Customs, Excise and Gold Tribunal - Delhi
Sail vs Collector Of Central Excise on 17 January, 1997
Equivalent citations: 1997(90)ELT502(TRI-DEL)
ORDER
U.L. Bhat, J. (President)
1. Appellant, a unit or division of M/s. Steel Authority of India Ltd. (SAIL), a Government of India Undertaking is an integrated steel plant, manufacturing goods falling under Chapters 72 and 73 of Central Excise Tariff Act, 1985. Central Excise duty on these goods was changed from specific rate to ad valorem rate with effect from 1-9-1992. The dispute in the appeal relates to deductions claimed in price lists effective from 1-9-1992. Assistant Collector issued show cattse notice proposing to disallow seven deductions claimed in the price lists. Appellant resisted the notice; however, Assistant Collector disallowed the deductions. In appeal, Collector (Appeals) allowed some of the deductions claimed, but confirmed the disallowance of deductions on three counts, namely, special discount granted to sister plants of SAIL, siding and haulage charges inside the factory premises and contribution towards Joint Plant Committee (JPC cess). This order is being challenged.
2. Shri M Ali, JDR raised an objection to the effect that appellant has not obtained clearance from the Committee of Secretaries as required by the Supreme Court. He pointed out that copy of the minutes of the meeting of the Committee produced by appellant does not relate to the present appeal. Item No. 47 in the minutes relates to an appeal filed by SAIL against -
"Order-in-Appeal No. 88/JSR/83, dated 30-12-1983 regarding inclusion of (i) JPC charges, (ii) special discount allowed to sister units and (iii) Railway siding and Haulage charges in the assessable value for levy of excise duty".
The file number is stated to be FIN/1/94-1 (Vol VI). It is pointed out that this appeal has been filed against Order-in-Appeal No. 99/JSR/93, dated 30-12-1993. We are satisfied that 88 and 83 referred to in the minutes are mistake for 99 and 93 respectively for several reasons. The three points in dispute referred to in the minutes are the points raised by SAIL in this appeal. According to appellant, SAIL has no other appeal in the Tribunal on these three points. The file number tallies. The dispute in this appeal has arisen in the context of the ad valorem duty which came into force with effect from 1-3-1986. Therefore the year of appeal and date of disposal cannot be 83 and 30-12-1983 respectively and must be 93 and 30-12-1993 respectively. We therefore hold that Item No. 47 of the minutes actually relates to the present appeal. The Committee has granted clearance. The objection raised on behalf of the Department is overruled.
3. Special Discount : While a part of the products manufactured by the appellant are sold to independent buyers, the bulk of the products are trans ferred to the other integrated steel plants of SAIL and assessable value is required to be determined under Rule 6(b)(i) of the Central Excise (Valuation) Rules, 1975 on the basis of price at which such goods are sold by the assessee or by any other manufacturer. The dispute regarding discount relates not to the part of the goods sold to independent buyers, but to the bulk of the products transferred to other units of SAIL or captively consumed by SAIL in other factories. Appellant is willing to have the assessable value determined on the basis of the price at which goods are sold by SAIL to independent buyers, though subject to special discount. According to appellant, the goods captively consumed are in such large quantities and in the normal course, for such large quantities, if sold to independent buyers, discount would be granted and therefore such discount has to be allowed. Assistant Collector rejected this contention on the ground that the appellant and sister plants are related persons, that appellant does not allow the discount as normal practice and the price at which goods are sold to independent buyers is the normal price under Section 4(1)(a) of the Central Excise Act, 1944 and hence the discount is not allowable. This finding has been confirmed by Collector (Appeals) without any independent reasoning. The question of "related" person does not arise in this case since the different plants of SAIL are not different legal entities and the price fixed, said to be by negotiation is only for book adjustment and preparation of balance sheet and profit and loss account. The approach of the lower authorities is not sound.
4. Section 4(4)(d)(ii) of the Act mandates, inter alia, that "value" does not include trade discount allowed in accordance with the normal practice of the wholesale trade at the time of removal in respect of such goods. Dispute in this appeal relates to bulk of the goods not "sold" but transferred to sister plants of the manufacturing company. These goods are used or consumed by the manufacturer in the manufacture of other goods as contemplated by Rule 6(b) of the Valuation Rules. According to Sub-clause (i) of Rule 6(b), the value shall be based on the value of the comparable goods manufactured by the assessee or by any other assessee. Appellants sells the goods to independent buyer in quantities which can be regarded as small compared to the large quantities which are captively consumed. No special discount is granted to the independent buyers and hence the lower authorities disallowed deduction of any discount in arriving at the assessable value of captively consumed goods. Appellant contends that the lower authorities erred in ignoring the proviso to Rule 6(b)(i) of the Valuation Rules.
5. The proviso to Rule 6(b)(i) of the Valuation Rules reads thus :-
"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 comparable goods;"
(Emphasis supplied) The proviso mandates the proper officer to make reasonable adjustments taking into consideration all relevant factors. A manufacturer who captively consumes the bulk of the production cannot be in a more disadvantageous position than a manufacturer who sells the bulk of the production to independent buyers. If it is normal to grant a discount on purchase of bulk quantities of such goods, it is reasonable to allow a comparable adjustment in determining the value.under Rule 6(b)(i) of the Valuation Rules. What is to be considered is whether grant of discount on purchase of bulk quantities would be reasonable trade practice and if the answer is in the affirmative, the estimated reasonable rate of discount has to be adjusted by virtue of the proviso. The lower authorities committed an error in disregarding the impact of the proviso. The finding disallowing discount has to be set aside and the claim has to be decided afresh by the authority concerned.
6. Siding and haulage charges inside the factory premises :-
There are railway tracks and railway siding inside appellants' premises. Appellant arranges to haul the goods from various points in the premises to the railway siding. Railway freight charges paid to the Railways for transport from the factory to destination is not liable to be added to the assessable value. Appellant meets the expenses for hauling the goods upto the railway siding and inside the factory and to reimburse the same collects from the independent buyers charges at the rate of Rs. 30 per ton. The lower authorities have held these charges collected are liable to be added to the assessable value. The correctness of this finding is challenged by appellant on the ground that these charges are part of transportation charges which are deductible under Section 4(2) of the Act read in the light of Section 4(4)(b) of the Act.
7. Section 4(2) of the Act reads thus :-
"Where, in relation to any excisable goods the price thereof for delivery at the place of removal is not known and the value thereof is determined with reference to the price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery shall be excluded from such price."
Section 4(4)(b) reads thus :-
"Place of removal means -
(i) a factory or any other place or premises of production or manufacture of the excisable goods; or
(ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty, from where such goods are removed".
Factory in Section 2(e) of the Act reads thus :-
" 'factory' means any premises, including the precincts thereof, wherein or in any part of which excisable goods other than salt are manufactured, or wherein or in any part of which any manufacturing process connected with the production of these goods is being carried on or is ordinarily carried on."
(Emphasis supplied) It is argued that charge of Rs. 30 per ton is collected to meet the cost of transportation inside the factory from the place of production to the railway siding, that Section 4(2) allows deduction of cost of transportation from place of removal to the place of delivery and since place of production or the store room inside the factory is "place of removal", the charge of Rs. 30 per ton cannot be included in the assessable value.
8. Learned Counsel also referred to Rules 9,9A, 47 and 49 of the Central Excise Rules, 1944. According to Rule 9, no excisable goods can be removed from any place where they are produced, cured or manufactured or any premises appurtenant thereto as may be specified by the Collector until proper excise duty has been paid at place. The first proviso to the Rule states that such goods may be deposited without payment of duty in a store room or other place of storage approved by the Collector under Rules 27 or 47 or in an appointed or registered warehouse under Rule 40. This rule applies to cases governed by physical control but the appellant has opted for self-removal procedure under Rule 173G. Rule 9A deals with date of determination of duty and tariff valuation. In the case of goods removed from a factory or warehouse, the relevant date is the date of actual removal of the goods from such factory or warehouse, as per Clause (ii) of Sub-rule (1) of Rule 9A. Explanation to the rule states that for the purpose of [Rule] 9A(ii) goods on which duty was paid, which have been loaded into railway wagon or other vehicle and for which receipt has been issued in favour of the purchaser of the goods, the goods shall be deemed to have been removed from the factory or warehouse even though the wagon or vehicle loaded with the goods may continue to be within the factory or warehouse premises, Rule 47 requires a manufacturer to provide a storeroom or other place of storage at his premises for depositing goods made on the same premises without payment of duty except where he undertakes to pay duty on all such goods and clear them immediately on completion of manufacture in which case Collector may exempt him from providing such storeroom or other place of storage. According to Rule 49, payment of duty shall not be required in respect of goods made in a factory until they are about to be issued out of the place or premises specified in Rule 9 or about to be removed from storeroom or other place of storage approved. Learned Counsel referred to these Rules to bring out that place of manufacture and place of storage or deposit are both inside the factory premises and both are distinct and different from factory gate, that place of removal contemplated in Section 4(4)(b) of the Act is place of manufacture, warehouse or place wherein the goods have been permitted to be deposited without payment of duty and to relate these aspects to scheme of Section 4(2) of the Act allowing exclusion of cost of transportation from the place of removal to the place of delivery where the price for delivery at the place of removal is not known and value thereof is determined with reference to price for delivery at a place other than the place of removal and to contend that "place of removal" is very well inside the factory premises and the cost of transportation from such place to the factory gate or exit from the factory premises is to be excluded. On this basis it is contended that siding charges and haulage which are nothing but transport charges inside the factory premises before the goods reach the exit point are to be excluded under Section 4(2) of the Act.
9. Learned Counsel also referred to the provisions of Section 4 of the Act as it was originally and after the amendments of 1955 and 1975 and the observations of the Supreme Court in Collector of Central Excise v. Voltas Ltd. - 1977 (1) E.L.T. (J 177), Bombay Tyre International case 1983 (12) E.L.T. 869 to the effect that price has to be fixed for delivery at the factory gate and cost of transportation from factory gate to destination is to be deducted in arriving at the assessable value and contended that "factory gate" referred to in these decisions cannot be interpreted literally as the exit point of the factory and must be taken to mean "place of removal" as defined in the Act. The Departmental Representative submitted all these contentions and also referred to various decisions of the Tribunal to the effect transport charges beyond the factory gate are not to be included in the assessable value, such as Annapurna Glass Works Ltd. v. Collector of Central Excise -1989 (41) E.L.T. 655A, Michrome Metal Works v. Collector of Central Excise -1996 (88) E.L.T. 448. Our attention has been invited to the decisions in Ford Motor Company of India Ltd. v. Secretary of State -1978 (2) E.L.T. (J 265) and J.K. Spinning and Weaving Mills Ltd. v. Union of India - 1987 (32) E.L.T. 234 (SC) which we find do not have much relevance in appreciating decisions or aspects presented before us.
10. The contention raised on the basis of Sub-sections (2) and 4(b) of Section 4 of the Act and the various Rules does not appear to be tenable, on a correct understanding of Section 4(2) of the Act. Under Section 4(1) (a) of the Act, value shall be deemed to be the price at which such goods are ordinarily sold in the course of wholesale trade for delivery at the time and place of removal .... According to Section 4(1)(b), where such normal price is not ascertainable for the reason that such goods are not sold for any other reason, the nearest equivalent thereof determined in the prescribed manner shall be the value. Sub-section (2) deals with a situation where the price for delivery at the place of removal is not known and value is determined with reference to price for delivery at a place other than the place of removal. In such a situation, the cost of transportation from the place of removal to the place of delivery shall be excluded from such price. The two contrary situations contemplated by Sub-sections (1) and (2) are where price for delivery at the place of removal is known and is not known and in the latter situation, the price for delivery at a different place is known. The two situations are where delivery is at the factory or place of production or warehouse or place of deposit in the factory premises or factory gate as referred to by the Supreme Court in Voltas Ltd. -1977 (1) E.L.T. (J 177) and Bombay Tyre International -1983 (12) E.L.T. 869 and other cases and delivery is at a different place such as depots or other permitted places. If there is no delivery at the factory, place of production or warehouse or place or deposit in the factory premises or factory gate it is a case of price for delivery at the place of removal not being known. In such a case delivery must be at same place other than the factory or place of production or warehouse or place of deposit in the factory premises, that is same place different from such places, say, for example, depot, then it is a case of price at such different place being known. In such a case the price for delivery at the different place shall be basis for determination of value and Section 4(2) of the Act requires that cost of transportation from the factory to the Depot shall be deducted from the price. There is no dichotomy between the price for delivery at the storeroom or approved place of deposit or warehouse and for delivery at the factory gate. All these are cases of delivery at the factory or factory gate. One cannot conceive of a case of price being known for delivery at the factory building or warehouse or store-room or approved place of deposit situated inside the factory premises which is not known as delivery at the factory or factory gate as generally understood. Sub-section (2) of Section 4 relates to a case where delivery is not at the factory or some place outside the factory of which one example is Depot. Admittedly the present case of one where the delivery is at the factory or commonly referred to as factory gate and delivery is not at some place outside the factory. Admittedly in this case, there is no dispute that the cost of transportation from the factory to the destination is not to be added to determine the assessable value. The cost of transportation from the railway siding upto the boundary or exit point of the factory premises cannot be deducted in arriving at the assessable value. This view is consistent with the view expressed in the decisions referred to earlier, even though the arguments advanced on the basis of Section 4(2) of the Act were not presented in those cases. We therefore reject the contention of the appellant.
11. SDF, EGEAF and JPC Charges :
Central Government promulgated Iron and Steel (Control) Order, 1956 in exercise of the powers conferred under Section 3 of the Essential Commodities Act, 1955. Clause 15 of the Control Order empowered the Collector to fix the maximum prices at which any iron or steel may be sold. Clause 17B of the Control Order empowered the Central Government to set up committees or bodies or authorities for the purpose of giving effect to the provisions of the Control Order. The Government by notification dated 7-4-1971 set up the Joint Plant Committee (JPC). One of the functions stipulated in Clause 8 is to determine, announce and list prices (base prices as well as extras) of all categories of iron or steel not subject to price control under Clause 15 of the Control Order. The prices so determined will be Ex-works prices and Committee shall add a fixed element of equalised freight to the Ex-work prices. This notification was amended by another notification dated 27-12-1978 incorporating clauses 9A and 9B empowering the Committee to add "an element to the ex-works prices determined under Sub-clause 8 for constituting a fund for modernisation, research and development" and to add "any other element to the ex-works prices determined under Sub-clause (8) to enable it to discharge its functions and to implement specific schemes entrusted to it by the Central Government". On 16-1-1992, the notification was further amended, empowering the JPC to require the member steel plants to add the three elements listed therein to their ex-works prices of all or any of the categories of iron and steel and to remit the same to the JPC within a specified period. The first element is an element of price towards the Steel Development Fund (SDF charges) for financing schemes, projects and other capital expenditures for modernisation, research and development, rehabilitation, diversification, renewals and replacements, balancing, additions to capacity, major new investments, any other programme for improving the quantum or technology or efficiency of production of iron and steel or their quality. The second element is element of price for enabling the Committee to discharge its functions and to implement schemes entrusted to it by the Central Government (JPC charges). The third element is an element of price towards the Engineering Goods Export Assistant Fund (EGEAF charges).
The JPC at its meeting held on 16-1-1992 required the steel plants to add SDF, EGEAF and JPC cess at the rates fixed therein to their ex-works prices of different categories of Iron and Steel and to remit the same to the JPC as per existing procedures. Accordingly appellant showed these charges separately in their invoices to buyers, collected the same from the buyers and remitted the same to the JPC. The impugned order approving price list directed appellant to add these charges to the price to determine the assessable value on the ground that the charges are not taxes required not to be added under Section 4(4)(ii) of the Act.
12. The main contention of the appellant is that these charges are not part of the price between the manufacturer and the buyers and, therefore, not part of the "price at which such goods ordinarily sold by the assessee to the buyer" as contemplated in Section 4(1)(a) of the Act. Reliance is placed on certain decisions in the context of such charges and market committee (Mandi) fees under various state enactments. In Anand Swarup Mahesh Kumar v. Commissioner of Sales Tax - 1980 (46) STC 477 (SC), the question came up for consideration in the context of the provisions of U.P. Sales Tax Act, 1948 and U.P. Krishi Utpadan Mandi Adhiniyam, 1964. Sales Tax is liable to be paid on the turnover of purchases of goods. The Adhiniyam empowers the Mandi Committee to buy and collect market fees on transactions of sale or purchase of specified agricultural product in the principal market yard and sub-market yards. If the sale is through a commission agent, he may realise the fee from the purchaser. The dispute was whether the fee collected and paid to the Committee by the commission agent was to be included in the turnover of purchases for purpose of levy of purchase tax. The Supreme Court held :-
"Where a dealer is authorised by law to pass on any tax payable by him on the transaction of sale to the purchaser, such tax does not form part of the consideration for purposes of levy of tax on sales or purchases but where there is no statutory provision authorising the dealer to pass on the tax to the purchaser, such tax does form part of the consideration when he includes it in the price and realises the same from the purchaser. The essential factor which distinguishes the former class of cases from the latter class is the existence of a statutory provision authorising a dealer to recover the tax payable on the transaction of sale from the purchaser."
In Food Corporation of India v. State of Kerala -1988 (68) STC 1 (SC), there was an agreement between the State Government and FCI for the distribution of articles covered by the Kerala Rationing Order, 1966 which required FCI to collect administrative surcharge and price equalisation charge from the retailers due to the Government. The question was whether these charges collected by FCI and made over to the Government should be included in the turnover of FCI for the purpose of assessing Sales Tax. It was held that these charges were the liabilities of the retailers to the Government and FCI functioned merely as the collection agent on behalf of the Government and were not part of the price which was specifically determined under a separate provision of the agreement and hence cannot be included in the turnover for assessing Sales Tax. It has to be noted that these charges were not in the nature of taxes as commonly understood. The liability of FCI to collect and remit had no statutory foundation and arose under an agreement with the Government.
13. In National Co-operative Consumers Federation of India Ltd. v. State of Maharashtra -1995 (98) STC 538 (Bombay High Court), the appellant collected from consumer societies at the time of supplying goods to them commission due to State Federations and passed on the commission to the latter. The High Court of Bombay, following Food Corporation of India v. State of Kerala -1988 (68) STC 1 (SC) held that the appellant merely acted as an agent for collecting commission due to the State Federation and the amount so collected did not form part of the consideration for the sale of goods by the appellant and did not form part of "sale price". In Balram Krishna Flour Mills and Anr. v. State of Tamil Nadu -1990 (80) STC 106 (Madras High Court), the High Court of Madras took a similar view in regard to administrative charges collected by Flour Mills from ration dealers to be made over the State Government. The High Court of Rajasthan in Commercial Taxes Officer v. Trilok Chand Prem Prakash - 1987 (67) STC 432, took a similar view in regard to market committee cess collected by the seller from the purchaser and made over to the committee as required by statutory Rules.
14. In Commissioner of Income-tax (Central), New Delhi v. Bijli Cotton Mills (P) Ltd. - (1979) 116 ITR 60 (SC), the Supreme Court held that "Dharmada" collected compulsorily besides price by a trader from customers on sale of yarn and cotton showing the same separately in the bills and which was earmarked for charity cannot be regarded as part of the price of goods. A similar view was taken in Commissioner of Income-tax v. Tollygunge Club Ltd. - (1977) 107 ITR 776 (SC) in regard to compulsory collection made by the Club over and above the administrative fee and which was intended to go to the Red Cross fund. It was held that amount so collected cannot be regarded as part of price for admission and did not become part of income of the Club. These decisions have been followed by the Tribunal under the Central Excise Act, 1944 with reference to "Dharmada" compulsorily collected from the buyers over and above the price. See Mohan and Co., Madras v. Collector of Central Excise - 1987 (30) E.L.T. 624 (Tribunal).
15. As against the above decisions relied on by the appellant, Department relied on two decisions of the Tribunal. In Vijayawada Bottling Company Ltd. v. Collector of Central Excise -1993 (68) E.L.T. 104 (Tribunal), it was held that various administrative expenses which built up manufacturing apparatus are not to be deducted to arrive at the assessable value. In Collector of Central Excise, Meerut v. ECE Industries Ltd. -1994 (74) E.L.T. 731 (Tribunal), the party accepted that expenses incurred for staff colony expenditure was to be included in the assessable value and on that basis, Department's plea was upheld. We fail to see the relevance of these decisions in deciding the controversy raised before us.
16. The dispute arises in the context of value to be determined under Section 4(1)(a) of the Act. Value shall be deemed to be the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal where the buyer is not a related person and the price is the sole consideration for the sale. Sale is by the manufacturer to the buyer. Price is the consideration agreed between them for the sale of goods which are the subject matter of the sale. Price is paid by the buyer to the manufacturer who appropriates it for himself. Where the manufacturer is compelled by law to collect some charges over and above the price without right to appropriate it for himself but with duty of making it over a third party to the transaction like the JPC to be utilised for specified purposes, the charges cannot be regarded as part of the consideration for the sale or price of the goods. The three elements stipulated in the notification dated 16-1-1992 are not part of the consideration which goes to the benefit of the manufacturer. The manufacturer merely collects the charges as the collection agent of the JPC and makes it over to the JPC as completed by law. It matters little that the amount collected is on account of tax, cess, market fee or administrative charges. Applying the principles laid down in Anand Swarup Mahesh Kumar v. Commissioner of Sales Tax - 1980 (46) STC 477 (SC), Food Corporation of India v. State of Kerala -1988 (68) STC 1 (SC), National Cooperative Consumers Federation of India Limited v. State of Maharastra -1995 (98) STC 538 (Bom.), Balramkrishna Flour Mills and Anr. v. State of Tamil Nadu -1990 (80) STC 106 (Madras) and Commercial Taxes Officer v. Trilok Chand Prem Prakash -1987 (67) STC 432 (Raj.), we hold that these charges collected by appellant and made over to JPC are not part of consideration or price and cannot be added to determine the assessable value.
17. Learned Counsel for appellant contended that appellant collects freight, siding and haulage charges subject to a ceiling and in case it is held that siding and haulage charges are to be included in the assessable value, the actuals must be taken into consideration and not any amount beyond ceiling. ,This matter was not placed before the lower authority and therefore we do not propose to consider the same. Appellant is at liberty to urge this aspect before the appropriate stage.
18. In the result we dispose of the appeal in the following manner :-
(a) We set aside the finding that special discount cannot be deducted from the price in determining the assessable value of excisable goods transferred to other plants of SAIL and direct the lower authority to decide the matter afresh after granting an opportunity of hearing to the appellant.
(b) We confirm the finding of the lower authority in regard to siding and haulage charges inside the factory premises.
(c) We set aside the finding regarding SDF, EGEAF and JPC charges and hold that the same cannot be included in the assessable value.