Customs, Excise and Gold Tribunal - Delhi
Amar Chemical Industries vs Collector Of Central Excise on 1 August, 1991
Equivalent citations: 1991ECR49(TRI.-DELHI), 1992(58)ELT85(TRI-DEL)
ORDER P.C.Jain, Member (T)
1. Since common issues are involved, a common order is being passed.
2. M/s. Amar Chemical Industries, hereinafter referred to as the assessee, a manufacturer of Synthetic Organic Dye-stuff falling under the erstwhile T.I. 14D of the Central Excise Tariff submitted a price list in Part I pertaining to sales to wholesale dealers in terms of Section 4(l)(a). On 4-8-1980 the price was duly approved. The assessee also submitted another price list in Part II relating to sale of goods for sale to different class of buyers (not being related persons) in terms of Section 4(l)(a) proviso (i) for sale of goods to two of its customers, namely, Indo-Kem Ltd. and Rama-Kem Ltd. This price list indicated prices of the same goods as shown in the Part I price list, but at somewhat lower level. It may be stated at this stage that there is no allegation whatsoever that the two companies, namely, Indo-Kem Ltd. and Rama-Kem Ltd. are in any way related to the appellants or that the price was influenced by any extra-commercial consideration or that there is any kick back or flow back to the appellants in monetary terms or in any other manner, apart from the prices contracted between the appellants and the two companies aforesaid. In other words, there is no dispute that the contract prices for the two companies negotiated by the appellants are not at arm's length.
2.1 It was, however, alleged by the department that the prices were deliberately suppressed in the case of the aforesaid two companies by the appellants in order to remain within the ceiling of aggregate clearances stipulated in Notification No. 80/80, dated 19-6-1980 inasmuch as if the normal prices as for other dealers is taken into account the appellants would have exceeded the stipulated ceiling of Rs. 15 lakhs by about Rs. l,831.75p during the financial year 1980-81. The Revenue has also doubted the price list submitted in Part II for the aforesaid two companies on the ground that the goods were first cleared by the appellants from their factory to their godown at Bombay and from there the goods were sent to the aforesaid two companies. It was also alleged that inasmuch as the goods were cleared to self (godown) at Bombay by the appellant company the price list for the aforesaid two companies in Part-II was not applicable to such clearances and instead the price list in Part-I in respect of other dealers would have become applicable.
2.2 On adjudication, the adujdicating authority held that the two companies, namely, Indo-Kem and Rama-Kern could not be treated as different class of buyers and therefore, the same price as applicable to other dealers submitted by the appellants as Part I would also be applicable to them in respect of the clearances made to the said two companies. The adjudicating authority upheld the allegation that since the goods were removed by the appellants to their godown at Bombay and thereafter the goods were sold to the two companies, the price list in Part-I alone would be applicable. Hence the benefit of Notification 80/80, dated 19-6-1980 for clearances in excess of Rs. 15 lakhs was denied to the appellants for the financial year 1980-81. Since the clearances in 1980-81 on the basis of the above finding exceeded Rs. 15 lakhs, it was also found that the appellant would not be entitled to the benefit of the said notification in the financial year 1981-82. On the basis of the aforesaid decision, R.T.12 returns in the months of January 1982 and February 1982 were assessed. Therefore, the assessee filed 3 appeals without success before the Collector of Central Excise (Appeals) leading to the first impugned dated 3-12-1982.
2.3 The department issued another show cause notice dated 18-8-1981 for the period 1-4-1981. to 31-7-1981 (excluding the duty previously demanded for the period 1-4-1981 to 17-4-1981 on the aforesaid issue asking the assessee as to why duty of Rs. 2,93,095.49 should not be recovered from them. The Assistant Collector confirmed the aforesaid amount in his order-in-original dated 20th January, 1983 relying upon the Collector (Appeals) order dated 3-12-1982, mentioned above.
2.4 In appeal against the aforesaid order-in-original dated 20-1-1983 before the Collector of Central Excise (Appeals), Bombay the assessee succeeded. The other impugned order dated 10-2-1986 issued on 23-4-1986 held that the customers which are independent of the manufacturers carrying on business with their own capital, business technique etc. belonging exclusively to the customers, such customers are not related persons for the purpose of the Act and as such the valuation as per contracts between such customers and the manufacturers must be accepted for the purpose of levy of ad valorem duty. Accordingly, the order-in-original dated 20-1-1983 was set aside with consequential relief to the assessee.
3. Arguing for the assessee in the first 3 appeals, learned advocate, Shri D. Parikh, has urged that the genuineness of the contract between the assessee and the customer companies, namely Rama-Kem and Indo Kem is not disputed by the department. The reason for charging the lower prices for the products produced by the assessee from the said two companies is that they are the bulk customers of the assessee. For example, the percentage of sales from August 1980 to March 1981 to the aforesaid two companies was to the extent of 27.83% of the total sales while for the remaining 30 or more wholesale dealers it was 72.17%. Again during the period April 1981 to March 1982 the percentage of sales to the two aforesaid companies was 54.2 as against the total sales of about 46% to the other 30 to 40 wholesale dealers. Thus there was on the average 27% sale to each of the aforesaid two companies as against 1.5% to each of the other wholesale dealers. In the face of these facts, learned advocate, submitted that there could be no question of not believing in the prices between the assessee and the two companies, as submitted by them in Part II price list and duly approved by the authorities. He relies on a number of decisions namely: -
(1) 1978 (2) ELT J 444 (SC) [Atic Industries Ltd.] (2) 1979 (4) ELT 498 (Guj.) [Cibatid Ltd. v. U.O.I.] (3) 1977 (1) ELT 53 (Del.) [Hind Lamps v. U.O.I.] Paras 23 & 32 (4) 1982 (10) ELT 463 (Del.) [Sylvania & Laxman Ltd. v. UOI] Para 9 3.1 The learned advocate submitted that the issue involved can be looked at from another angle. He submitted that the lower prices charged by the assessee from the two companies can be considered after giving a trade discount or a quantity discount as such to the said two companies. The trade discount/quantity discount is an admissible deduction in terms of Section 4 of the Central Excises and Salt Act, 1944. It has, therefore, been submitted that the lower prices charged by the assessee from the said two companies cannot be questioned simply because there is another set of prices for the 0! her wholesale dealers.
4. Opposing the submissions of the learned advocate, learned JDR, Shri Prabhat Kumar, has submitted that there is no dispute that there can be two prices, namely, normal prices under Part I of the price list and contract prices under Part II of the price list. But he submits that once the goods are transferred by the buyer to his depot, as in this case to Bombay, no contract price can be availed of by the assessee. It is the normal price that would be applicable in the instant case. He relies for this proposition on Supreme Court's judgment in the case of Indian Oxygen reported in 1988 (36) ELT 723. Once the price at the factory gate is available the price at which it has been sold from the depot is not the concern of the department is the ratio of the aforesaid decision in Indian Oxygen, argues the learned DR. Therefore, Part I price as applicable to other wholesale dealers should have been taken into account while clearing the goods from the factory to the depot for the payment of duty. He also relies on the following citations :-
(1) 1987 (27) ELT 272 [Orient Paper Mills Ltd. v. CCE, Nagpur] (2) 1988 (35) ELT 495 [Woodcraft Products Ltd. v. CCE, Shillong] (3) 1989 (39) ELT 641 [Window Glass Ltd. v. CCE, Calcutta] para 13.
4.1 In this rejoinder, Shri Parikh, learned advocate, has submitted that it is not disputed by the department that the goods in the instant case were actually sold to the aforesaid two companies. He also submits that it is only for the purpose of sales tax that the goods were shown to have been delivered on paper through the godown but actually the goods were sent directly to the godown of the aforesaid two companies, namely, Indo-Kem and Rama-Kern from the assessee's factory. This is evident from the letter of instruction given by the assessee to the transporters, samples of which are available at pages 27 and 31. He also submitted that it does not make any difference so far as the valuation under Section 4 of the said Act is concerned whether the goods are delivered from the assessee's factory or from the assessee's godown to the aforesaid two companies with whom the contract prices have been entered.
5. We have carefully considered the pleas advanced from both sides. We notice that leave apart a finding, there is no allegation of relationship between the assessee and the two customer companies, namely, Indo-Kem and Rama-Kem. There is also no allegation that the price contract by the assessee for the sale of its goods with the two said companies is influenced by any extra commercial consideration. The department's allegation that the depressed prices with the said two companies contracted by the assessee was with a view to remain within the exemption limit of Rs. 15 lakhs in terms of Notification 80/80, dt. 19-6-1980 is merely a co-incidence and is based on no evidence such as any flow back from the customer companies to the assessee. The lower authority's finding that since the two customer companies are also dealers and therefore, cannot be a different class of buyers and hence there cannot be a separate price for them is not warranted by the provisions of Section 4. In this context, reliance placed by the learned advocate for the assessee on Delhi High Court's decision in Sylvania & Laxman Ltd., mentioned supra, is very apposite. In that case Sylvania & Laxman a manufacturer of electric bulbs and electric tube lights, was selling goods at a certain price to some of its dealers and at another price to M/s. Philips India Ltd. who in turn was selling those goods under his own brand name at a higher price. There was a dispute between the department and Sylvania & Laxman as to whether the higher price charged by the latter from its other dealers would also be applicable to the goods supplied by it to M/s. Philips India Ltd. at a lower price. The department wanted to charge a duty at the higher price applicable to the other customers whereas Sylvania & Laxman wanted to pay the duty at the price at which it sold the goods to M/s. Philips India Ltd. i.e. at the lower price. Delhi High Court in paras 9 and 10 of the aforesaid Report observed as follows :-
"9 ... the law regarding computing the assessable value is settled. It is the price which the manufacturer charges at the factory gate. In other words, it is the sale at arm's length which becomes the normal price for levy of excise duty. Unless it is shown and it is not shown here, that the contract between the parties is not a normal commercial contract, it is the price at which the goods are supplied at the factory gate by the first petitioner to M/s. Philips India Ltd. which alone will be the assessable value.... Therefore that price at which the first petitioner sells the goods to M/s. Philips India Ltd. is the only relevant price.
10. In this view of the matter we issue a mandamus to the Assistant Collector and the Superintendent of Central Excise (respondents 2 and 3) to cancel and withdraw their impugned letters dated February 16, 1979 (Annexure G) and March 20, 1979 (Annexure K) and further direct them to approve the price list submitted by the first petitioner without reference to proviso (iii) of Section 4(l)(c) of the Act and to permit the first petitioner to clear-the goods referred to in the agreement dated 25, 1979 entered into between the first petitioner and M/s. Philips India Ltd. in accordance with the prices as per the agreement. We declare illegal the stand of the respondents that price at which M/s. Philips India Ltd. sells the goods manufactured by the first petitioner for M/s. Philips India Ltd. to its buyers would be the assessable value. We further direct the respondents to accept the price list under Form Part II of the Valuation Rules and not to insist on submission of price-list in Form Part IV of the Valuation Rules. The respondents are directed not to levy and collect duty of excise in respect of product covered by the agreement dated January 25, 1979 manufactured by the first petitioner and supplied to M/s. Philips India Ltd. under the latter's brand name on a price list than the price at which the first petitioner sells the said goods to M/s. Philips India Ltd. The petitioners will also be entitled to their costs. Counsel's fee Rs. 500/-."
[Emphasis supplied] Therefore, we hold that the contract prices entered into by the assessee with the two customer companies are acceptable in terms of Section 4 of the Act.
5.1 As regards the learned DR's contention that since the goods have first been cleared from the factory to the assessee's depot and thereafter sent to the customer companies the price under Part I applicable to other wholesale dealers should have taken into account in view of Supreme Court's judgment in Indian Oxygen, mentioned supra. We observe that the said judgment of the Supreme Court is not applicable to the facts of this case. In the facts before the Supreme Court no two normal prices were available at the factory gate. It was a single normal price which was available at the factory gate and it is in that context that the Supreme Court observed that once the price at the factory gate is ascertainable the price at the depot is not relevant. In the instant case, the learned DR for the Revenue has not questioned the genuineness of the price in respect of the goods to be sold to the two customer companies. In other words, he has not questioned the Part II price list submitted by the assessee and approved by the department. He is only questioning the non-applicability of the said price list only on the basis of the movement of the goods from the factory to the customer companies via godown of the assessee at Bombay. We do not think that the movement of the goods in the aforesaid manner would in any way effect the contract price of the goods sold by the assessee to the customer companies. Section 4 of the Act does not concern itself with the movement of the goods; nor does it place any restriction as to how the goods should move from the assessee/manufacturer to the customer. It would of course have to be shown by the assessee that the goods have been sold to the customer with whom the contract prices have been entered into in case the department questions the applicability of the said price list. This appears to have been amply done by the assessee in this case and is not in question here. On the same reasoning the other three judgments relied upon by the learned DR would also not be applicable.
6. In view of our discussion above, we allow the three appeals filed by the assessee and we dismiss the appeal of the department.