Customs, Excise and Gold Tribunal - Delhi
Gomti Carbon Dioxide vs Commissioner Of C. Ex. on 6 June, 2000
Equivalent citations: 2000(71)ECC645, 2000(119)ELT565(TRI-DEL)
ORDER
K. Sreedharan, J. (President)
1. Identical issues arise in these appeals. So, we consider it advantageous to dispose of them by a common order.
2. When appeals E/1698-1701/99-A came up before a Bench of two Members, decisions of coordinate Benches were brought to its notice. Apparently, conflicting views were taken by different Benches on the question of deduction to be given on the sale price on account of interest on receivables claimed by the manufacturer for finding out the assessable value. In such a situation, that Bench referred the appeals for decision by a larger bench of three Members. That is how these appeals have come up before us.
3. Before dealing with the facts in the appeals pending before us, we will examine the question of law regarding the deduction to be made of interest on receivables for finding out the assessable value of the goods. One of the heads of deduction claimed by the manufacturers relates to interest on receivables. What is meant by interest on receivables? This is nothing but interest realized from purchasers who get benefit of credit sale. If the sale is on credit for a fixed price and the same is payable within a fixed period mentioned in the invoice, the sale will be a credit sale. The interest on the price for the period of credit is inbuilt in the said price. The price showed in the invoice may not include the interest separately from the price of the goods covered by the same invoice. So, the price mentioned in the invoice is inclusive of the interest on account of the delayed payment. That price mentioned in the invoice is payable by the purchaser within the period mentioned therein. It means that the price is inclusive of the interest on the sale consideration for the period during which the payment is postponed. Putting it in other words, the invoice makes mention of price realisable by a future date. Excise duty is to be assessed on the value at the time and place of removal. So, the price payable at a future date has to be worked back to bring it to the price on the date of removal. For finding out the value of the goods as on the date of removal, interest on the price for the period during which the payment is deferred has to deducted.
4. The above aspect was considered by their Lordships of the Supreme Court in the first decision relating to Madras Rubber Factory Ltd. reported in 1987 (27) E.L.T. 553. Their Lordships examined the issue when buyers effected payment much after the date of sale. The adjustment between the manufacturer and the dealer where credit facility is extended is to be made in the value of the goods for assessment of duty. Relying on the decision in the case of Bombay Tyres International Ltd. reported in 1983 (14) E.L.T. 1896, their Lordships took the view that expenses incurred on account of factors which have contributed to its value up to the date of sale or the date of delivery are alone liable to be included in the assessable value and that interest, cost and expenses on sundry debtors or interest on receivables is an expense subsequent to the date of sale and removal of delivery of the goods and would be eligible to be deducted for finding out the assessable value. The first decision in MRF Ltd. was recalled on review and disposed by the decision reported in 1995 (77) E.L.T. 433. In this judgment, the question on the deducibility of interest on receivables was dealt with in paragraph 66 of the judgment. For a proper understanding of the law, we read that paragraph:
"66. The case of the assessee (Madras Rubber Factory) is that where the goods are sold to up-country wholesale buyers and payments are received quite sometime later, it is indeed a case of sale on credit and, therefore, the interest charged from the date of delivery of goods till the date of realisation of the price thereof should be deducted from the value of the goods. The interest charged, it is submitted, is only in lieu of the time taken in making the payment by the up-country wholesale buyer. Since this is the amount received subsequent to the sale from the depots and does not fall within the ambit of any of the expenses held includible in Bombay Tyre International, it is clearly excludible. The claim for this deduction is, therefore, allowed."
From the above quoted paragraph it is clear that when the manufacturer sells the goods on credit and payments are received sometime later, the interest charged from the date of delivery of the goods till the date of realisation of the price should be deducted from the value of the goods for finding out the assessable value. The interest so deductible is only the interest for the period mentioned in the invoice, otherwise it will lead to unintended consequences. In cases where payment to the manufacturer is indefinitely delayed or where the dealer refuses to pay the price, the sale price will stand wiped off, because the interest may exceed price. In such a case, are not the goods liable to excise duty? The answer can only be emphatic 'no'. Excise duty is on the manufacture of the goods. It is not depending on the issue as to whether the manufacturer gets the price of the goods from the dealer or not. So, the interest charged from the date of delivery till the realisation of the price should be understood with reference to the period fixed in the invoice. If the invoice provides a specific period up to thirty days for effecting payment, interest from the date of delivery till the expiry of that period of thirty days alone is deductible from the price mentioned in the invoice.
5. After the second decision in the case of MRF Ltd. reported in 1995 (77) E.L.T. 433 (SC), a circular was issued by the Central Board of Excise and Customs. That sought to clarify the situation under which interest on receivables can be permitted. According to this circular, interest on receivables cannot be permitted to be deducted from the assessable value if the interest is not charged over and above the sale price of the goods. In other words, over and above the price fixed for the goods, certain specific amount should have been realised from the dealers by way of interest on account of delayed payment. Only that quantum provided in the invoice as interest is deductible. According to the Board, if the assessee is claiming interest out of the price mentioned in the invoice, even though the period for its payment is mentioned, they cannot claim the deduction. The view taken by the Board that interest cannot be deducted from the sale price if the interest is not separately mentioned therein is not a correct understanding of the law laid down by the Supreme Court and when the invoice makes it clear that the sale is on credit, interest on the amount for the period of credit permitted must be a permissible deduction. It must be excluded from the price fixed in the invoice for finding out the assessable value.
6. Over and above the interest on receivables, manufacturers claimed another head of deduction by way of bank charges or collection charges. This claim is not supported by any of the provisions of the Central Excise Act, 1944. Question is whether such a claim is deductible in view of the decision of the Supreme Court. On going through the decisions in Bombay Tyres International Ltd. and MRF Ltd., we do not find any justification for granting deduction of bank charges or collection charges over and above the deduction on account of interest on receivables. A manufacturer who gets the benefit of deduction of interest on receivables is not entitled to have any further deduction like bank charges or collection charges. In HMP Engineers Ltd. v. Commissioner of Central Excise, Surat reported in 2000 (37) RLT 717, two of us. President and Shri C.N.B. Nair stated that deduction claimed on interest on book debts and interest on finished goods at depot is allowable in view of the decision of the Supreme Court in MRF Ltd., 1995 (77) E.L.T. 433. This statement made in the case is not correct. This observation is not having support of the Supreme Court decision.
7. Now, we take up the appeals on merits. In appeal No. E/1698/99-A and connected matters, learned counsel representing the appellant, manufacturer, pressed the following points for our consideration:-
(1) Adjudicating authority was clearly in error in not deducting the quantum of interest on receivables fixed in the invoice for finding out the assessable value.
(2) The assessing authority erred in not excluding the cylinder maintenance charges, etc., in finding out the assessable value.
(3) After having found that the price at which M/s. Chemicon Pvt. Ltd. sold the Carbon Dioxide Gas to dealers should be taken as the price at which manufacturer sold the goods. Excise duty payable on that price was not deducted to find out the assessable value.
(4) And in computing the differential duty arithmetical mistake crept in. That mistake has to be eliminated.
8. First count of attack against the order of the Commissioner is that the Commissioner did not deduct interest on receivables. This was so done by the Commissioner on the basis of the circular issued by the Board. Earlier in this order we found that the said circular is contrary to the decisions rendered by the Supreme Court in MRF Ltd. reported in 1987 (27) E.L.T. 553 and 1997 (77) E.L.T. 433. Invoices on record show that payment was to be made by the dealer within the periods mentioned therein. The periods vary from 15 to 30 days. Interest on the amounts mentioned in the invoices for the said periods is deductible as per the decision of the Supreme Court in MRF Ltd. case. We do not find any justification in denying the benefit to the manufacturer in this case.
9. In cases where the dealer was given accommodation for paying the amount for the period mentioned in the invoice, the interest on the amount is inbuilt in the price mentioned in the invoice. That interest on receivables is a permissible deduction. Adjudicating authority should have deducted the interest on the amount covered by the invoice for the period mentioned therein for finding out the assessable value. This having not been done, that issue has to go back to the Commissioner for de-navo consideration.
10. To dealers who were given credit facility no cash discount or other discount was offered. Cash discount and trade discount, it is conceded before us by the learned Counsel representing the manufacturer, were extended only to the dealers who paid the price at the time of delivery. This makes it abundantly clear that no dealer is getting a double benefit on account of interest on receivables being deducted from the sale price.
11. The Commissioner in the impugned order allowed deduction towards rent of cylinders hired by the manufacturer from other parties, but deduction claimed by the manufacturer on the cylinders owned by them was disallowed, since the price declared by them was the assessable value under Section 4 of the Central Excise Act, 1944. We do not find any logic in this reasoning resorted to by the Commissioner. Carbon Dioxide Gas so manufactured could be transported only through cylinders. The cylinders, whether these belong to the manufacturer or others, have to be valued in the same manner as held by the Supreme Court in Indian Oxygen Ltd. v. Collector of Central Excise, 1988 (36) E.L.T. 723 and Collector of Central Excise v. Indian Oxygen Ltd., 1988 (36) E.L.T. 730. Their Lordships categorically held that charges like rentals for the cylinders and the notional interest income, are for ancillary or allied services and that it is not an activity of manufacture. Their Lordships confirmed the calculation.
12. The question whether any amount representing the phased cost of the cylinder over its total life span is excludible from the sale price of the gas manufactured was considered by this Tribunal in the decision in the case of Collector of Central Excise v. Hindustan Gas & Industries Ltd. reported in 1989 (41) E.L.T. 663. On the same principle stated in that decision the manufacturer herein is trying to recover the total cost of the cylinder in instalment spread over the life span of the cylinder. We make it clear that the claim made by the manufacturer is only a single recovery and not a double recovery over and above the initial purchase price of the cylinder. In such a situation, on the basis of that decision, we are clear that the manufacturer, appellant before us, is entitled to have the total cost of the cylinder Gomti Carbondioxide and Ors. v. CCE, Jaipur and (Vice-versa) spread over during its life span and recover in the phased manner at the time of the sale of the gas on each occasion. The above principle stated by the Tribunal in 1989 (41) E.L.T. 663 has been affirmed by the Supreme Court when the departmental appeal against it, namely, Civil Appeal No. 364/88 was dismissed on 2-2-1995 1995 (78) E.L.T. A216. Since the Commissioner has not approached the manufacturer's claim regarding the cost of cylinder and its maintenance charges in the light of the above principle, that issue has also to go back for fresh consideration.
13. The price at which Carbon Dioxide was sold by M/s. Chemicon Pvt. Ltd. was taken as the price at which manufacturer, appellant before us, sold the goods to them. This was so done, because M/s. Chemicon Pvt. Ltd. was taken as a related person. Relationship between the two is not an issue in this appeal. According to the learned Counsel representing the manufacturer/appellant, even proceeding on the basis that the price at which Carbon Dioxide was sold by M/s. Chemicon Pvt. Ltd. is to be the basis for finding out the assessable value, duty payable on that price has to be deducted under Section 4(4) (d) (ii) of the Central Excise Act, 1944. As per this statutory provision, excise duty payable on that price is deductible. Supreme Court in the second MRF Ltd. case, 1997 (77) E.L.T. 433 considered this issue in paragraph 67 of the judgment. That principle has been followed by a larger Bench of five Members of this Tribunal in Srichakra Tyres Ltd. v. Collector of Central Excise, Madras reported in 1999 (108) E.L.T. 361. In computing the duty payable by the manufacturer, the Commissioner failed to apply that principle to the facts on hand. Therefore, the matter has to go back to the Commissioner for recomputation of the tax liability of the manufacturer in the light of the principle stated in the decisions referred to above.
14. After having found out the quantity of gas sold by the manufacturer, the Commissioner found out sale value. In calculating the sale value, arithmetical errors have crept in. According to the appellant, the mistake is substantial. He gives the figures as under:
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Year Sales value Sales Sales Sales value Sales Value
as per CPL's Quantity as Quantity of as per the as per order
Balance per CPL's Gomti method
Sheet Balance slated in he
Sheet order
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1992-93 3,10,30,582 48,17,000 20,06,932 1,29,28,434 1,38,7,673
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1993-94 3,48,28,268 53,85,317 24,09,074 1,55,80,118 1,58,12,162
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1994-95 5,82,96,856 79,42,103 39,43,786 2,89,48,293 2,94,99,516
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1995-96 6,15,30,935 80,94,858 39,17,321 2,97,76,485 3,07,23,376
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1996-97 7,08,65,623 81,28,000 33,13,781 2,88,91,874 2,91,86,059 (till Feb.)
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The value given by the Commissioner is stated to be erroneous. We are not in a position to decide this issue, because the Commissioner has not given the data for arriving at the figures adopted by him. Therefore, the matter has to be re-examined by the Commissioner for arriving at the correct value of the Carbon Dioxide sold by the manufacturer during the above period.
15. As per the impugned order, Commissioner confirmed the demand of Rs. 29,38,823.12. We find that the manufacturer is entitled to get deduction of interest on receivables, cost and maintenance charges of cylinders and duty recomputed on the basis of the principle stated in the case of Srichakra Tyres Ltd. reported in 1999 (108) E.L.T. 361. So, the demand must necessarily fall far below the amount confirmed by the impugned order. Therefore, the penalty of Rs. 5 lakhs imposed under Rule 173Q of the Central Excise Rules, 1944 warrants reduction. The penalty imposable under Rule 173Q should be reassessed by the Commissioner while requantifying the demand of duty.
16. Order impugned in this appeal happened to be passed pursuant to the decision of this Tribunal in final order Nos. 1220-1223/98, dated 1-9-1998. In that order, this Tribunal observed:
"The Commissioner also ignored the circumstance that Section 11AC of the Act came into force only with effect from 28-9-1996 and he could, if at all, have invoked Section 11AC not in respect of the demand for the entire period but only in respect of the demand for the period from 28-9-1996 onwards."
Ignoring that direction, the Commissioner imposed a penalty equal to the duty confirmed invoking Section 11AC of the Act. This procedure adopted by the Commissioner, to say the least, is highly objectionable. Being an authority subordinate to CEGAT, the Commissioner should have followed the, direction. He was not justified in imposing penalty under Section 11AC of the Act in respect of the transactions which took place prior to 28-9-1996. So, the penalty imposed under Section 11AC is vacated.
17. By the impugned order, the Commissioner imposed personal penalty of Rs. 20,000.00 each on M/s. Chemicon Pvt. Ltd., Shri K.C. Kini and Shri Suresh Kamath. Under what circumstances such personal penalties have been imposed invoking Rule 209A of the Central Excise Rules, 1944 is not stated in any part of the order. Reason given by him in the earlier order set aside by this Tribunal on 1-9-1998 has been, it appears, relied on to sustain the penalty. This is clearly erroneous. So, the penalties imposed on M/s. Chemicon Pvt. Ltd., Shri K.C. Kini, partner of M/s. Gomti Carbon Dioxide and Shri Suresh Kamath, Plant Manager of M/s. Gomti Carbon Dioxide are vacated. The matter is remanded back to the Commissioner for entering finding on the issues pointed out earlier in this order. Appeals are disposed of accordingly.
18. Appeals E/1077/98-A and E/14-15/2000-A are at the instance of 4 the manufacturer. Appeal E/1278/99-A is at the instance of the Revenue.
19. Before the adjudicating authority, the manufacturer claimed interest on receivables and bank and collection charges as deductible items for finding out the assessable value. The adjudicating authority while dealing with the issue covering the period from 1-8-1990 to 28-2-1997 disallowed both claims. On appeal, the Commissioner (Appeals) disallowed interest on receivables, but allowed collection charges as a permissible deduction. Assessee has preferred appeal E/1077/98-A questioning the correctness of the decision whereunder interest on receivables has been disallowed. 1414 Revenue challenges the order of the Commissioner (Appeals) wherein he allowed deduction on account of collection charges. For the subsequent period from 1-7-1997 to 31-12-1997 the assessee's claim of deduction of interest on receivables and collection charges has been rejected by the adjudicating authority as also by the appellate authority. Hence, appeal E/14/2000-A. Same was the position regarding the period from 1-3-1997 to 30-6-1997. Therefore, the manufacturer has preferred appeal E/15/2000-A.
20. In the earlier part of this order, we found that the manufacturer/assessee is entitled to get interest on receivables. That interest must be in relation to the period during which credit facility was allowed to the dealer. In many of the cases mentioned in the order of the adjudicating authority the terms of payment were ready cash or advance payment. In such cases, interest on receivables is not available to the assessee, nor can he claim collection charges. In some of the contracts entered into between the Public Health Department of the Rajasthan Govt, provision is made for paying amount within thirty days. In such contracts, it can be presumed that payment was to be effected within thirty days of the delivery of the goods. Interest payable for that period will be a permissible deduction as interest on receivables. In cases covered by contracts containing such a term, the value has to be assessed after giving credit of interest on receivables. In no other contract can the manufacturer claim interest on receivables.
21. Learned Counsel representing the appellant vehemently argued for the position that collection charge is also inbuilt in the price covered by the contract. In the instant case for collecting the amount, manufacturer was engaging agents. Expenditure incurred by those agents for getting the cash from the Govt. department is now sought to be deducted from the price for finding out the assessable value. We do not find any justification for deducting the collection charges from the value covered by the contract for finding out the assessable value.
22. Reference was made to a decision of the Bombay High Court in the case of Raymond Woollen Mills Ltd. v. Union of India reported in 1992 (57) E.L.T. 396. On the issue of interest and bank charges on drafts, the court observed:
"The last item on account of which abatement is claimed is interest and bank charges on drafts. The said claim has been disallowed as expenditure was incurred subsequent to the delivery of the goods and that these expenses have contributed to the value of the goods and increased their marketability upto the date of the sale. Mr. Bhatt for the petitioners has contended that the expenditure has admittedly been incurred after the date of delivery. It is, therefore, not possible to accept the reasoning that the expenditure has contributed to the marketability of the goods. The expenses are incurred under a scheme which permits the assessee to make delivery of the goods on credit and on the dealer's giving bills of exchanges which are subsequently negotiated with the Bank at discount. In our opinion, in view of the scheme of Section 4 of the Central Excises and Salt Act, 1944, Bank Commission, Hundi and interest charges payable to the Bank in the account of the customers are in the nature of post-clearing expenses and, therefore, they are deductible while calculating the assessable value of the goods. In our opinion, the claim of the assessee on account of deduction in respect of interest and bank charges on drafts is a post-manufacturing expenditure and the matter will have to be remanded back for verification of the amount deductible in this behalf."
In this decision, the High Court was not dealing with admissibility of interest on receivables. So, the question whether a manufacturer who is getting deduction of interest on receivables from the value can again claim interest and bank charges on draft was not before the High Court. Manufacturer can claim only one item among these two as a proper deduction. He cannot have both. In the case of credit sales, we have come to the conclusion that the manufacturer is entitled to interest on receivables. Over and above that, we do not think that this decision allows interest and bank charges on drafts as well. [Further, the decision rendered by the Bombay High Court has been challenged before the Supreme Court. While allowing SLP (Civil) 11634/92, that appeal is directed to be taken up along with Civil Appeal 4791/91]. This decision of the Bombay High Court, according to us, has not altered the law laid down by the Supreme Court in the decisions in MRF Ltd. case referred to earlier.
23. In view of what has been stated above, the issues raised in these four appeals will go back to the adjudicating authority to give credit of interest on receivables where contract provided for credit facility. Appeals are disposed of by remand.