Customs, Excise and Gold Tribunal - Delhi
Seraikella Glass Works Pvt. Ltd. vs Collector Of Central Excise on 28 July, 1988
Equivalent citations: 1988(18)ECR614(TRI.-DELHI), 1988(37)ELT452(TRI-DEL)
ORDER K.L Rekhi, Member (T)
1. The appellants manufactured sheet glass. The point of dispute in these appeals is as to what were the elements of post-manufacturing expenses and what was their cost which was to be excluded from the appellants' sale price for determining the value of their goods for assessment of Central Excise duty under Section 4 of the Central Excises and Salt Act, 1944.
2. For a proper understanding of the facts and issues involved, It is necessary to set out the facts in a chronological order. We do so below :-
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DATES EVENTS
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20.6.1979 The appellants submitted their price list No. 38/79 effective from 20.6.1979.
7.7.1979 Show Cause Notice issued by the Assistant Collector of Central Excise why certain elements claimed by the appellants as deduction be not in-
cluded in the assessable value of the goods.
16.8.1979 The Superintendent of Central Excise directed the appellants to follow the provisional assessment procedure prescribed under Rule 9B of the Central Excise Rules, 1944 and to execute the required bond for that purpose. The appellants were also intimated that all their future assessments shall be provisional. The appellants admit that they Ignored these directions for some months but ultimately they did execute the required 8-13 Bond for provisional assessment.
5.9.1979 The Superintendent Issued another Show Cause Notice to the appellants why differential duty be not demanded from the appellants under Rule 10 of the Central Excise Rules, 1944 w.e.f. 20.6.1979 and why penalty be not imposed on them under Rule 173Q.
21.3.1980 The Assistant Collector passed his first order-in-original modifying the price list dated 20.6.1979 and thereby disallowed certain deductions. The appellants thereupon moved the High Court at Patna by way of a Writ Petition [No. 276 of 1980 (R)].
6.5.1980 The Hon'ble High Court of Patna granted an interim stay of the Assistant Collector's order dated 21.3.1980 and Show Cause Notice dated 5.9.1979.
15.9.1982 The Hon'ble Patna High Court disposed of the Writ Petition. The Hon'ble High Court quashed the Assistant Collector's order dated 21.3.1980 and the Show Cause Notice dated 5.9.1979 and held that post-
manufacturing expenses could not be included in the assessable value, but left it open to the authorities to determine as to what elements constituted post-manufacturing expenses and what was the cost of those elements. The department did not file any appeal against the Hon'ble High Court's judgment.
7.3.1983 In terms of the Hon'ble High Court's remand order as above, the Asstt.
Collector Issued a detailed show cause notice why ceratin claims for deduction be not dis-allowed.
9.5.1983 The Hon'ble Supreme Court passed their short judgment In the case of Union of India v. Bombay Tyres International Ltd. and Others setting out as to which elements were deductible from the price and which ones were not.
31.8.1983 The Superintendent called for bills and books of accounts of the appellants "for determination of duty liability".
2.12.1983 Similar letter by the Assistant Collector to the appellants.
6.12.1983 Similar letter to the appellants from the Inspector of Central Excise.
5.12.1983 Further notice to the appellants from the Assistant Collector, in continuation of Show Cause Notice dated 7.3.1983 "why the differential duty on different heads/items of expenses, other than ex-factory assessable value for which supplementary bills are raised by you, should not be determined on the basis of information available to the department".
6.9.1984 The Assistant Collector passed his second order in the light of the Hon'ble Patna High Court's remand judgment. After deciding the question of deducibility of various elements of cost, the Asstt.
Collector demanded differential duty of Rs. 4.61.09.242.28P. for the period from 20.6.1979 to 30.7.1983.
17.10.1984 By further order dated 17.10.1984, the Asstt. Collector demanded differential duty of Rs. 27,81.826.87P for the period, from 1.8.1963 to 31.12.1983.
17.4.1985 The Collector (Appeals) rejected the first appeal of the appellants.
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3. We have heard both sides and have carefully considered their submissions and the record. The main plea of the appellants is that since the department had not filed any appeal against the judgment of the Hon'ble Patna High Court, the said judgment became final and the department was bound by it. It was, therefore, wrong for the Assistant Collector to rely on the judgment of the Hon'ble Supreme Court in the case of Bombay Tyres International Ltd. and disallow certain deductions on the strength of Supreme Court judgment, pleaded the appellants. The Asstt. Collector was functioning in terms of the remand ordered by the Hon'ble High Court and not as the original authority, asserted the appellants. The learned counsel for the appellants cited the decisions in East India Industries Ltd. (1983 Vol. 54 STC 88) and Sitaram Goel (AIR 1972 SC 1412) in this connection. The appellants further pleaded that since this Tribunal was not an authority superior to the Patna High Court, even this Tribunal could not go beyond the mandate given by the Hon'ble High Court. We have no difficulty in accepting this argument of the appellants. We respectfully bow before the Judgment of the Hon'ble Patna High Court. But the point which the appellants seem to miss is that the High Court did not finally settle the controversy. It, no doubt, held that post-manufacturing expenses were not to be included in the assessable value. But it did not decide as to what elements of price constituted post-manufacturing expenses and what was the cost of those elements. These matters were left by the Hon'ble High Court for a fresh decision by the Asstt. Collector. By the time, this matter came up for decision before the Asstt. Collector, the judgment of the Hon'ble Supreme Court in the case of Bombay Tyres International Ltd., which had settled the controversy regarding post-manufacturing expenses, had become available. This judgment, inter alia, held that the goods became fully manufactured when they became marketable and all elements of cost which enriched the value of the goods till they became marketable had to be included in the assessable value. For this purpose, the Hon'ble Supreme Court drew the line at the factory gate; all expenses incurred upto the stage of delivery of the goods at the factory gate were to be included in the assessable value and the expenses Incurred after removal of the goods from the factory gate were to be excluded. We reproduce below paragraph 49 from the Hon'ble Supreme Court's judgment which would speak for itself:-
"49. We shall now examine the claim. It is apparent that for the purpose of determining the 'Value", broadly speaking both the old S. 4(a) and the new S. 4(1) (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 the old S. 4(a) or under the new S. 4(1) (a) is not ascertainable, the price is determined under the old S. 4(b) or the new S. 4(1 )(b). Now, the price of an article is related to its value (using this term in a general sense), and into that value have 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 assessed upto the date of delivery on account of storage charges, outward handling charges, interest on inventories (stock carried by the manufacturer after clearance) charges for other services after delivery to the buyer, namely after sales service and marketing and selling organisation 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 article and enter into its value in the trade."
In the light of the Hon'ble Supreme Court's judgment, therefore, all elements of cost which enriched the value of the goods and made them marketable, and in that sense fully manufactured, have, upto the stage of the factory gate, to be included in the assessable value and such elements cannot be treated as post-manufacturing expenses. Post-manufacturing expenses, for deduction under Section 4, began only after removal of the goods from the factory gate and not at any earlier stage. There was, in principle, no error committed by the Asstt. Collector If he chose to rely on the judgment of the Hon'ble Supreme Court in determining the elements of post-manufacturing expenses and their cost in terms of the remand order of the Hon'ble Patna High Court.
4. The second plea of the appellants is that the Show Cause Notice dated 7.3.1983 was not a notice of demand as contemplated in Section 11A of the Central Excises and Salt Act, 1944, since no short levy demand was made in the said notice. The appellants rely on the judgments of the Hon'ble Supreme Court in the case of Gokak Patel Volkart LKI. 1987 (28) ELT 53 (SC) and in the case of Union of India v. Madhumilan Syntax Pvt. Ltd. 1988 (35) ELT 349 (SC). We find, however, that the facts of both these cases were different. In the Gokak case, no Show Cause Notice was issued at all and a demand for duty had been made straightaway. In the Madhumilan case, there was an approved classification list in force but a demand was issued without first issuing a notice modifying the said classification list. In the appellants' case, however, there were a series of Show cause notices issued by the authorities, first on 7.7.1979, then on 7.3.1983 and another one on 5.12.1983 in continuation thereof. Though the Superintendent's Show Cause Notice of 5.9.1979 had been quashed by Hon'ble Patna High Court, the notice dated 7.7.1979 of the Asstt. Collector had not been quashed. The appellants were already aware that the authorities had been writing to them repeatedly, after announcement of the High Court judgment, to produce their bills and account books "for determination of duty liability". The Assistant Collector's letter dated 5.12.1983 which was one of these series of letters was nothing but a notice for "differential duty". The appellants were show caused within a few days of their filing the price list on 20.6.1979 as to why certain elements be not included in the assessable value of the goods. Surely, the Assn. Collector was not determining the assessable value for any academic or philosophical reasons. It was inherent in such determination that there would be a consequential demand for duty or refund to the appellants. We, therefore, find no substance in the appellants' plea that the notice dated 7.3.1983 was not a notice as contemplated in Section 11 A. They do have, however, a point when they say that this notice or the further letters of the authorities did not quantify the amount of the demand and that the quantification took place behind their back. Even the learned representative of the department agreed that though the Asstt. Collector quantified the differential duty on the basis of figures supplied by the appellants themselves, the calculations did go wrong in certain respects and that, therefore, after deciding the issue of principles, the matter of quantification could be remanded to the Asstt. Collector for re-doing it after due hearing to the appellants. We agree with this submission.
5. The next plea of the appellants was that in any view of the matter, the extended period of limitation of 5 years was not available to the department for demanding duty and the demand could, if at all tenable, go back only six months from 7.3.1983 (the date of second Show Cause Notice of the Asstt. Collector). While we do agree with the appellants that this was not a case of fraud or suppression, we do not agree that any portion of the demand was time-barred. As already stated, the first Show Cause Notice was issued by the Asstt. Collector on 7.7.1979, within a few days of filing of the price list. This Show Cause Notice was not quashed by the Hon'ble Patna High Court. Soon thereafter, the authorities directed that the goods should be assessed provisionally in terms of the procedure under Rule 96. The appellants agree that all assessments on RT 12 Returns filed by them had been made provisionally. In the case of provisional assessments, the limitation under Section 11A (and so also under the old Rule 10) runs from the date of adjustment of duty after the final assessment thereof in terms of Rule 9B(5). The first order in original dated 21.3.1980 of the Asstt. Collector decided the principles of valuation but before the differential duty could be quantified in accordance therewith and adjustment of duty carried out in terms of Rule 9B(5), interim injunction of the Hon'ble Patna High Court came on 6.5.1980 which stayed all proceedings. The provisional assessment did not become final merely with the passing of the order dated 21.3.1980. Finalisation of provisional assessment takes place In accordance with Rule 9B(5) only when the adjustment of duty is carried out. The process of finalisation of provisional assessments and adjustment of duty was interrupted by the Hon'ble High Court's injunction and the said process has remained incomplete. The stay granted by the Hon'ble High Court was vacated on 15.9.1982 when the Hon'ble High Court quashed the first order-in-original dated 21.3.1980 of the Assistant Collector and remanded the matter to the Asstt. Collector. With that the character of the assessments, which had never been fully finalised as per the requirement of Rule 9B(5), again became fully provisional. Thereafter, the Asstt. Collector passed his second order-in-original and the proceedings have since continued. Consequently, the process of adjustment under Rule 9B(5) has yet to be carried out. It can be can-led out only after the proceedings finally concluded. Consequently, the limitation under Section 11A (and so also under earlier Rule 10) cannot start running so long as the assessments remained provisional. Even apart from the aspect of provisional assessments, since the proceedings initiated by the first Show Cause Notice dated 7.7.1979, which was admittedly in time, have continued throughout and are yet to be concluded finally, there is no question of any portion of the duty demand becoming time-barred.
6. Coming to the deductions themselves, the appellants pressed for exclusion of only a few elements and, subject to the necessary verification of facts and figures by the Asstt. Collector, we have no difficulty in agreeing with their pleadings. The first point made by the appellants was that since they had 26.06% to 40.34% sales at the factory gate, the ex-factory price should govern all assessments and there should be no need for the Asstt. Collector to take their ex-depot prices as the basis for calculation of duty. We agree that if, on verification by the Asstt. Collector, a genuine ex-factory price is found to be ascertainable in the case of the appellants, all clearances, including stock transfers to the appellants' depots, should be assessed only at the ex-factory price. If, on verification, a genuine ex-factory price is found not to exist, the assessable value would have to be worked out from the ex-depot sale prices but in that event the appellants ought to be allowed all the deductions held permissible by the Hon'ble Supreme Court in their judgment in the case of Bombay Tyres International. Ltd. aforesaid and in their further judgment in the case of MRF Ltd. -1987 (27) ELT 553 (SC).
7. The next deduction pressed for by the appellants was for special/secondary packing charges. They stated that their normal packing for glass sheets was straw packing with inter-leaving of the glass sheets with strips of thin paper. Out of the total number of 21,92,809 packages cleared by them, they cleared 8,023 packages in such straw packing. Clearances in straw packing were comparatively few because their factory was located at Kandra, a small place in Singhbhum district of Bihar which was a backward area and where the local demand for glass sheets was bound to be a very limited one. Consequently, most of their removals were to out-station customers and, considering the fragile nature of the goods, special/secondary packing, over and above the normal straw packing with thin paper inter-leaving, had to be resorted to at the request of their customers so as to ensure safety of the goods during long distance transport. Such special/secondary packing consisted of craft paper bundling, wooden boxes, wooden frames and jam packing of the railway wagons/trucks. The learned representative of the department submitted that in the light of the Hon'ble Supreme Court's judgment dated 27.11.1987 in the Case of Shiva Glass Works Company Limited in Civil Appeal No. 980 of 1985, craft paper bundling, in which 20 lakhs out of 22 lakhs packages of the appellants were cleared should be regarded as the packing "employed in the ordinary course of sale" at the factory gate. The appellants submitted that the facts of Shiva Glass case were quite different as In that case the assessee had asked for exclusion of the cost of gunny bags on the basis of hypothetical assumption that glass bottles of the assessee were capable of being delivered in naked condition. We agree with the appellants. In the facts of their case, the ratio of the judgments of the Hon'ble Supreme Court in the case of Godfrey Phillips (India) Ltd.-1985 (22) ELT 306 (SC) is applicable and, accordingly, we order that the cost of special/secondary packing used by the appellants over and above their normal packing would not be includible in the assessable value.
8. The appellants had claimed deduction under the Head 'assurance charges', they stated during the hearing before us that it was transit insurance and not insurance for the goods lying within the factory. The learned representative of the department did not oppose the exclusion of transit insurance. We direct the Asstt. Collector to verify the nature of the insurance charges and If it is found to be for transit insurance, such charges should not be included in the assessable value.
9. The last item of deduction pressed for by the appellants is 'contingent liabilities'. The exact nature of these charges was not clear from the record. The appellants stated before us during the hearing that this charge was for collection charges, bad debts and interest on receivables but they could not prove so from the contemporaneous record before us. The nature of the contingent liabilities charge would have to be investigated into by the Asstt. Collector. After he has determined the exact character of this charge, he should decide its admissibility or otherwise in the light of the judgments of the Hon'ble Supreme Court in the cases of Bombay Tyres International Ltd. and MRF Ltd. aforesaid. The last prayer pressed for by the appellants was that their price realisation should be treated as cum-duty price and the duty due thereon re-calculated as ordered by the Hon'ble Supreme Court in their judgment in the case of MRF Ltd. aforesaid. We agree that after the necessary verification by the Asstt. Collector, the calculations should proceed In accordance with the Hon'ble Supreme Court's judgment.
10. No other plea was pressed for by the appellants before us.
11. In the result, we hold that within the mandate set by the Hon'ble Patna High Court for identifying the post-manufacturing elements and their cost, the Asstt. Collector is entitled to rely on the judgments of the Hon'ble Supreme Court in the cases of Bombay Tyres International Ltd., Godfrey Phillips (India) Ltd. and MRF Ltd. etc. In the light of our observations in the preceding paragraphs, we set aside the lower orders and remand the matter to the Asstt. Collector for re-determination of the appellants' duty liability in accordance with law and principles of natural justice.
12. The two appeals are, accordingly, allowed by way of remand in the above terms.