Customs, Excise and Gold Tribunal - Delhi
Tungbhadra Industries Ltd. vs Collector Of Central Excise on 27 March, 1992
Equivalent citations: 1992(60)ELT512(TRI-DEL)
ORDER S.V. Maruthi, Member (J)
1. These two appeals are disposed of by a common order as the appeals arose out of a common order of the Collector (Appeals).
2. The dispute relates to the allowability of certain deductions claimed by the appellants.
3. The appellants M/s Tungbhadra Industries Ltd. entered into an agreement with M/s. Indexport Ltd., a wholly owned subsidiary of Hindustan Lever Ltd., Bombay for manufacture on its behalf two brands of Soaps, namely Sunlight and Lifebuoy. Indexport issued an authorisation under Notification No. 305/77 dtd. 5-11-1977. All the materials required for manufacture of the said soaps were supplied to the appellants by Indexport and the appellants received processing charges for conversion of raw materials into finished goods at a specified rate per unit of production. In terms of the agreement entered into between the appellant and Indexport, the price at which the goods will be sold by Indexport is the basis for the determination of the assessable value for the levy of excise duty.
4. The appellants filed price lists claiming the following deductions :
1. Turnover tax;
2. Cost of special secondary packing;
3. Freight incurred in movement of finished goods from factory to wholesale dealers (on an equalised basis);
4. Handling expenses incurred in the movement of finished goods to wholesellers;
5. Remuneration to clearing and forwarding agents for search of goods in transit and other incidental services;
6. Discount for damages.
5. On 6-6-1989, a show cause notice was issued by the Asstt. Collector proposing to disallow the deductions claimed in the price list. On receipt of reply, the Asstt. Collector disallowed the deductions. On appeal, the Collector (Appeals) allowed deduction on account of freight from the factory to the depots for the wholesale trade, turnover tax after scrutiny of proof on payment of such turnover tax and since turnover tax cannot be quantified at the time of removal, the appellant, the Collector directed should pay duty on the element of turnover tax at the time of clearance and claim refund at a later date. The deduction in respect of special secondary packing and discount for damages are not allowed. As regards handling expenses and remuneration to clearing and forwarding agents, the Collector allowed them provided they are incurred outside the factory-gate.
6. The appellants have come up in appeal against the order disallowing their claim in respect of special secondary packing and discount for damages and also in respect of turnover tax to the extent that the Collector directed them to pay and claim refund and the freight from the wholesale depots to various other areas to which the supplier of the raw material sent the goods.
7. The department has come up in appeal against the order of the Collector allowing the claim of the appellants regarding the handling expenses and the remuneration paid to the clearing agents and the forwarding agents.
8. At the outset, we may make it clear that the issue is actually covered by the judgment of the Supreme Court in Ujagar Prints case 1988 (38) E.L.T 535 (SC) as the supplier of raw material is Indexport, and therefore, the price declared by the Indexport plus the profit of the appellant and the job work charges should be the assessable value. However, the appellants have not claimed assessment on the basis of the said judgment in their reply to the show cause notice though a reference is made in the grounds of appeal before this Tribunal. It is not clear why the appellants have not claimed the assessment on the basis of Ujagar Prints case. Therefore, we are considering the claims of the appellants on the basis of the price of the supplier i.e. M/s Indexport, as it is open to the assessee to claim assessment as long as it is not contrary to law and not to their disadvantage.
9. Taking up the appeal of the Department, the main contention of the appellants is that the Collector ought not to have allowed handling expenses and the remuneration payable to the clearing agents and the forwarding agents.
10. As regards the handling expenses, the claim in the reply reads as follows :
"Such handling expenses are basically in the nature of loading/unloading charges incurred in the course of transportation of the goods to the depot and from the depot to the wholesale dealers as the goods have to be transhipped from one truck to another or from wagon to a truck etc."
11. The Supreme Court in Indian Oxygen v. C.C.E. 1988 (36) E.L.T. 723 (SC) held that loading expenses incurred outside the factory gate are excludible from the assessable value. Admittedly, the handling expenses are incurred outside the factory gate and therefore, the Collector is justified in excluding the handling expenses from the assessable value.
12. The next item is the remuneration paid to the clearing agents, forwarding agents. The reply to the show cause notice stated that it is paid on account of handling, storage, despatch and other services rendered by them in the course of transportation of finished goods after removal from the factory gate till they are delivered to the wholesale dealers. Admittedly, the expense is incurred after the removal of goods from the factory gate. In U.O.I. v. Duphar Inter-Pan Ltd., 1987 (27) E.L.T. 599 (SC) the Supreme Court is of the view that extra charge incurred outside the factory gate is not includible in the assessable value. Therefore, the Collector is right in allowing these deductions. The judgment of the Supreme Court in Coromandal Fertilisers v. U.O.I. -1984 (17) E.L.T. 607 is distinguishable as it is a case of selling agents appointed under an agreement, the commission paid to the selling agents is different from the expenses incurred in paying the remuneration to the clearing agents and forwarding agents as the expense is incurred outside the factory-gate. On the facts of this case, the expenditure is incurred on duty paid goods for the purpose of loading/unloading, storage, despatch and other incidental activities. Therefore, we see no reason to interfere with the order of the Collector.
13. Accordingly, we dismiss the appeal of the department.
14. Taking up the appeal of the appellants, the items of the deduction claimed is special secondary packing and discount on damages. As regards the special secondary packing, it is now settled by the Supreme Court that the degree of packing which is necessary for putting the excisable article in the condition in which it is generally sold in the wholesale market at the factory gate is the degree of packing whose cost can be included in the value of the article for the purpose of excise levy. [Bombay Tyre International -1984 (17) E.L.T 329 (SC), Godfrey Philips - 1985 (22) E.L.T. 306 (SC), Pond's India -1988 (38) E.L.T. 351 (Tri.), Hindustan Polymer -1986 (24) E.L.T. 697 (Tri.) cases].
15. In the reply to the show cause notice, the appellants have stated that, "Soaps manufactured are first packing in a wrapper and the soap packed are thus in the state in which they are generally sold in the market. The outer special packing in the form of corrugated boxes is being provided by us to protect the finished goods from damage during the course of their transportation from the factory gate till delivery to the wholesale buyers".
16. It is true that if the corrugated boxes are only meant for safe transportation, then in view of the judgment of the Supreme Court in Godfrey Philips -1985 (22) E.L.T. 306 (SC), the cost of corrugated boxes is excludible from the assessable value. However, neither the Asstt. Collector nor the Collector considered whether the corrugated boxes are necessary for putting the soaps in the condition in which they are generally sold in the wholesale market at the factory gate or they are only meant for safe transportation. In case, the packing in corrugated boxes is necessary for putting the goods in the condition in which they are generally sold in the wholesale market at the factory gate, the cost of corrugated boxes is includible in the assessable value. We, therefore, direct the Asstt. Collector to ascertain in the light of the above observations and if he finds that the packing in the corrugated box is necessary for putting the goods in the condition in which they are generally sold in the wholesaler market at the factory gate, then he may include the same in the assessable value otherwise exclude the same.
17. The next item claimed by the appellants is discount on damages.
18. The claim in the reply reads as follows:
"Discount allowed to the wholesalers in lieu of damages suffered by the finished goods in transit is also allowable as a deduction, as the nature and quantum of availability of such discount for damages is known to the wholesale dealers at or prior to the removal of the goods for delivery to them on the basis of the terms of sales/trade practice. Such discount is also required to be deducted while arriving at the assessable value".
19. Admittedly, the appellants are giving discount for damages to the goods caused during transit. Shri Beri relied on the order on this Tribunal in Assam Valley (P) Ltd. case reported in 1989 (43) E.L.T. 360 (Tri.). According to the said order, varying discount reduction depending upon the nature and extent of damage in each case is admissible. It is also a case of damage caused to the goods during transit. Following the above order, we direct the A.C. to verify the nature and quantum of discount for damage caused to the goods in the transit and allow the same.
20. The next item of dispute is the turnover tax paid by the appellants. The Collector directed that the appellants should pay the tax and claim refund. The observation of the Collector is quite contrary to the observations of the Supreme Court in Bombay Tyre International 1984 (17) E.L.T. 329 (SC). According to the Supreme Court, turnover tax should be allowed to be deducted from the sale price in order to arrive at the assessable value and also octroi where payable/paid by the manufacturer. In this case, there is no dispute about the fact that the turnover tax is payable and therefore, instead of paying it and claiming refund, in terms of the Supreme Court judgment, the appellants are entitled to the deduction of the turnover tax payable. We accordingly, modify the order of the Collector in so far as the turnover tax is concerned. As regards the other claims, we dispose of the same in the above lines. The appeal is disposed of accordingly.