Customs, Excise and Gold Tribunal - Mumbai
Indian Farmers Fertilizers ... vs Superitendent Of Central Excise on 1 January, 1800
Equivalent citations: 1979CENCUS21D
ORDER
M.G. Chitnis, Appellate Collector
1. M/s. Indian Farmers Fertilizer Co-operative Limited, Kandla, (Kutch), hereinafter referred to as the appellants, had filed one common appeal on 12.11.76 against the aforesaid eight orders passed by the Superintendent of Central Excise, Kharirohar (Kutch), hereinafter referred to as the Superintendent. As separate appeal is required to be filed against individual order, the appellants were advised to do the needful. The common appeal was deemed as an appeal against one of the eight orders and the appellants were asked to file seven separate appeals against the remaining seven orders. The appellants have accordingly filed seven separate appeals. Since the common appeal had been filed against the eight orders within the prescribed period of three months and all the eight appeals are now duly filed they have been taken as filed within the prescribed period. Since all these appeals involve common issue, they were heard together and are decided together under this order.
2. The appellants are manufacturers of CHEMICAL FERTILIZERS which they market throughout the country through the co-operative sector. For the purpose of distribution, the fertilizers manufactured by the appellants are allocated to each State in proportion of the shareholding of all the Cooperatives in that State. The allotment for State is normally made to the State Apex Co-operative Marketing Federation which in turn allocates quotas to District/Primary Marketing Societies and Village Co-operatives. The appellants fix from time to time ex-gate prices of fertilizers of various grades and qualities produced by them, According to the appellants, it is open to any State Apex Co-operative Marketing Federation or any other buyer to purchase the fertilizers ex-plant at the prices indicated. The appellants have also stated that Apex Co-operative Marketing Federation for the State of Gujarat lifts bulk of its requirements directly from the factory at the publicised price. In cases where the supplies are taken by the buyers in other States the buyers are free to take their requirements on the same terms and basis as the Gujarat State Marketing Federation i.e., at the ex-gate price fixed and publicised from time to time. The appellants have also maintained a chain of warehouses at convenient centres throughout the country from where the fertilizers are delivered to the buyers, in case the buyers desire to purchase their requirements from such warehouses. It is submitted by the appellants that the payment for the goods supplied through these warehouses is made by the Apex Federation concerned not at the time of clearances of the goods from the factory but after their delivery from the warehouses. In respect of such supplies which are made from the warehouses and payment in respect of which is made by the Apex Federation after certain time lag which may extend in some cases to two months or more, the appellants charge from the Apex Federations (i) an extra amount representing the actual expenditure incurred by them on such items as rent paid by the appellants for the warehouse, handling and distribution charges and interest involved in the said sales which are in the nature of credit sales to the Apex Federation for the period between clearances of goods from the factory and payment therefor by the buyers ; and (ii) a further additional amount as average equated freight which is calculated by dividing the total amount of expenditure incurred as freight by the quantity transported to various destinations. These two elements of cost are termed respectively as "infield cost" and "freight".
3. It appears that the appellants had filed price lists in proforma Part I in which they had shown prices at which the goods are ordinarily sold in the course of wholesale trade and the same price had been shown as the assessable value claimed for approval in Para 11 of the price, list. However, the Assistant Collector of Central Excise Bhuj while approving the price lists added "infield cost" and the "equalised freight" to the prices shown in the price lists and ordered that the price inclusive of these two charges shall be the assessable value. It also appears that pending approval of the price lists the goods cleared by the appellants were provisionally assessed. After the price lists had been approved as above by the Assistant Collector, the Superintendent finalised the RT-12 returns for the months of October, 1975, November, 1975 and January, 1976 to June, 1976. While finalising the RT-12 returns in pursuance of the prices approved by the Assistant Collector, the Superintendent raised the demands for duty in the RT-12 returns. Being aggrieved by the demands for duty raised in the RT-12 returns as stated above, the appellants have filed the present eight appeal petitions against these demands.
4. In their appeal petitions the appellants have stated that the impugned decisions have been taken without extending to the appellants an opportunity to show caues or to explain the nature and character of infield cost and equalised freight. They have contended that it was incumbent on the department in terms of provisions of Rule 10(1) of the Central Excise Rules, 1944 to serve on the appellants notice requiring them to show cause to the Assistant Collector why the amount demanded should not be recovered from them and the Assistant Collector was required as per Rule 10(2) to determine the amount of duty or charges recoverable after considering the representation made by the appellants. But no such notice was issued to the appellants. The appellants have further argued that the Assistant Collector has not shown how he has come to the conclusion that the elements of infield cost and freight which are charged by the appellants should be included in the assessable value. In regard to the nature of the price declared by them the appellants have claimed that these prices are ex-gate or ex-factory prices widely publicised and at which the goods can be purchased by any independent buyer and at which the goods are intact sold to the Gujarat Apex Federation and as such, these prices rightly constitute the normal price in terms of the provision of Section 4 of the Central Excises and Salt Act, 1944. The appellants have also relied on the judgments in the Voltas case, Atic Industries Case and Indian Tobacco Co. case in support of their contention that the distribution expenditure and equalised freight cannot be included in the assessable value. They have claimed that the expenditure on account of "infield cost" and "freight" charged by them is actually incurred by them and Excise Authorities have erred in not appreciating this fact. They have further argued that these are post-manufacturing charges and cannot be attributed to any manufacturing activity and as such, cannot be included in the assessable value of the goods. The appellants have further argued that the Assistant Collector has wrongly assumed that the average freight charged by them is equalised freight. They have explained that the concept of the equalised freight applies only if there is only one uniform price for all sales irrespective of whether these sales are made at the place of removal or elsewhere. Since in the case of appellants the price prevalent at the time and place of removal is not only ascertainable but is also known, there is no warrant or authority for disregarding the said price in favour of the price inclusive of freight and infield cost which price is applicable only to sales at different places of delivery and not to sales at the place of removal or production of the goods.
5. As desired by the appellants personal hearing was granted by me on 26.3.77 when S/Shri Lachman Dev, T.R. Panchapakesan, V.P. Rao and K.K. Kharbanda, representatives of the appellant firm appeared. During the personal hearing the appellants stressed that their goods are sold to Gujarat Apex Marketing Federation at the factory gate and the prices for such sales do not include any charge for "infield cost" or 'freight'. They also stressed that the charge towards 'freight' was not for equalised freight but was for equated freight inasmuch as the total freight calculated has been distributed on the quantity supplied including the quantity supplied to the Gujarat Apex Marketing Federation for which no freight has been charged. The appellants also pointed out that the Assistant Collector took his decision without giving any opportunity to the appellants as contemplated in Rule 10(1). They further pointed out that since the goods had been supplied from warehouses, the price prevailing at that place cannot be considered as relevant for assessment in view of provisions of Section 4. They pointed out that the price at the factory gate is ascertainable, and claimed that in respect of the fertilizers sold by M/s. Fartilizers and Chemicals Travancore Limited, Udyogmandal, Kerala, the Appellate Collector of Central Excise, Madras had similarly allowed relief on the basis that there were independent sales at factory gate although some of the stocks were also sold to parties from the depot at Alwaye.
6. I have gone through the records of the case proceedings including the submissions made in the appeal petitions and during the personal hearing before me. The appellants have challenged the demands raised on the R.T. 12 returns. The order of the Assistant Collector approving price list relating to these demands has not been challenged before me n this case. It is, therefore, not relevant for the appellants to argue whether or not they were given opportunity to show cause to the Assistant Collector as per provisions of Rule 10(1). In fact, Rule 10 is not attracted in the present case because these demands have been raised obviously on account of finalisation of the provisional assessments and, therefore, these demands cannot be termed as demand for differential duty falling within the purview of Rule 10. They would rather be covered under Rule 9B. The contentions of the appellants in this respect are, therefore, not tenable.
7. The main question to be considered here is whether the so called 'freight' and the 'infield cost' can be included in the assessable value of the goods manufactured and sold by the appellants at the factory gate and through their various warehouses. They have sale invoices showing the sale of the goods in question to the Gujarat Apex Marketing Federation from whom no freight and no 'infield costs' have been recovered on the ground that these sales are at the factory gate. The appellants have also argued that their price lists published from tin e to time show that these prices are ex-gate prices and any independent dealer can purchase their goods at the factory gate at these prices which do not include "infield cost" or "freight". Under Section 4(1)(a) of the Central Excises & Salt Act, 1944 the normal price of any excisable goods, that is to say 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 will be the assessable value, provided the buyer is not a related person and the price is the sole consideration for the sale. In these cases, it Is clear that buyers are not related persons. Similarly it is also not disputed that the transactions between the appellants and the buyers are on principal to principal basis and the goods are ordinarily sold to buyers in the course of wholesale trade. In so far as the question of inclusion of freight and infield cost is concerned, it is to be noted here that for deciding the assessable value the sale which is to be taken into consideration should be for delivery of the goods at the time and place of removal i.e. the factory, in the present case. The warehouses from which the appellants also give delivery to some buyers are situated away from the Factory and only in case of such delivery from the warehouse the appellants charge 'infield cost' and 'freight'. In case of the delivery at the gate of the factory no 'freight' or 'infield cost' is charged. In so far as the price for delivery at the gate is ascertainable in the present case, there is no need to take into consideration the price for sale from the warehouses. Even if such sales are taken into consideration, their exists provisions in Sub-section (2) of Section 4 for excluding cost of transportation from the place of removal to the place of delivery. However, this Sub-section (2) is applicable where in relation to any excisable goods the price of delivery at the place of removal is not known. Such is not the case here, because the appellants are selling part of their goods at the factory gate and as such, the price for delivery at the place of removal is known in this case. In either view of the matter, therefore, there is no basis for including the 'freight' in the assessable value. It is immaterial whether the 'freight' in this case is equalised freight as held by the Assistant Collector or equated freight as contended by the appellants. In so far as the sale at the factory gate does not include any charge towards freight, there is no ground for including 'freight' in the assessable value.
8. As regards "infield cost", the appellants have explained that this cost represents the expenditure incurred by them on account of rent paid by them for warehouses, the handling charges and distribution charges and the interest involved in the said sales as the sales are on credit and not against cash. This infield cost is recovered in case of sales from the warehouses and is not recovered in case of sales at the factory gate. It is again to be noted that the assessable value under Section 4(1)(c) has to be decided on the basis of the sale for delivery at the time of removal. In cases of deliveries from the warehouses, the sale does not take place at the time of removal of the goods involved from the factories, but at a subsequent date. Also, the sales in this case are on credit basis and hence the extra charge includes interest for the time lag between the point of delivery and the point of payment. For ascertaining the assessable value, the cash price has to be taken into consideration and as such, the element of interest has, therefore, to be necessarily excluded. However, as explained above, since the appellants have sales at the factory gate which denote the price for delivery at the place and time of removal there is no need to go in for the prices which are being charged for deliveries from the warehouses. In other words, there is no need for inclusion of the "infield cost" which is not charged in case of the sales at the factory gate.
9. In view of the above, I hold that in the present case the assessable value is the price at which the goods are ordinarily sold by the appellants at the factory gate to the wholesale buyer for delivery at the time and place of removal. The demands, therefore, made in the RT-12 returns after inclusion of 'infield cost' and 'freight' have no basis in law. I, therefore, set aside all the aforesaid eight demands and order that consequential relief shall be granted to the appellants.