Customs, Excise and Gold Tribunal - Delhi
Hindustan Tyres Pvt. Ltd. vs Collector Of Central Excise on 28 December, 1987
Equivalent citations: 1988(15)ECR292(TRI.-DELHI), 1988(34)ELT324(TRI-DEL)
ORDER Harish Chander, Member (J)
1. Hindustan Tyres Pvt. Ltd., Bombay has filed an appeal being aggrieved from order-in-appeal No. M-1350/B-I/381/85, dated 18.7.1975 passed by the Collector of Central Excise (Appeals), Bombay.
2. Briefly the facts of the case are that the appellant is holding L-4 licence in respect of Tariff Item 68 and are manufacturing Camel Back falling under T.I. 16A(ii) [Should read T.I. 16A(2)]. The appellant is not selling camel back but utilising for the retreading of old tyres and have been paying duty on the said item on the assessable value on the basis of costing. Accordingly, price list filed by them in proforma VIB as laid down under Rule 6 of Central Excise Valuation Rules, 1975. Alongwith the price list the appellant was furnishing the details of costing, duly certified by their auditor. However, since the company's balance sheet for the year was not ready at the time of filing of price lists, the company had been showing a notional margin of profit of 5% or 10% as the case may be, over and above the cost of production. The said price lists had been approved provisionally under Rule 9B of Central Excise Rules pending verification of the costing details furnished by the company as also verification of the company's gross profit as reflected in their balance sheet for the relevant period. The learned Assistant Collector had observed that the value of camel back included the following expenses :
(1) expenses incurred on strip cutting;
(2) staff salaries;
(3) all other overhead expenses as shown in Annexures A, B and C to the adjudication order apart from the expenses already taken into consideration by the company.
The appellant was accordingly directed to include such expenses while working out the cost of production of camel back and file revised price lists. The price lists Nos. 37/82, 306/82, 1A/83-84 and 339/84-85 were also approved accordingly. The appellant had contended that expenses incurred towards labour for cutting camel back into strips, rent payable on the premises used for the manufacturing of sheets and expenses incurred towards administration were not included in the price list under reference submitted from time to time and approved provisionally under Rule 9B and the duty was paid on camel back removed for captive consumption in sheet form and not after they were cut into strips. Camel back in strip form after debiting duty is cut into strip to match the size of tyre to be treated. The appellant had contended that the expenses incurred by the appellant were not to be added back. The learned Assistant Collector did not accept the defence of the appellants and had held that expenses incurred on (1) strip cutting; (2) staff salaries; and (3) all other overhead expenses as shown in Annexures A, B and C to the adjudication order apart from the expenses already taken into consideration by the company had to be added back for working out the cost of production of camel back and file revised price list accordingly. Being aggrieved from the aforesaid order the appellant had filed an appeal to the Collector of Central Excise (Appeals). Before the Ld. Collector of Central Excise (Appeals) the appellant had contended that the cost of production is to be restricted to the following elements/ ingredients related to the manufacturing excisable goods under costing:
(a) Cost of raw materials;
(b) Conversion cost upto the stage of excisability of the product;
(c) Manufacturing overheads based on conversion cost;
(d) Administration overheads based on manufacturing overheads.
The learned Collector of Central Excise (Appeals) had observed that the Assistant Collector had rightly included the expenses incurred for cutting sheets of Camel Back into strips, the rent payable for the area occupied for such cutting, etc., in the cost of production of camel back. He had also confirmed the findings of the Assistant Collector as to the addition of administrative expenses. He had confirmed the findings of the Assistant Collector and had rejected the appeal. Being aggrieved from the aforesaid order the appellant has come in appeal before the Tribunal.
3. Shri V. Lakshmikumaran, the learned Advocate, has appeared on behalf of the appellant. He has reiterated the contentions made before the lower authorities. He has stated that the cutting charges from sheet to strip and labour charges are not to be included in the assessable value. He states that the appellant had duly furnished the details as to the cost of production of camel back duly certified by their auditor and arriving at assessable value after adding the cost of production by a notional profit of 5 to 7% as the case may be. The learned Assistant Collector had raised the cost of production to a higher figure. Shri Lakshmikumaran has referred to a judgment of the Hon'ble Supreme Court in the case of P.C. Cheriyan v. Mst. Barfi Devi reported in 1979 ELT (J-593) where the Hon'ble Supreme Court had held that retreading of old tyres does not bring into existence a commercially distinct or different entity as the old tyre retains its original character or identity as a tyre. Nor does it completely transform it into another commercial article although it improves its performance and serviceability as a tyre. So from retreading no new or commericaily distinct article emerges and, therefore, 'retreading is not process of manufacture'. Shri Lakshmikumaran further states that cutting expenses from sheet to strip are not to be added for computing the cost of camel back. The value of the waste of the cutting sheet has to be excluded from the manufacturing cost. Shri Lakshmikumaran has pleaded for the acceptance of the appeal.
4. Shri P.K. Ajwani, Ld. S.D.R., who has appeared on behalf of the respondent, states that the appellant did not take this plea earlier on account of deduction of the cost of waste of cutting sheets. It is a new issue and the same should not be permitted to be raised at this stage and in the price list the appellant has only mentioned the price of the camel back. Shri Ajwani has referred to the order-in-original and Rule 6(b) of the Central Excise (Valuation) Rules, 1975 where it is provided that where excisable goods are not sold by the assessee but are used or consumed by him or on his behalf in the production or manufacture of other articles, the value shall be based :-
(i) on the value of the comparable goods produced or manufactured by the assessee or by any other assessee:
Provided that in determining the value under this sub-clause the proper officer shall make such adjustments as appear to him reasonable, taking into consideration all relevant factors and, in particular, the difference, if any, in the material characteristics of the goods to be assessed and of the comparable goods;
(ii) If the value cannot be determined under the Sub-clause (i), on the cost of production or manufacture, including profits, if any, which the assessee would have normally earned on the sale of such goods.
5. Shri Lakshmikumaran in reply states that the overhead expenses are not to be added in the cost of production and has reiterated his earlier arguments. He has pleaded for the acceptance of the appeal.
6. We have heard both the sides and have gone through the facts and circumstances of the case. It is admitted fact that the appellant manufactures camel back which is used for retreading of tyres. Came, back so manufactured by the appellant is captively consumed by the appellant and the valuation for the purpose of assessment has to be done on the basis of provisions of Section 4 of the Central Excises and Salt Act, 1944 read with Rule 6(b) of the Central Excise (Valuation) Rules, 1975. For proper appreciation of the legal position Section 4(l)(b) of Central Excises and Salt Act, 1944 and Rule 6(b) of the Central Excise (Valuation) Rules, 1975 are reproduced below :-
"Section 4(1 )(b) 4(1)(b) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value shall, subject to the other provisions of this section, be deemed to be -
XXX XXX XXX
(b) where the normal price of such goods is not ascertainable for the reason that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof determined in such manner as may be prescribed.
Rule 6(b) Where the excisable goods are not sold by the assessee but are used or consumed by him or on his behalf in the production or manufacture of other articles, the values shall be based -
(i) On the value of the comparable goods produced or manufactured by the assessee or by any other assessee :
Provided that in determining the value under this sub-clause the proper officer shall make 'such adjustments as appear to him reasonable taking into consideration all relevant factors and, in particular, the difference, if any, in the material characteristics of the goods to be assessed and of the comparable goods;
(ii) If the value cannot be determined under the Sub-clause (i), on the cost of production or manufacture, including profits, if any, which the assessee would have normally earned on the sale of such goods";
A simple perusal of Section 4 and Rule 6(b) of the Central Excise Rules clearly indicates that the normal profits have to be added to the cost of production or manufacture. Hon'ble Supreme Court in the case of Assistant Collector of Central Excise and Ors. v. Madras Rubber Factory Ltd. and Ors. reported in 1987 (27) ELT 553 (SC) had held that interest on finished goods until they are sold and delivered at the factory gate is not deductible. The Hon'ble Supreme Court had based the judgment on "an earlier judgment in the case of Union of India and Ors. v. Bombay Tyre International Ltd. and Ors. etc. reported in 1983 (14) ELT 1896. Paras 4 and 14 from the judgment of. the Hon'ble Supreme Court in the case of Assistant Collector of Central Excise and Ors. v. Madras Rubber Factory Ltd. and Ors. reported in 1987 (27) ELT 553 (SC) are reproduced below :-
Para 4 "The appeals further also raise the issue of whether the price to the Defence Department Ex-factory gate (ex-factory is to be considered as the wholesale cash price under old Section 4 as this was disallowed by the Assistant Collector, and further the issue as to the method of computation of assessable value where the selling price is a cu-duty price. This issue involves the considerations as to how Excise Duty has to be deducted, whether after deducting permissible deductions or otherwise. We propose to deal with the issues as follows. For the purpose of this judgment we are not repeating and setting out the text of the unarnended Section 4 and the amended Section 4 as the same are exensively quoted in our judgment in Union of India v. Bombay Tyres International Ltd. [1983 (l4) ELT 1896]. Recapitulating our judgment in Union of India & Ors v. Bombay Tyres International Ltd. (Supra) we held that -
"broadly speaking both the old Section 4(a) and the new Section 4(l)(a) speak of the price for sale in the course of wholesale trade of an article for delivery at the time and place of removal, namely, the factory gate. Where the price contemplated under old Section 4(a) or under the new Section 4(l)(a) is not ascertainable, the price is determined under the old Section 4(b) or the new Section 4(l)(b). Now, the price of an article is related to its value (using this term in a general sense), and into that value are poured several components, including those which have enriched its value and given to the article its marketability in the trade. Therefore, the expenses incurred on account of the several factors which have contributed to its value upto the, date of sale, which apparently would be the date of delivery, are liable to be included. Consequently, where the sale is effected at the factory gate, expenses incurred by the assessee upto the date of delivery on account of storage charges, outward handling charges, interest on inventories (stocks carried by the manufacturer after clearance), charges for other services after delivery to the buyer, namely after sales service and marketing and selling organisations expenses including advertisement expenses cannot be deducted. It will be noted that advertisement expenses, marketing and selling organisation expenses and after sales service promote the marketability of the whole and enter its value in the trade. Where the sale in the course of wholesale trade is effected by the assessee through its sales organisation at a place or places outside the factory gate, the expenses incurred by the assessee up to the date of delivery under the aforesaid heads cannot, on the same grounds, be deducted. But the assessee will be entitled to a deduction on account of the cost of transportation of the excisable article from the factory gate to the places where it is sold. The cost of transportation will include the cost of insurance on the freight for transportation of the goods from the factory gate to the place or places of delivery."
Para 14 Interest on finished goods from the date of the stocks are cleared till the date of the sale was disallowed by the Assistant Collector, Kottayarn. This head has again been urged for our consideration as a proper deduction for determination of the assessable value. As quoted in our judgment in Union of India and Ors. v. Bombay Tyres International Ltd. (supra), we have held that expenses incurred on account of several factors which have contributed to its value upto the date of sale which apparently would be the date of delivery at the factory gate are liable to be included. The interest on the finished goods until the goods are sold and delivered at the factory gate would therefore necessarily according to the judgment in Bombay Tyres International case (supra) have to be included but interest on finished goods from the date of delivery at the factory gate upto the date of delivery ' from the sales depot would be an expense incurred after the date of removal from the factory gate and it would therefore, according to the judgment in Bombay Tyre International case (supra) not be liable to be included since it would add to the value of the goods after the date of removal from the factory gate. We would, therefore, have to allow the claim of MRF Ltd. as above."
In the present matter before us, the appellant has captively consumed the camel back and the expenses incurred for the manufacture of the same with reasonable profit have to be added. The Learned advocate had argued that there were some wastes while cutting the sheet into strips and Shri Ajwani, SDR, had objected to the raising of this plea for the first time before the Tribunal. Undoubtedly, a fresh plea can always be taken before the Tribunal provided there is material already on record. We do not find any force in the argument of the learned SDR that this plea cannot be raised at this stage. The Hon'ble Kerala High Court in the case of CAT v. India Sea Foods reported in 168 ITR 721 had held that the Tribunal was right in Law in allowing to raise for the first time before it, the ground pertaining to the correct previous year in so far as the assessment of capital gains was concerned. Accordingly we overrule the objection of the learned S.D.R. On coming to the merits of the matter we would like to observe that the gross profit of 9.0294% added to the cost of manufacture already includes salaries and administrative expenses. Administrative overheads clearly allocable to other two activities (manufacture of solid tyres and re-treading of old tyres) cannot go into the costing of camel back. Since the assessment was at sheet stage, post-assessment costs on cutting strips out of sheets cannot be included. If the revenue want to shift the assessment stage to strips, then logically the cutting wastage should also be taken into account. Clearance of camel back from other factories is generally in sheet form, however, Item 16A(2) covers both sheets and strips whereas in the appellants' case the excise duty is levied on the manufacture of camel back. As such we hold that there is no justification for adding the cutting expenses from sheet to strip for computing the cost of camel back. Accordingly we hold that the administrative overhead expenses which are not connected with the manufacture of camel back sheets cannot be included in computing the cost of production. In the result the appeal is allowed in these terms. Revenue authorities are directed to give consequential effect to this order.