and the supply of the facilities are two separate transactions. Once these transactions are treated separate, it cannot be contended that the rental or the facility charges paid by the buyer. The amount which he was liable to pay by reason or in connection with the sale. Admittedly, the sale only of the gases. The price charges from the buyers over the sale of goods did not depend upon and had nothing to do with the facility charges. The Central Excise Duty can be levied on manufacture of the goods. No Central Excise Duty can be levied on providing and maintenance of such facilities as indicated above.
4. The fact that the facility charges have nothing to do with and are not in any way related to the sale of the goods has been accepted by the Central Excise Authority in the appellant's own case at Mumbai, Chennai and Bangalore. The Commissioner of Central Excise, Mumbai-III in his order-in-original No. 02/YGP/7/2000, dated- 29-1-2000 has held that this charge, therefore, cannot in any way be considered as a condition to sale for goods. It is a discrete component related directly to the maintenance and installation of the facilities and has no nexus with the manufacture of gases. Similar view was taken by the Commissioner of Central Excise (Appeals), Chennai. In his order-in-appeal No. 666/6/(M-I), dated 24th October, 2001 and by the Additional Commissioner of Central Excise, Bangalore-III in his order No. Central Excise 19/2002, dated 31st July, 2002. The Department has accepted the order passed by the Commissioner of Central Excise, Mumbai-II and no appeal was preferred by the Department against the said orders. The Commissioner totally erred holding that the said facility charges relate to any predelivery activity. The stock lying in the VISTs, installed and erected at the buyers place is owned by the buyer and not the appellant. For the maintenance of the said facility, the appellant has to incur various expenses including overheads, salaries and emoluments of the engineers and technical staff depending upon the inflation rate. The wholesale price index is published by the Reserve Bank of India and also keeps on varying and the appellant gets further amount towards the escalation. These aspects are not in any way related to the price charge for the sale of the goods. The contention of the Commissioner that the judgment of the Hon'ble Supreme Court in the appellant's own case reported in 1988 (36) E.L.T. 730 as distinguishable tenable. The Delhi Bench of Tribunal in the case of Grasim Industries v. Commissioner of Central Excise, Indore has occasion to interpret the judgment in the light of amendment of Section 4 of the Central Excise Act and also in the light of Circular No. 81/2000-TRU, dated- 30th June, 2000 and Hon'ble Justice K.K. Usha, President has observed as under :
"We find merit in the contention raised by the appellant. The ratio of the decision in C.E.C. v. Indian Oxygen, referred above, would still be applicable in respect of the amendment brought to Section 4(1)(a). When examined the above decision, we find that the Supreme Court has treated the supply of gases and the supply of the cylinders has two separate transactions. Transaction in present case are identical in nature . If that is so, the supply of clorin and supply of tanker are to be treated as two separate transactions".
It is clear from the above finding that the judgment rendered by the Hon'ble Supreme Court in the appellant's case is still a good law and applicable in present case also. The contention of the Commissioner that the delivery point of the goods is in the premises of the buyer and for this purpose, he has relied on the location of the meters. This contention is also not tenable. Firstly, this is only in the case of the TELCO that the meter was located in the buyers' premises. In the case of TISCO, the meter was located within the appellant's factory. In so far, various other buyers are concerned, there was no pipeline and the appellant had only provided and maintaining VISTs at their respective factories. In such cases, the goods were sent from the appellant's factory in VISTs. This was simply a general mode of transport of the goods in normal course. In present case, the said facility charges are not payable by reason or in connection with the sale, The said facility charges are payable by the buyer even when there are no sale during the month to buyer concerned. Therefore, there should be no scope to rely on the definition of transactional value for seeking any demand of Central Excise Duty on the facility charges. Similar view was expressed by Delhi Branch of Tribunal in the case of Grasim Industries v. Commissioner of Central Excise, Indore reported in 2004 (164) E.L.T. 257, BOC (I) Ltd. v. Commissioner of Central Excise, Chennai Order No. A-35/July/2003, dated 20th January, 2004 and Inox Air Products Ltd. v. Commissioner of Central Excise, Mumbai-VII reported in 2002 (144) E.L.T. 359 (Tri.-Mumbai).
5. The Mumbai Bench in the case of Inox Air Products Ltd. v. Commissioner of Central Excise, Mumbai-VII has held as under :
"Valuation (Central Excise) - Normal price - Commissioner included the hire charges of storage tank in the assessable value in total disregard to Tribunal's earlier judgment - Facility or storage provided to some buyers - Charges not includible and Commissioner bound to follow Tribunal order if he not go for appeal to higher authority- Section 4 of Central Excise Act, 1944 (Para 4)".
6. In present case also the supply of services i.e. maintenance, construction of VIST and the pipeline was not a manufacturing activity and was ancillary to the supply of gases but it was not strictly incidental duty. There are classes of persons who can take either these gases without supply of the VIST by the manufacturer. In such cases, the question of charging facility charges would not arise. The present appeal is fully covered by the decision rendered in the case of Inox Air Products Ltd. v. Commissioner of Central Excise, Mumbai-VII reported in 2002 (144) E.L.T. 359 (Tri.-Mumbai) and 2004 (164) E.L.T. 257 Grasim Industries v. Commissioner of Central Excise, Indore. The purported demand of duty of Rs. 4,10,240/-, Rs. 5,12,800/- & Rs. 31,801/- even otherwise is illegal. These demands have been confirmed on the basis that the facility charges from the TELCO/TISCO for the period from April, 2001 to December, 2001 were receivable by the appellant. The agreement dated 13-12-1997 with TELCO was due to expire on 1-12-2001 but it was terminated in advance on 1-4-2001. Similarly, the demands relates to the facility charges allegedly receivable from TISCO, Eastern Railway, Chittaranjan Locomotive Works. Just like in the case of TELCO, the agreement with the aforesaid three parties were also terminated in advance and after such termination neither any facility were rendered nor any maintenance was provided and no such facility charges were charged.
7. It can be concluded that the facility charges are not in any way related to or connected with the sale of gases. We find that the facility charges are payable at all times so long as the installations are being used by the customer irrespective of whether there is a supply of gas and irrespective of the quantity supplied. There is no difference in price of the product in respect of the goods supplied from whom facility charges are not being recovered. So we hold that facility charges need not be included in the assessable value.
8. Accordingly, we set aside the impugned order and allow the appeal with consequential relief to the appellants.