Custom, Excise & Service Tax Tribunal
M/S Gujarat Borosil Ltd vs Commissioner Of C.Ex. & S.Tax on 28 July, 2017
In The Customs, Excise & Service Tax Appellate Tribunal West Zonal Bench At Ahmedabad Appeal No.E/1075/2005, E/9/2007 [Arising out of OIO No.27/MP/2004, dt.30.12.2004 and OIO No.6-8/DEM/2006, dt.27.08.2006, passed by Commissioner (Appeals), C.Ex. & S.Tax, Surat-II] M/s Gujarat Borosil Ltd Appellant Vs Commissioner of C.Ex. & S.Tax, Surat-II Respondent
Represented by:
For Appellant: Shri V. Sridharan, Sr.Adv., Shri Anand Nainawati, Adv.
For Respondent: Shri Sameer Chitkara, A.R. (Addl. Commissioner) CORAM:
HONBLE DR. D.M. MISRA, MEMBER (JUDICIAL) HONBLE MR. RAJU, MEMBER (TECHNICAL) Date of Hearing:30.03.2017 Date of Decision:28.07.2017 Final Order No.A/11490 11491/2017, dt. 28.7.2017 Per: Dr. D.M. Misra These two appeals have been filed against the aforesaid Orders-in-Original, earlier decided by this Tribunal vide Order No.A/1624 1626/2007-WZB/AHD dated 10.7.2007. The Tribunal after analyzing the facts and evidences on record observed as follows:
7.1 We have? carefully considered the rival submissions. The appellant company has been collecting certain amounts in the name of transportation charges. Is it freight? Is it transit insurance? Is it on account of any other activity? The purpose for which the transportation cost has been collected is not apparent from the nomenclature used by them.
7.2 The? investigation by DGCEI brought out the facts behind such collection. The statement of Shri Ashok Jain confirms that said 7% is not freight, it is not an actual insurance premium paid to the insurance company, it is not even equalized insurance premium paid by the company. In fact, they are paying very meagre amount of premium to the insurance company which is in the range of Rs. 11 to 16 lakhs in a year. What they have called as transit insurance is a sum collected by them towards reimbursement of breakage in respect of various customers. Is this collection by the appellant towards insurance charges as claimed by them? The appellant is not empowered or authorized to act as an insurance company. What is collected by them at 7% is by no stretch of imagination can be treated as insurance charges.
7.3 Anybody including a manufacturer can act as transporter, as no special permission is required to act as a transporter. In such cases, if freight is collected for transportation at the option of the buyer, and collected from the buyer, such freight is excludable from assessable value. The case laws cited on behalf of the appellants support their case, that such extra money collected towards freight may not be included in the assessable value. The amount collected at fixed percentage towards reimbursement of expenses that may be incurred due to possible; breakage is not an admissible deduction as held by the Honble Supreme Court in the case of Surya Roshni cited supra.
7.4 In the present? case, the amount, which is collected as insurance charges by the appellant company cannot be treated as insurance charges at all. If, there is a reimbursement for the possible breakage, it should have been claimed as such giving the option to the department to examine their claim.
7.5 The claim that? the dealers would have option, appears to be illusory, the amount recovered during the period Feb, 1999 to Sept, 2003, works out to 7% of the sale value. It is not clear as to when the general agreement on sale was entered into.
7.6 The demand? relating to the period October 2003 to 2004 has been raised after the appellant periodically furnished details of insurance premium actually paid by them to the insurance company.
7.7 The claim that? the issue of insurance charges was raised by the Department in 1994 and has been decided in 1995 and therefore extended period cannot involved is not acceptable in-as-much as the Asstt. Commissioners order permits only amounts actually paid towards insurance as deduction.
The conclusion of this Tribunal at Para 8 is as follows:
8.?The following emerges:
(a) Order of the AC issued in 1995 permits deduction of only actual amount of premium or insurance charges incurred by the appellant.
(b) The amount collected at the fixed rate of 7% under the heading transportation cost is only towards reimbursement of expenses on breakages and not towards insurance charges.
(c) Admittedly no insurance is available from the insurance company in respect of breakages and the appellant is not an authorized insurer.
(d) The collection of 7% does not appear to be optional.
2. Aggrieved by the said order, an appeal was filed before the Honble Supreme Court by the Appellant. The Honble Supreme Court remanded the matter to this Tribunal observing as follows:
In that view of the matter the proper course of action would be to remit the case back to the CESTAT for fresh consideration and it would be open to the appellant-assessee to point out those invoices which are, according to the appellant, available on record.
The impugned order is, accordingly, set aside and the matter is remitted back to the CESTAT for decision on all the issues.
The appeals are disposed of accordingly. Consequently, these appeals are taken up together for disposal.
3. The ld. Senior Advocate, Shri V.Sridharan for the appellants submits that the appellants, inter alia, are engaged in the manufacture of Sheet glass of various thickness, falling under Chapter Sub-Heading No.70.02 of the CETA,1985. The manufactured goods during the relevant period had been sold at different ex-factory prices to dealers, situated in different zones of the entire country, depending upon the factors, like sales tax, local levies, competition in particular area etc. He further submits that General Terms of sale between the appellants and the dealers, inter alia, provides that the price of the goods be ex-factory and the dealers are free to arrange their own transportation for delivery of the goods from the factory to their premises. In the event, the dealers opt to get the goods delivered at their premises by the Appellant, the cost of transportation to be paid by the dealers which includes 7% of the price, as transit insurance charges for safe delivery of the manufactured goods, free from breakage in transit. In the event, there was loss due to breakage of sheet glass during transit, then the dealers could claim for such breakage and the amount of loss was to be refunded to dealer, through credit note. It is his contention that the appellants are charging a flat rate of 7% of the invoice value, which was nothing but transit insurance under the head transportation of cost. This charge was nothing but safe transport (breakage free delivery of the sheet glass) till the dealers premises.
4. He has further submitted that such cost of transportation is not included in the assessable value but shown separately in the invoice. He has submitted that the issue of charging duty on the said insurance charges by adding to the assessable value is settled by this Tribunal as similar proceedings initiated against them for the period from July 2006 to June, 2007 has been decided by this Tribunal vide Final Order No.A/40/2010-WZB/AHD, dated 1.12.2009 in appeal No.E/1201/2008 reported as 2010 (253) ELT 610 (Tri-Ahmd.). Further, he has submitted that the Revenues Appeal against the said judgment before the Honble Supreme Court, resulted into dismissal of the same on 19.7.2010, hence the issue reached finality. It is his contention that since the matter has been concluded in favour of the appellants, for subsequent period, therefore, the present appeals should also be allowed.
5. Further advancing his argument on merit, referring to the general terms of the sales dated 17.6.99 between the 54Appellant and the dealers, he submitted that it is the option of the buyers whether to arrange their own transportation or to pay separate charges for delivery in addition to the ex-factory price, to get the goods delivered at their premises; but the condition of sale has always been ex-factory. In support of the said contention reference is made by him to the letters issued by the dealers in favour of the appellants, annexed to the Appeal paper book. Further, he has submitted that the transit insurance charges collected by them was at the option of the buyers who chose for delivery at their premises and above the price of the goods, hence, cannot be included in the assessable value, as once the price is available at the factory that should be the sole basis for determination of the assessable value under the provisions of Section 4(1)(a) of C.E.A., 1944, both prior to and after the amendment brought with effect from 1.7.2000. It is his contention that their basic price does not vary depending upon the factor whether the appellant arrange transportation & insurance for the buyer or other wise. He has submitted that the cost of transportation of goods shown in the invoice consisting of freight charges + transit insurance; the transit insurance is collected @ 7% of the price; the freight is collected by equalized rate on the total quantity in Sq. Mtr. supplied by the appellants.
6. Further, he has submitted that since transit risk insurance is part of cost of the transportation, hence it cannot form part of the transaction value, in view of the provisions contained in Section 4(2) of C.E.A., 1944. He submits that Section 4(2) of C.E.A., 1944 is a residuary section and applies only to such cases, where the price of the goods at the place of removal, is not known and the value thereof, is determined with reference to the price for delivery at the place other than the place of removal. Under the said Section, the cost of transportation from the place of removal to the place of delivery, will be deductible provided the assessable value, is not known at the factory gate but has to be determined with reference to another place. It is his contention that in the present case since the ex-factory price is available, therefore, there was no necessity for them to claim deduction under Section 4(2) of the Act.
7. Further, he has submitted that the activity of insurance for the goods sold is a post removal of activity and hence, the amount collected by the appellants on which demand is raised forms part of the transportation cost and not sale, therefore, not included in the value. Even if the appellants earn some profit, on such transportation activity, the same is also not includible in the assessable value. He has submitted that said issue is settled by the decision of the Honble Supreme Court in the case of (a) Escorts JCB Ltd. vs. C.C.E. 2002 (146) ELT 31 (sc); (b) C.C.E. vs. Accurate Meters Limited -2009 (235) ELT 581 (SC); and (c) C.C.E. vs. Indian Oxygen Ltd. 1988 (36) ELT 730 (SC).
8. The ld. Senior Advocate further referring to the provision of Section 23(1) and 23(2) of the Sale of Goods Act and the delivery as defined under Section 2(2) of the said Act submitted that delivery of the goods to the carrier for transmission to the buyers amounts to delivery of the goods to the buyers. Therefore, once the goods are delivered to the transporter, the property of the goods is passed on from the appellants to the buyer at the factory gate and sale is completed at the factory gate; possession is transferred to the buyer from the appellants and the delivery is complete. It is his contention that lorry receipts are given to the transporter when the goods are delivered to the transporter for transmission to the buyer and the lorry receipts are made in the name of the buyer. Therefore, it cannot form part of transaction value of the goods.
9. Distinguishing the judgment of the Honble Supreme Court in C.C.E. v. Surya Roshni 2000 (122) ELT 3 (SC), the ld. Senior Advocate submitted that in the said case, the assessee was seeking deduction towards insurance charge in order to arrive at the assessable value for the purpose of payment of excise duty which was disallowed by the Honble Supreme Court, whereas, in the present case, the appellant had not claimed deduction of any amount from the sales price towards the insurance. It is the Revenue which is seeking to add the element of transit insurance to the sale price of the goods for the purpose of excise duty. It is his contention that the principle laid down by the Tribunal in Triveni Glass Ltd. 2004 (178) ELT (268) is squarely applicable to the present circumstances of the case.
10. In relation to other discounts, the ld. Senior Advocate for the appellant has submitted that even though the eligibility of discount in principle has not been disputed by the Department, however, the quantum of credit passed by them is in dispute. It is his contention that the total discount claimed by them was Rs.21,60,72,896/- whereas the actual discount passed on by them to their buyer was much more Rs.23,23,77,024/-. Hence, the total discount passed on was more than the deduction claimed by them. Accordingly, the demand on this count is bad in law. Ld. Senior Advocate has further submitted that the differential duty demanded in the show cause notice dated 26.2.2004 invoking extended period of limitation is unsustainable as the collection of 7% of the price towards transit insurance from the dealers has always been with the knowledge of the Department and proceedings were in fact initiated way back in 1995. Also, even after amendment of Section 4 of CEA, 1944, the appellant through letter 31.7.2000 informed the Department on the method of computing the transaction value. Letters were submitted with the Department from time to time furnishing information on expenses towards transit insurance and the amount collected towards this element supported by Chartered Accountant certificate. In support, he has referred to the judgment of the Honble Supreme Court in the case of Pushpam Pharmaceuticals Co vs. C.C.E. 1995 (78) ELT 401 (SC); P & B Pharmaceuticals Ltd. vs. C.C.E. 2000 (153) ELT 14 (SC); Nizam Sugar Factory v. C.C.E. 2006 (197) ELT 465 (SC) and ECE Inds. Ltd. vs. C.C.E. 2004 (164) ELT 236 (SC).
11. Per contra, ld. A.R. Shri Sameer Chitkara for the Revenue has submitted that the appellants were evading central excise duty by way of deliberate undervaluation of finished goods as before delivering the goods they were not adding 7% breakage charges to the assessable value collected in the name of insurance charges under the head of Cost of Transportation. He has submitted that 7% collected from their customers towards compensation for breakage charges is squarely covered by the decision of the Honble Supreme Court in the case of C.C.E. vs. Surya Roshni 2000 (122) ELT 3 (SC) whereunder their Lordship after referring to the earlier judgment of the Supreme Court in the case of Assistant Collector of Central Excise and others vs. Madras Rubber Factory Ltd. and others - 1987 (27) ELT 553 (SC) and Government of India vs. Madras Rubber Factory Ltd. - 1995 (77) ELT 433 (SC) arrived at the conclusion that the payment by the respondents to its customers towards breakages and losses cannot tantamount to insurance, hence not deductible from the value. He has submitted that reliance placed by the appellants on the judgment of the Honble Supreme Court in the case of Escorts JCB Ltd. vs. C.C.E. (supra); (b) C.C.E. vs. Accurate Meters Limited (supra) is misplaced as the issue involved in both the cases are different from the present one. In the present case, the appellants were collecting additional extra consideration under the head Cost of Transportation from the buyers @ 7% of the price of the finished goods as insurance charges which to compensate the buyers on account of breakage of the finished goods during the course of transportation from the factory gate to the buyers premises. Therefore, the ratios laid down in Escorts JCB Ltd.s case and Accurate Meters Limiteds case are not applicable to the facts of the present case. It is his further contention that the principle laid down in Triveni Glass Ltds case is in different set of facts and hence not applicable to facts of the present case. Citing an example, the ld. A.R. for the Revenue has submitted that Invoice No.AB 3769 dated 29.12.2004 under the head Cost of Transportation, the total amount shown as Rs.37,818/- from which the total amount towards cost of freight incurred was Rs.18,730/- and hence difference in freight amount is Rs.19,088/- towards compensation of breakage during transit. Hence the same is includible in the assessable value. Further, the ld. A.R. for the Revenue has submitted that dismissal of the Revenues appeal by the Honble Supreme Court against the Tribunals order dated 1.12.2009 has no precedentiary value as the Civil Appeal was dismissed at the preliminary stage itself in view of principle of law laid down by the Supreme Court in the case of C.C.E., Ahmedabad vs. Ramesh Food Products 2004 (174) ELT 310 (SC) and in the case of Sun Export Corporation vs. C.C., Bombay 1997 (93) ELT 641 (SC). Hence, the judgment of this Tribunal dated 01.12.2009 does not have precedentiary value and should not be followed. Besides, in the said judgment this Tribunal has not laid down a different principle than the earlier judgment. Further, the ld. A.R. for the Revenue has submitted that collection of these charges from their customers have not been disclosed to the Department and hence, invoking the extended period of limitation raised in the show cause notice dated 26.2.2004 in relation to Appeal No.E/1075/2005 is justified.
12. Heard both sides and perused the records. The principal issue needs to be determined is: whether the amount equal to 7% of the value of the goods, collected as insurance charge under the head Cost of Transportation from the dealers/buyers is includible in the assessable value and chargeable to duty.
13. Undisputedly the Appellants during the relevant period i.e. from 01.02.1999 to 30.06.2005 collected separately, in the respective invoices an amount as cost of Transportation which comprises of, freight charges averaged+ premium paid to the Insurance company towards transit insurance+ 7% of the value, also as Insurance charges for breakage free delivery, and the buyer is compensated for breakages of sheet glass during transit. The cost of Transportation is shown separately in the invoice and not claimed as deduction. The dispute centers around inclusion/addition of the said 7% to the assessable value of the goods. The Appellant claims that it is not includible in the value being post removal expenses viz. transportation, whereas, revenue claims it as breakage allowance/compensation, hence, part of the value of the goods.
14. This Tribunal has decided the aforesaid issue in its order dated 10.7.2007 which was challenged before the Supreme Court. It is argued by the ld. Sr. Advocate for the appellants that during the pendency of the appeal against the said order before the Honble Supreme Court, this Tribunal, for subsequent period vide order dated 01.12.2009 decided the issue in favour of the appellants, and on Appeal, it has been upheld by Honble Supreme Court by dismissing the Appeal of the Revenue against the said Order. Thus, the issue has attained finality and the present Appeals be disposed of accordingly.
15. Precisely, the contention is that there has been two different findings on the same issue and later one is in favour of the Appellant, hence to be followed. Before proceeding further, it is necessary to refer to the observation of this Tribunal in the Order dt.01.12.2009. This Tribunal at para 10 of the judgement, dealing with the earlier judgement, recorded as follows:
10. We would like to make it clear at the cost of repetition that this conclusion has been reached only because the Department has not been able to show that the same conclusions which were reached earlier by the Tribunal on the basis of facts are applicable to the present case also. We are not disagreeing with the principles of the law as pronounced by the Tribunal in case of the appellant for the earlier period.
16. From the above observation it is clear that as the Department could not able to show that the facts involved in the earlier case also same in the subsequent case, therefore, without disagreeing with the principle of law laid down in the earlier judgment, the appeal was allowed. Needless to emphasize, in the order dated 01.12.2009, the Tribunal concurred with the principles of law laid down on the includibility of said charges in the value of the glass sheets. The appellants argued before the Honble Supreme Court in their appeal against the order dated 10.7.2007 that the Tribunal has not examined all the facts i.e agreement, invoices etc. before arriving at the conclusion on the issue, resulting into remand of the case by the Honble Supreme Court to consider the facts keeping all issues open. Therefore, in our opinion, the argument of the Appellant that the issue is settled by the judgment dt.01.12.2009 and hence to be followed, is devoid of merit in view of the above finding of the Tribunal and also from the fact that the Honble supreme Court instead of confirming/upholding the Appellants argument on the issue, following its earlier Order dismissing the Revenues Appeal, remanded it to the Tribunal for reconsideration of all issues afresh.
17. To analyze the issues on merit, it is necessary to glean into the conditions of Sale submitted by the Appellant. The General Terms of Sale dated 7.6.1999 reads as follows:
GENERAL TERMS OF SALE The following are the terms and conditions of sale of Sheet Glass Manufactured by Gujarat Borosil Ltd., Govali (GBL) (1) The prices of each variety of sheet glass as declared from time to time shall be on the bases of delivery of goods Ex-works at the factory gate; at Village Govali, District Bharuch.
(a) The aforesaid prices are inclusive of ordinary packing. i.e. naked glass interleaved with paper or with special powder and a block of glass bound with strapping and-or with polythene covering. Such sheets are transported in steel racks belonging to GBL.
(b) The price does not include freight, special packing charges, insurance etc.
(c) The buyer shall be responsible to take delivery of the sheet glass at the factory gate and to arrange for transportation, transit insurance, etc.
(d) The buyer shall be responsible for the goods after they are delivered at the factory gate to the buyer and the risk in the goods will be of the buyer from the time GBL hands over the goods to the buyer or buyers representative or the transporter/carrier appointed by the buyer or buyers representative.
(2) In case the buyer desires GBL to arrange fro transportation of sheet glass by trucks/tempos beyond the factory gate, and desires GBL to bear the risk of breakage and/or non-delivery of goods in transit due to any reason whatsoever, GBL will do so but then, the buyer shall have to pay the cost of transportation to GBL as shown separately in the invoice.
(a) In such cases, the cost of transportation will include:
(i) Special Packing charges - to minimise the risk of breakages in transit. The charge per square meter will be advised to the buyer from time to time.
(ii) Laffa charges for jam packing the boxes in the truck to make the entire consignment into one mass.
(iii) Transit risk insurance If the buyer desires such risk to be covered by GBL, he will have to pay insurance charges, which are presently charged at 7% of the total invoice value inclusive of the cost of sheet glass, special packing charges, laffa charges, excise duty and truck freight to destination.
(b) The price of the goods inclusive of the above cost of Transportation amount, comprising of special packing, truck freight, transit insurance etc., will also become due simultaneously along with the price of the goods once they leave the factory gate.
(3) It will always be understood that the property in the goods shall be deemed to be vested in the buyer the moment the goods leave the factory gate. The transporter will always be deemed to be as taking the delivery of goods as the agent of the buyer.
18. It is argued that the appellants sell the goods on ex-works basis and the buyers under Clause (1) require to take delivery of the goods at their own risk; under Clause (2) of the Agreement, in the event the buyers desire the Appellant to bear the risk of breakage or non-delivery of the goods for whatsoever reason maybe, then the buyers would be required to pay the cost of transportation. Under sub-Clause (a), it is mentioned that the cost of transportation, inter alia, to include transit risk insurance, charged at 7% of the value. In clause (3) it is mentioned that the property of the goods is deemed to be vested in the buyer when the goods leave the factory.
19. The entire dispute centers around collection of transit risk insurance which is charged at 7% of the total invoice value. The Revenues contention that it is collected to compensate the buyers when the goods are damaged/broken during transit by issuing credit notes and it is not paid as premium to Insurance companies. Thus, the compensation paid to the buyers which are not in the nature of expenses on account of premium paid for insurance to insurance companies, therefore, ought to be included/added to the assessable value for determination of duty.
20. The arguments of the ld. Advocate for the appellants on the other hand are that the since their price is ex-factory and the buyers had option to collect the goods at the factory gate; those buyers only who opt for transportation of the sheet glass from the factory to their premises, would be required to pay 7% of the value, in addition to actual average freight and insurance premium paid to the Insurance company. Therefore, it is part of the cost of transportation which broadly includes insurance, hence, cannot be added to the assessable value.
21. A simple reading of the General terms of sale reveals that the appellant though claimed that all of their sales are on ex-factory basis, but there are two category of buyers as per the said sales agreement; namely, buyers who take delivery of the goods at the factory gate and the second category of buyers who opt for delivery at their place which should be undertaken by the appellants. Even though the ld. Advocate for the appellants has claimed that in both the cases, the price is ex-factory, it is difficult to accept the said argument in view of the clear language of the General terms of sale. It is specifically mentioned thereunder that if the buyers desire, the Appellant to bear the risk of breakage and/or of non-delivery in transit due to any reason whatsoever, then they(buyers) were required to pay cost of transportation to the appellant. In the said agreement, no where it is elaborately stated that buyers would be compensated for breakage/damage to the goods on its journey from the factory to the buyers premises. Needless to mention, when the stipulation is a simple arrangement of transportation of the goods from the factory premises to the place of buyer, on behalf of the buyer, without bearing the risk of damages beyond that was provided by the insurance company by way of compensating for the loss/ breakage to the buyers during the transit, the sale could be described as ex-factory basis. But, in the present case, the appellants on receiving extra amount @7% of the total value undertook to deliver the goods breakage free, and compensate the buyer for breakages by issuing credit notes, therefore, such sale ought to be considered not a sale on ex-factory basis but on FOR basis even though the Cost Transportation is not included in the price but shown separately in the invoice. Besides, the condition stipulated in clause (3) General Terms of Sale looses its significance of the delivery of possession at the factory gate, when the Appellant compensated the buyers for loss/breakages during transit to later premises by issuing credit notes.
22. We find that the entire issue has been mis-understood and mis-interpreted by the appellant being not considered in the proper perspective, inasmuch as, there is no doubt about the principle of law settled in a catena of cases that freight and transit insurance charge for delivery of the goods from factory gate to the buyers premises cannot form part of the assessable value. This principle has been further strengthened by a recent judgment of the Honble Supreme Court in the case of CCE,Nagpur Vs. Ispat Industries Ltd. 2015 (324) ELT 67(SC). But, the question that arises in the present case is, when in addition to freight charges and the premium for transit insurance paid to the Insurance companies, the appellants collect separately 7% as compensation when the sheet glass is damaged during the course of transit, whether to form part of the assessable value of the goods or otherwise. In our opinion, the issue is squarely covered by the decision of the Honble Supreme Court in the case of Surya Roshni Ltd. (supra).
23. In Surya Roshni Ltd.s case(supra), the manufacturer of electric bulbs and tubes sold the goods on FOR destination basis. The price charged includes 2% towards transit risk insurance. The manufacturer claimed deduction, inter alia, that these insurance charges shall not include transit loss/breakage replenishing to customers. The Tribunal considering that the same as transit insurance, allowed deduction of the same from the value of the goods. On Appeal, after analyzing the principle of law, laid down in this regard, the Honble Supreme observed as follows:
4. He submitted that the cost of transit insurance was includible in the cost of transportation and in this behalf he relied upon the second MRF judgment. He submitted, in the first instance, that although the respondent had not insured with an insurance company the goods that it was transporting to its customers the effect was the same in that it was providing insurance to its customers and was charging two per cent from them. In the alternative, he submitted that if this submission was not accepted and the court was of the view that it was compensation that was being paid to the customers, it was part of the cost of the transportation of the goods.
5. We are unable to accept either submission.? In the case of transportation what is includible is the cost of taking out insurance to cover the goods transported; in other words, to cover oneself against a possible loss by paying a premium to an insurance company. The payment made by the respondent to its customers for breakages and losses cannot tantamount to insurance. Nor can, by any means, such compensation be treated as a part of the cost of transportation; it is a clear case of making up to the customer by means of a credit note the monies that it has lost on account of breakages or losses in transit.
24. The Honble Supreme Court has clearly laid down the principle as to what should include in the cost of transportation. It is observed that what is includible in the cost of transportation as transit insurance is the premium paid to an insurance company for the possible loss and not the payment made to the customers for breakages and losses which cannot tantamount to insurance. In the present case the amount is collected from the buyers to compensate the loss due to breakages, in addition to the premium paid to the insurance companies, hence, ought to form part of the value.
25. The ld. Senior Advocate made an attempt to distinguish the aforesaid judgment from the present case stating that in the said case there was claim for deduction of said insurance charges from the price, whereas in the present case, no such deduction is claimed but the Revenue has proposed to add the cost of insurance collected at 7% of the total value. Further, he has submitted that in the present case, the sale is ex-works and only at the option of the buyers that the delivery is arranged by the appellants.
26. We do not find much difference in the facts of the present case with that considered by the Honble Supreme Court in Surya Roshni Ltd.s case(supra). Analysing the sample invoices, placed before this Bench by the ld. Senior Advocate, after conclusion of hearing, for the relevant period 1999 to 2005, reveal that the appellant has shown an amount as cost of transportation separately, in their respective invoices. There is no mention about 7% of the charge as per Agreement, but on scrutiny of the said transportation cost, it is observed that part amount of the freight charge was paid in advance by the appellants and balance amount was required to be paid by the buyer on reaching destination; remaining amount shown in the cost of transportation, which they claim as 7% of the total value of the goods inclusive of cost of packing charge, freight charge etc.. Thus, in our view it is immaterial whether the deduction is claimed by including the said 7% charge in the total price, or the same is shown separately, without including it in the assessable value but on merit to be added to the assessable value. The question for consideration is, whether the amount collected, for compensating the customers towards breakage of glass, during the course of transit, to be added to the assessable value, or otherwise. The Honourable Supreme Court, in Surya Roshni Ltd.s case(supra) while considering the deductibility of the insurance amount, collected other than the premium paid to the insurance company towards loss/breakage of glass during transit observed that it is only the premium amount to be excluded and not the amount collected for compensating the customers in the event the goods are damaged/lost during transit.
27. The reliance placed by the Ld. advocate, on the judgements of the Honble Supreme Court in Escort JCBs case and Accurate meters case is out of place and not applicable to the facts of the present case. In Escort JCBs case, the facts before the Honble Apex Court was to decide whether freight and transit insurance be includable in the assessable value, when the goods are delivered at the buyers premises. In that context, the Honble Supreme Court held that since price is ex-factory, the expenditure incurred, towards freight and transit insurance, cannot form part of the assessable value. Similar facts also in the case of Accurate meters case and the Tribunal in Triveni Glass case(supra).
28. It is also argued on behalf of the appellant that the excess amount collected as transit insurance cannot be added to the assessable value, in view of the principle of law laid down by the Honble Supreme Court in the case of CCE Vs. Indian oxygen Ltd 1988 (36) ELT 730(SC), Baroda Electric Meters Ltd Vs. CCE 1997 (94) ELT 13 (SC), where under it is held that the excess amount of freight collected be considered as a profit and hence not chargeable to duty. In the present case, it is not the excess amount of insurance charges collected and retained by the appellant but the amount has been collected as compensation for breakages during the course of transit by way of issuing credit notes. Therefore the said judgements are not applicable to the facts of the present case.
29. The next issue that needs to be considered is, whether the demand issued for the period from 01.02.1999 to 30.9.2004 is barred by limitation as the demand notice was issued on 26.2.2004. It is the contention of the Ld. Advocate is that the issue of inclusion or otherwise the insurance charges at the rate of 8% of the Price was placed through the letter dated 28.05.1994. A show cause notice was issued to them proposing demand of duty on Special packing and transit insurance. Thereafter two notices were issued to the appellant. The notices were adjudicated on 30.8.1995 allowing deduction on transit insurance on actual basis after verification by the Range Superintendent. After introduction of the new valuation provision, the appellant, informed through letter dated 31.7.2000 the method of computation of transaction value. Further, he has submitted that through their letters dated the 21.2.97, 11.11.98, 6.10.99 and 20.2.2001 there have submitted to the Department showing the deductions towards freight, octroi, breakage insurance, which were supported by chartered accountants certificate.
30. From the above facts it is clear that the appellant had initially claimed 8% of the Price being insurance charges, not part of the assessable value, but the Asst. Commissioner restricted the claim to the extent of actual expenses, while finalizing the provisional assessment and confirming the demands for differential duty short paid. The said practice of assessment followed for subsequent years on the basis of statements filed by the appellant showing the difference between the amount shown on the invoices and the actual expenditure incurred towards transit insurance. It is the contention of the Revenue that such statements were not filed during the relevant period, hence, the extended period of limitation is invokable. We do not find merit in the contention of the Revenue, in as much they do not lack the authority in directing submission of such statements to the Appellant even though the said statement was not submitted for four years. Once the facts are within the knowledge of the Department, being always in dispute, hence the allegation that they had suppressed the facts from the knowledge of the Department, cannot be acceptable in view of the principle of law laid down by the Honble Supreme Court in the case of Pushpam Pharamceuticals Co. Vs. CCE 1995 (78) ELT 401(SC) and P & B Pharmaceuticals (P) Ltd. Vs. CCE 2003 (153) ELT 14(SC). In view of above, demand in the show cause notice dated 26.2.2004 be restricted to the normal period of limitation.
31. On the issue relating to the differential duty on the quantum of discount not passed to the customers, the ld. Advocate for the appellants claimed that during the said period, though they have claimed a total discount of Rs.21,60,72,896/- but in fact they have passed more discount to their buyers amounting to Rs.23,23,77,024/-hence, duty demanded on this count is unsustainable in law. Considering the categorical submission of the ld. Advocate for the appellant, it is necessary to verify these facts, hence, the matter is remanded to the adjudicating authority for determination of the said issue.
32. On the issue of imposition of penalty we are of the opinion that since the issue relates to interpretation of valuation provision and duty has been confirmed for the normal period, in our view, imposition of penalty equal to the duty under Section 11AC of CEA, 1944 is unwarranted and unjustified. In the result, the demands confirmed with interest in the both the Impugned Orders relating to recovery of 7% of the value as insurance charges for normal period is upheld; the demands confirmed on the amounts of discounts not passed on are set aside and the matter remanded to the Adjudicating authority for verification of the claim of the Appellants that during the relevant period they had passed more discounts than claimed as deduction; and penalty imposed under Sec. 11AC of CEA,1944 in both the Orders are set aside. Appeals disposed off accordingly.
(Pronounced in the court on 28.7.2017)
(Raju) (Dr. D.M. Misra)
Member (Technical) Member (Judicial)
scd/
Appeal Nos.E/1075/2005, E/9/2007
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