Customs, Excise and Gold Tribunal - Delhi
Neelkamal Plastics Ltd., Shri P.K. ... vs Cce on 18 December, 2003
Equivalent citations: 2004(91)ECC273, 2004(164)ELT197(TRI-DEL)
ORDER C.N.B.Nair, Member (T)
1. The appellant is a manufacturer of plastic goods, mainly, chairs. The present appeals are directed against Order-in-Original No. 62-64/Commissioner/Noida/ 2002 dated 22.11.2002 passed by the Commissioner of Central Excise, NOIDA.
2. The impugned order raised duty demand of over Rs. 2.92 Lakhs under 7 headings. The appeal does not dispute the duty demand raised in respect of free gift of items and short payment of duty on moulds.
3. The main demand under the order of over Rs. 240 Lakhs is in respect of defective chairs. The appellants manufacturer provided guarantee for an year in respect of their chairs. During this period, if the chairs were damaged on account of manufacturing defects, upon return of the chairs, the appellant used to give a credit equivalent to the value of the goods. Under a Circular dated 9th March, 2000, the appellant revised the policy with regard to guarantee. Based on this circular and other materials collected during investigation, the impugned order has held that there was an additional realization in respect all of the chairs sold by the appellant. The amount taken was about Rs. 30 to Rs. 40 per chair. Upon a finding that this amount should form part of the assessable value of the goods, the duty demand has been raised.
3.1. The contention of the appellant on this issue is that a mere perusal of the circular in question would make it clear that the amount of Rs. 30 to Rs. 40 related to the cost of freight in returning the defective pieces to the appellants. It did not, in any way, represent the value of the goods. During the hearing of the case, learned Counsel for the appellant stressed that in all cases where defective pieces were received back, the appellant gave the value of those goods as credit to the dealers. He pointed out that under such an arrangement there could be no question of any additional realization by the appellant manufacturer, in respect of the goods produced and cleared by them or in respect of the returning defective pieces. He also took us through the statements relied upon by the adjudicating authority to show that the oral evidence rendered by the companies also made it clear that there was no additional realization than the invoice price in respect of the goods sold by the appellants.
3.2 We have perused the records including the circular and have heard the learned SDR. A perusal of the circular in question makes it clear that it related to "replacement policy" of the company. The circular also makes it clear that the policy of the company was for reimbursement of 100% cost of the damaged goods. The amount of Rs. 30 is related to the freight in returning the goods to the appellants. There is nothing in the statement relied upon also which is indicative of the appellant receiving any additional consideration upon the sale of the chairs than the invoice price. There is not also a case that the appellant cleared any chairs for free replacement without payment of duty. In these circumstances, we are of the opinion that the demand raised under this head has no legal or factual basis and is required to be set aside.
4. The second item of demand (Rs. 3.62 Lakhs) is in respect of Additional Trade discount given to distributors at the rate of 1%. The impugned order has held that this discount is towards damaged goods. The show cause notice had alleged that the discount is in the nature of reimbursement of losses incurred by the buyers due to damage of the goods. As against this, learned Counsel for the appellants had pointed out that the discount is given uniformly to all distributors and in respect of all consignments. He all submitted that it is not related, in any way, to specific damage incurred during transport. Nor is it in the nature of reimbursement. It is his submission that, all discounts, irrespective of their name and consideration for which they are given, are eligible for deduction from the sale price to arrive at the assessable value of the assessable goods. He referred us to the Circular of the Board dated 30th June in regard to the valuation of goods. The learned Counsel pointed out that this circular makes it clear that assessable value is to be fixed at the net price of the goods after deducting all discounts.
4.1 The Co. circular, which has given room for this dispute, is the circular dated January 15, 2001 of the company. This circular is addressed to all India distributors of Neelkamal. The circular states the policy as well as how it will be administered. Para 3 of the Circular laid down how the damaged goods will be dealt with. Sub-clause (i) of the para states that damaged goods shall be returned by the distributor only once in a quarter with prior intimation to the manufacturer. The sub-clause (ii) states that the amount of credit shall be worked out in a particular manner. Sub-clause (iii) of the para reads as under:
(iii) "In case allowable credit is more/less than the Additional Trade Discount already given in the invoice, the difference shall be adjusted by way of Debit/Credit Note."
Based on these paras the submission of the learned SDR is that this discount is intended to be adjusted towards damages incurred subsequent to the sale of the goods. He has submitted that it is well settled [Commissioner of Central Excise, New Delhi v. Vikram Detergent Ltd., 2001 (73) ECC 425 (SC): 2001 (127) ELT 641 (SC)] that damage discounts being in the nature of refund or benefit to buyer by way of compensation for damage, breakage or losses suffered by goods after removal from the factory is not eligible or deduction.
4.2 On a perusal of the Co. circular, in particular, sub-clause (iii) of para 3, we are of the opinion that 1% discount is in the nature of a reimbursement of damages. This sub-clause provides for adjustment of the discount given in the light of actual damages. It also states that in case eligible credit is lower than the Additional Trade Discount, the difference shall be adjusted by way of debit note. The circular, thus, makes it clear that even though the discount is uniformly given and not at the time of sale of the goods, it is liable to be adjusted based on actual damages subsequent to the sale of the goods. The provision for debit note leaves room for return of part of the discount to the manufacturer. It is well settled that in order to be eligible for deduction, a discount must be one which is not returnable in any manner. We are, therefore of the view that the demand raised on this head is legally correct and the same is required to be confirmed.
5. The third item under which the demand of Rs. 4.25 Lakhs has been made relates to the eligibility of the appellant for exemption under Notification No. 5/98. This exemption has been denied by taking into account the aggregate production of the appellants/manufacturer from all its factories. Learned Counsel for the appellant has pointed out that aggregation of production from all the factories of a manufacturer was not warranted in the present case in the light of condition No. 10 in respect of the goods in question. The learned Counsel has pointed out that, difference in the language used under No. 10 and condition No. 12 made this clear. It is the learned Counsels point that condition. 12 (i) provided for aggregate value of clearances of all excisable goods manufactured by the appellant or on his behalf for home consumption from one or more factories, during the preceding financial year, while condition No. 10 did not provide for aggregation. We have perused the records and heard learned SDR also on this issue. We may read the condition No. 10 for ease of discussion. This condition reads as under:
"10. The manufacturer does not avail of credit of duty paid under Rule 57A or 57B on the products mentioned in column (2) or any other product manufactured in the same factory."
The last clause in the condition states that "or any other product manufactured in the same factory". The reference to the same factory makes it clear that production in other factories has no relevance. Notification No. 5/98 specifically indicate the requirement for the aggregating production in many factories wherever that is the intention under the Notification. In view of the specific language of condition No. 10, we are of the opinion there was no requirement to aggregate the production of the present manufacturer from all its factories for determining eligibility to exemption under Notification No. 5/98. The demand on this head is therefore, not sustainable.
6. The fourth demand of about Rs. 2.5 lakhs under the impugned order relates to the quantity of chairs, which got destroyed during testing. Learned Counsel for the appellant manufacturer has taken us through the testing procedures and has shown that in certain cases samples drawn are got so damaged during testing, that they can only be recycled to produce plastic materials. The learned Counsel has pointed out that, it is well settled that manufactured goods which destroyed during testing is not liable to central excise duty. He referred in this connection to the decision of this Tribunal in the case of Traco Cables Company Ltd. v. Commissioner of C.Ex., 2000 (126) ELT 643. The learned Counsel also pointed out that this decision of this Tribunal has been confirmed by the Hon'ble Supreme Court. The learned SDR has, however, brought to out notice the decision of the Apex Court in the case of ITC Ltd. 2003 (85) ECC 1 (SC) : 2003 (151) ELT 246 (SC) and pointed out that it was for a manufacturer to prove that the goods in question had actually been destroyed during testing. A perusal of the decision of the Apex Court makes it clear that manufactured goods which are destroyed during testing is not liable to excise duty. The only requirement which the appellant in that case failed to meet was that accounts about the goods drawn for destructive testing and the quantity actually got destroyed had not been produced during the proceedings. Thus, the legal position about eligibility of destroyed goods remains the same. From the decision cited, it is clear that no duty is payable in respect of goods which were destroyed during testing. So the duty demand of Rs. 2.5 Lakhs made in respect of the goods which were destroyed in the appellants' factory is, therefore, not sustainable. The same is required to be set aside.
7. A demand of about Rs. 37 Lakhs has been raised in the impugned order on the ground that the appellant was required to include the cost of freight in the assessable value of chairs which the appellant had arranged to dispatch to certain buyers. On this issue, learned Counsel for the appellants has pointed out that the sales were on ex-factory basis, the appellant had only arranged to pay freight and despatch the goods to the buyers. From the invoice and other documents, it was clear that the sale was on ex-factory basis. Therefore, it would not be stated that the goods were first removed from the factory and then sold at the destination of the buyer. The learned Counsel has also submitted that this issue remains settled in favour of the assessee under the decision of Hon'ble Supreme Court in the case of 2002 (84) ECC 225 (SC); 2002 (146) ELT 31 (SO Escorts JCB Ltd. v. Commissioner of Central Excise, Delhi-II Since the sale in the present case was on ex-factory basis, there was no justification for inclusion of cost of freight in the assessable value of the goods. This position remains settled by the aforesaid decision of the Apex Court. Accordingly, the demand raised on this count also is not sustainable.
8. In the light of what has been stated above, we confirm the duty demand [Rs. 3.62 Lakhs], which is relatable to 1% Additional Trade Discount. Rest of the duty demand and penalties are set aside. Appeals are ordered as above.