Customs, Excise and Gold Tribunal - Delhi
Real Drinks (P) Ltd. vs Collector Of Central Excise on 5 February, 1991
Equivalent citations: 1991ECR491(TRI.-DELHI), 1991(54)ELT436(TRI-DEL)
ORDER P.C. Jain, Member (T)
1. Since common issues are involved in both the appeals a common order is being passed.
2. Brief facts of the case are as follows :-
2.1 The appellants herein are manufacturers of Aerated waters, namely soda and sweetened drinks falling under Tariff Item No. 1-D. They filed a classification list No. 8/83, dated 1-3-1983 in respect of financial year 1983-84 and another classification list No. 5/84, dated nil in respect of the financial year 1984-85. In both these classification lists the appellants claimed the exemption under Notification No. 148/82-CE dated 22-4-1982 (as amended) and while claiming the exemption the appellants declared their clearance values at Rs. 12,95,395.21 p during the financial year 1982-83, and at Rs. 11,15,631.54p during the financial year 1983-84.
2.2 During the course of verification of the appellants' sales invoices by the departmental officers, it was noticed by them that the total turnover of soda and sweetened drinks were Rs. 24,99,557.05 p during the financial year 1982-83, excluding sales tax, Central Excise duty and actual transportation cost. At this stage, it may be mentioned that what constitutes transporation cost is in dispute between the parties and will be adverted to at the later stage. During the financial year 1983-84 total value of clearances for soda and sweetened drinks was noticed at Rs. 27,44,610.60 p including everything except the sales tax.
2.3 On the basis of the aforesaid figures of clearance values, it was alleged by the department in a show cause notice, dated 16-7-1985 that the clearances of the company in the financial year 1982-83 was far above the ceiling of Rs. 15 lakhs stipulated in Notification No. 148/82-CE, dated 22-4-1982. It was also alleged that while claiming exemption under the said notification the appellants deliberately mis-declared their turnover during the year 1983-84 at Rs. 11,15,631.64 p whereas the actual turnover was Rs. 27,44,610.60 p excluding the sales tax. It was further alleged that even after de ducting the element of Central Excise duty to the tune of Rs. 85,536.10 p paid during the period 1983-84, expenses incurred on salaries of drivers, petrol charges, repairs and maintenance of vehicle which formed part of transportation cost during the year 1983-84 to the tune of Rs. 1,80,711.73 p as verified from the books of accounts maintained by the appellants, the total clearance value of the aerated waters of the appellants during 1983-84 worked out to Rs. 24,78,362.77 p which again is far above the ceiling limit of Rs. 15 lakhs.
2.4 It was also alleged that the appellants have collected an amount in the form of transportation and handling charges higher than the actual amounts paid by them in respect of those two heads and thus have mis-declared the value of clearances leading to evasion of duty. Accordingly, the show cause notice (which was corrected by a corrigendum, dated 27-12-1985 asking the appellants to show cause to the Collector) demanded duty of Rs. 2,72,540.45 p for the year 1983-84 and Rs. 2,48,666.27 for the year 1984-85 inasmuch as the clearances of the appellants during the previous financial years had exceeded Rs. 15 lakhs and therefore, they were not entitled to exemption Notification No. 148/82 in the succeeding financial years 1983-84 and 1984-85.
2.5 The adjudicating authority, namely Collector of Customs and Central Excise, Goa after due adjudication, confirmed the demand. He has also imposed a penalty of Rs. 1,04,000/- on the appellants under Rule 173Q.
3. Similarly, in the other appeal No. E/766/88-D the Additional Collector of Central Excise, Goa, has demanded a duty of Rs. 85,606.20 p on clearances effected during the period 1-9-1985 to 31-12-1985 inasmuch as the value of clearances exceeded Rs. 15 lakhs during the financial year 1984-85. A personal penalty of Rs. 17000/- has also been imposed on the appellants. It is noticed from the Addl. Collector's order that she has followed the reasonings adopted by the Collector of Customs and Central Excise, Goa, which is the subject matter of appeal No. E/707/88-D. Therefore, we shall discuss the reasonings given by the Collector of Customs and Central Excise, Goa, in the impugned order No. 6/C/Goa/88 dated 5-4-1988 (despatched on 7-4-1988).
4. While we have set out above the department's case in respect of its allegations against the appellants, the appellants, on the other hand, contend that their declarations regarding value of clearances in various financial years is correct, according to law and facts. They also assert that the issues raised in the present appeals had also been the subject matter of scrutiny by the Asstt. Collector in the show cause notice, dated 25-2-1983 issued by the Superintendent of Central Excise, Panaji. In the said show cause notice the department had examined 'the exclusion of transportation and handling charges' and it was alleged therein that as to why the said charges recovered by the appellants on a uniform basis irrespective of the destination of place of delivery as such should not be treated as equalised freight and therefore, included in the value of the goods for the purpose of assessment. This show cause notice was dropped as per the Asstt. Collector's order dated 6-8-1983 which is reproduced below :-
"Sub:- Reply to Show Cause Notice dated 25-2-1983.
...
Please refer to your letter No. RD/CE/19/333 dated 19-3-1983 on the above subject.
After going through the records of the case, your reply to the show cause notice and the submissions made by your representative at the time of personal hearing, it is considered that the transport and handling charges recovered by you which include not only the transport cost of excisable goods to the dealers but also the return freight and handling such as loading and unloading of empty crates and bottles from the customers end to the factory, do not form part of the assessable value of excisable goods which is nothing but equalised freight and these charges cannot therefore, be included in the assessable value. In view of this Show Cause Notice dated 25-2-1983 is hereby withdrawn and the price list dated 19-10-1982 has been approved."
Accordingly, it has been urged by the appellants as a preliminary ground (taken in their misc. application No. 599/90-D received in the Registry on 7th August, 1990 and allowed by the Tribunal vide its Order No. M-247/90-D, dated 1-10-1990 - para 2 thereof) that in view of the said order dated 6-8-1983 passed by the Assistant Collector, the impugned order amounts to review under Section 35E of the Central Excises and Salt Act, 1944 and therefore, the show cause notice dated 16-7-1985 (as corrected by corrigendum dated 27-12-1985) is beyond the limitation of one year prescribed in that Section 35E and it does not follow the procedure laid down in that Section. The Collector was not competent to take the review and decide the matter on his own. He could at best direct the Asstt. Collector to make an application to the concerned Collector of Central Excise (Appeals) under the provisions of that Section 35E which could then be decided by the said Collector (Appeals) as an appeal before him.
4.1 Apart from the above preliminary ground, the learned Chartered Accountant, Shri VA. Naik, has urged that the details of break-up of the gross turnover as well as the admissible deductions in respect of the financial year 1983-84 are as follows:-
1983-84
1) Total sales Rs. 27,73,655.60
2) (Minus) Sales tax 1,58,931.80 Surcharge
3) (Minus) Central Excise duty 85,536.10
----------------
25,13,295.10
4) (Minus) Maintenance, repairs and depreciation of one
vehicle belonging to M/s. Real Drinks Pvt. Ltd. and
Salary of two drivers. 1,78,222.03
----------------
23,35,073.07
5) (Minus) Replacement of bottles and replace 2,43,852.00
ment/repair of crates
----------------
20,91,221.07
6) (Minus) Delivery charges 1,41,113.52
----------------
19,50,107.55
7) (Minus) Transportation charges payable to other 8,31,834.00
agencies for transportation of 112,400 crates @
Rs. 7.40 per crate
----------------
Value of clearances Rs. 11,18,263.55
In other words, the appellants are claiming deductions from their total sales in respect of the following heads :-
i) Sales tax and surcharge on Sales Tax
ii) Central Excise duty
iii) Maintenance, repair and depreciation of vehicles, salaries of drivers.
iv) Replacement of bottles and Replacement/Repair of crates
v) Delivery charges
vi) Transportation charges payable to other agencies for transportation.
The adjudic ating authority, namely the Collector, has allowed deduction towards the first three heads mentioned above. Dispute, therefore, is in respect of the remaining three heads i.e. S. No. 4 to S. No. 6 above. Deductions towards these heads are discussed seriatim below:-
(i) Replacement of bottles and Replacement/Repair of Crates The adjudicating authority has found that the appellants only sell its product soda and sweetened drinks in bottles and crates which are durable and of returnable nature. What is sold by the appellants is aerated waters and does not include the cost of bottles and crates being of durable and returnable nature. He also observes that this is evident from the price list filed by the appellants wherein they have not shown any cost of packing forming the part of the sale price of the aerated waters, even though a specific column is provided in the price list to claim such deduction from sale price if included. The very fact that the company did not show any cost of packing in the price list, according to the adjudicating authority, it means that their sale price is exclusive of cost of packing. It has also been observed by the adjudicating authority that returnable containers of durable nature involving relatively a heavy investment are treated as assets in accounting rather than as an input in the nature of a direct material for manufacture of their final product. He has, therefore, held that the amount invested in the assets cannot be deducted from the sales value to arrive at the assessable value under Section 4 of the Act. He further observes that the investment made in the purchase of new bottles/crates etc. has nothing to do with the sale value of the aerated waters. Further, whenever such returnable containers of durable nature are provided by the manufacturers, the incidental charges in respect of the same namely, depreciation, maintenance, repair and other services rendered in relation thereto are recovered from the purchaser. In terms of cost accounting theory and practice, holds the Collector, the maintenance, repair and service charges collected by the manufacturers from the buyer in respect of returnable containers do form part of manufacturing cost of the product as distinct from the value of the asset and moreover since the cost of packing is not included in the sale price of aerated water. On the basis of above reasons, the Collector has held that the appellants cannot be allowed any deduction under this head in terms of the provisions of Section 4(4)(d)(i) of the Act for determining the assessable value.
The appellants' learned representative, on the other hand, has urged that the cost of replacement of broken bottles and repair of crates forms a perpetual expenditure directly connected with the transportation of goods. He urges that they had claimed these deductions as transportation cost from the price list and the said price list clearly shows 'transportation, handling etc. EXTRA' in col. 13 of the price list. These deductions, therefore, could not be claimed under the heading 'packing material' simultaneously. It is also not correct, according to the learned representative that separate recovery in respect of the incidental charges towards maintenance of durable and returnable containers is made by the appellants. The department has not furnished any evidence to that effect. For the proposition that these expenses are allowed to be deducted from the overall sale price of the goods, the learned representative relies on the Tribunal's decision in the case of CCE v. Century Spinning and Manufacturing Co. Ltd. [1988 (37) ELT 277 (Tribunal)] which has held as follows :-
"2. On careful consideration, we find no merit in the department's appeal. Once the department accepts that the containers in the present case were durable and returnable and, for that reason, their cost was deductible from the assessable value, the cost has to be full cost of packing which should take in not only the initial purchase price of the container but also the further expenses on its maintenance and repairs. We find it admitted in the department's own show cause notice dated 2-11-1983, impugned in the present proceedings, that 'maintenance and service charges are cost of packing'. The department cannot, therefore, reasonably plead that only a part of the cost of packing of durable and returnable containers should be deducted and not their full cost. All that the department can insist on is that in the guise of cost of packing a part of the real value of the goods should not be kept out of the assessment, by inflating the cost of packing. We find nothing in the record to suggest that the cost of packing was inflated by the respondents."
We have carefully considered the pleas advanced on both sides. In view of the Tribunal's decision relied upon by the appellants in the case of Century Spg. & Mfg. Co. Ltd., mentioned supra, the cost towards maintenance and repair of durable and returnable containers is to be permitted and we hold accordingly. There is no allegation that the appellants had been collecting any extra price in the guise of such maintenance and repairs and therefore, there is no reason as to why the deduction claimed by them should not be allowed. It is a different matter that the appellants in their understanding of the nature of cost included the aforesaid cost under the heading of transportation but it is not disputed that the real nature of the cost is towards the cost of durable and returnable containers. Therefore, if a deduction is permissible to them under the law on the basis of the real nature of the cost, there is no reason why it should not be permitted. We, therefore, hold that the deduction towards replacement of bottles and replacement/repair of crates is a permissible deduction.
(ii) Delivery charges In respect of the appellants' claim for deduction of these charges, appellant-Collector has held that if the appellants were of the opinion that the same were deductible they could have claimed deduction of the same from the final price. Since the prices are for destination i.e. at the place of delivery which obviously is inclusive of al expenses incurred till date of sale, in the absence of any deduction claimed by the appellants, no deduction can be allowed at this stage, according to the adjudicating authority. He further finds that there is nothing on record to show that the appellants have actually incurred any expenses under the heading 'delivery charges' because there is no such heading of account available in the balance-sheet of the company for the year 1983-84. In rebuttal of these findings of the Collector, the appellants' learned representative urges that the price list clearly shows that 'transportation, handling etc. EXTRA'. The 'delivery charges' mentioned above are merely handling charges incurred outside the factory gate. These expenses form part of the transportation expenses and deductions for which have been claimed in col. 13 of the price list, as mentioned above. It is also incorrect that these expenses are not shown in the balance-sheet. They are shown in the accounts under the head 'contract labour charges'. For the proposition that 'delivery charges' form part of the transportation cost, the learned Chartered Accountant relies on Supreme Court's decision in the case of Indian Oxygen Ltd. v. CCE [1988 (36) ELT 723 (SC)] and Tribunal's decision in the case of Govind Poy Oxygen Ltd. [1987 (34) ELT 725 (Tribunal)]. These delivery charges which fall under the heading 'contract labour charges' are for the delivery of bottles and crates from the halting place of the vehicle at the station of destination to the place of the customer/retailer and paid to the labour for moving the bottles and crates from the vehicle to the shop of the retailer or dealer and bringing back the empty bottles and crates. There is no doubt that on a plain reading these form part of the transportation cost in so far as the delivery of bottles and crates of aerated waters is concerned. In so far as the charges paid towards collection of empty bottles and crates from the shop of the customer to the vehicles is concerned, no question of levying of any duty on such charges arises because these do not form part of the activity of manufacturing and selling of the aerated waters, at the first point of sale. Supreme Court's decision mentioned is also of some guidance in this respect when it holds that "it is clear from Section 4 that the delivery and collection charges have nothing to do with the manufacture as they are for delivery of the filled cylinders and collection of the empty cylinders. These charges have to be excluded from the assessable value" [Para 5 of the Report]. Hence deduction under this heading is also allowed, as claimed by the appellants.
(iii) Transportation charges payable to other agencies for transportation The appellants have produced zerox copies of the debit note vide letter, dated 29-7-1986 raised by the other transport agencies namely M/s. Real Agency & Wine Mart, M/s. Real House Distillery Pvt. Ltd. & M/s. Agencies Real Trading and Pvt. Ltd. to support their claim towards this deduction. The details of the supplies made by the vehicles engaged by the outside transport agencies were placed before the Collector in their reply to the show cause notice. The Collector has held that the debit notes are dated 20th April, 1985 while they pertained to the period 1983-84, 1984-85. Therefore, he has discarded these debit notes as an afterthought. He has further held that the appellants did not produce any evidence that any expenses were incurred by them towards carrying the excisable goods namely, aerated waters for payment to the other transport agencies. The appellants, on the other hand, contend that it is an admitted fact that the goods in question were carried by vehicles belonging to other companies as is evident by correlating the vehicle numbers with the gate passes. Copies of these gate passes were submitted to the Central Excise authorities at the end of each month alongwith the R.T. 12 returns. Ownership of these vehicles by the other agencies has also not been doubted by the other department. It is urged that it is unthinkable that the vehicles of other agencies would carry lakh of crates of aerated water bottles without any cost. Merely because the debit notes were raised subsequently, it does not mean that the expenses towards the cost of transportation was not incurred by the appellants. The moment the other transport agencies carry the excisable goods of the appellants, the transportation charges became payable by the appellants. Deduction towards cost of transportation under Section 4(2) of the CESA, 1944 does not depend upon the actual payment in the same financial year. They have further submitted that on the basis of the evidence produced before the learned Commissioner of Income Tax (Appeals) transportation charges have been admitted as actual expenses. In this respect a copy of the order ITA No. 125/PNJ/87-88, dated 18-3-1988 as has been passed by the Commissioner of Income Tax (Appeals), Belgaum has been produced by the appellants. In this respect they have drawn attention to para 3 of the order of the Commissioner of Income Tax (Appeals) which is reproduced below :--
"3. The facts of the case have been considered. Till the year the transport was by other transporters. In this year the transport was by the two sister concerns. The question of hiring the vehicles by the appellant and giving the vehicles by the sister concerns on hire to the appellant were all supported by resolutions of the Board of Directors. In the case of the appellant the resolution was on 8-1-1982. The resolution was pssed on 23-2-1982 in M/s. Agencies Real Trading and Marketing Pvt. Ltd. The resolution was passed on 3-3-1982 in M/s. Real House Distillery Pvt. Ltd. The fact that the sale price includes the transportation charges is evidenced by the fact that the sales disclosed are more this year. The fact that the bottles and crates were transported by the sister concerns during the year is also evidenced by gate passes specifying the vehicle numbers. Further, the transportation charges claimed as payable to sister concerns is most reasonable considering the transportation charges collected by the transporter in the earlier year. In view of these facts it has to be held that the appellant had actually incurred the transportation charges and entitled to the deduction. The appellant gets a relief of Rs. 10,08,595/-".
The appellants have also relied upon a judgment of Supreme Court in the case of Kedar Nath Jute Mfg. Co. Ltd. v. Commissioner of Income Tax, Calcutta [AIR 1971 SC 2145] which holds as follows:-
"The fact that the assessee failed to debit the liability to sales tax in his books of accounts will not debar him from claiming the same as deduction under Section 10(1) or under Section 10(2)(xv). Whether the assessee is entitled to a particular deduction or not will depend on the provisions of law relating thereto and not on the view which the assessee might take of his rights nor can the existence or absence of entries in the books of account be decisive or conclusive in the matter. Under the provisions of the Sales Tax Statutes, the liability to pay the tax is not dependent upon assessment or demand but is an obligation to pay the tax. [Paras 6 and 8]."
We have carefully considered the pleas advanced from both sides for deduction under this head. We are of the view that the finding of an afterthought by the adjudicating authority in regard to debit notes of 30th April, 1985 is perfunctory. The fact that the goods were transported by different vehicles cannot be denied on the basis of the gate passes. In fact this point was specifically taken before the Collector by the appellants and all the details were furnished before him. Merely because the payment towards the cost of transportation has been made in subsequent financial years it does not mean that the liability of cost of transportation has not been incurred by the appellants during the relevant financial year. Section 4(2) makes it mandatory that 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 removal to the place of delivery shall be excluded from such price. Liability of incurring the cost of transportation is undertaken the moment the goods are transported. Payment towards the cost of transportation is merely a fact corroborating the liability towards the cost of transportation. Debit notes though of a later date, corroborate the payment or discharge of the liability incurred by the appellants towards the cost of transportation. A reliance on the Supreme Court's judgment in the case of Kedar Nath Jute Mfg. Co. Ltd. mentioned supra makes the position clear beyond the doubt even though the case relates to the Income Tax Act. There is, therefore, no doubt that deduction under this heading is also per-missble to the appellants.
5. In view of the above findings on the merits of the case clearances of the appellants would not exceed the stipulated limit of Rs. 15 lakhs in the financial years 1982-83, 1983-84 and 1984-85. Accordingly, they would be entitled to the benefit of Notification No. 142/82, dated 22-4-1982. Once the appeals are allowed on merits, it is not necessary for us to go in detail into the question whether the demands are barred by time or any other question. Hence, both the appeals are allowed with consequential relief to the appellants.