Customs, Excise and Gold Tribunal - Delhi
Sidhartha Tubes Ltd. vs Collector Of Central Excise on 4 December, 1995
Equivalent citations: 1996(82)ELT399(TRI-DEL)
ORDER K.S. Venkataramani, Member (T)
1.Appellants herein are aggrieved by the Order dated 17-10-1994 passed by the Collector of Central Excise and Customs, Indore. The appellants manufactured mill steel pipes and tubes falling under Heading 73.06 of the Central Excise Tariff Act, 1985. About 30% of the production is cleared as black pipes and tubes on payment of duty under that heading and another 70% of the production, black pipes and tubes are subsequently galvanised in a separate section of the appellants' factory called galvanising shed. They also purchased black pipes from the market which were then galvanised and thereafter sold. The dispute herein relates to black pipes manufactured by the appellants that they themsleves subsequently galvanised in their factory. The Collector in his order has held that though galvanisation has been held to be not amounting to manufacture yet the ques tion in this case is whether galvanisation charges should be included in the assessable value of galvanised M.S. pipes sold by the appellants. The Collector noted that M.S. pipes which are formed in their tube mill are subjected to various process like grinding, threading, facing, lacquering and hydrotesting.Some pipes are sold at this stage while the others subjected to a further process of galvanisation; the Collector noted the appellant's submissions that some value is added to the M.S. pipes in the process of galvanisation and that normal price of the galvanised M.S. pipes is higher than ungalvanised pipes. The Collector found that galvanisation enriched the value of the goods and hence charges for the purpose should necessarily form part of the assessable value of the galvanised pipes in the light of the law laid down by the Supreme Court in the case of Bombay Tyre International, reported in 1983 (14) E.L.T. 1986 wherein it was held, inter alia, that expenses incurred on account of several factors which have contributed to the value of the excisable goods upto the date of its sale were liable to be included in the assessable value. It is against this order, the present appeal has been filed.
2. Shri V. Sridharan, learned Counsel has appeared for the appellants and Shri T.R. Malik, learned Senior Departmental Representative for the Respondent Collector. The contention of the appellants is that ungalvanised black pipes and tubes are themselves fully marketable goods and answering description under Tariff Heading 73.06 which covers "other tubes, pipes and hollow profiles (for example, open seam or welded, riveted or similar closed) of iron or steel". The learned Counsel relied upon the Supreme Court decision in the case of J.K. Spinning & Weaving Mills Ltd. v. Union of India reported in 1987 (32) E.L.T. 234 (S.C.) wherein it has been held that yarn obtained at intermediate stage is liable to pay duty even if further used in an integrated process of weaving into fabric. It was held that yarn which is sized is liable to duty at the unsized stage. Similarly, the learned Counsel relied upon the Supreme Court decision in the case of Collector of Customs & Central Excise v. Oriental Timber Industries reported in 1985 (20) E.L.T. 202 to say that once black M.S. pipes answering the relevant tariff description have been removed on payment of duty no further duty is leviable thereon in the light of the above judicial decisions. The learned Counsel further urged that the Department itself recognised galvanisation is not amounting to manufacture in view of the judgment of the Supreme Court in the case reported in 1989 (42) E.L.T. 513 and Tribunal judgment reported in 1989 (39) E.L.T. 437. The Department also admits that if the ungalvanised pipes have been purchased from outside and only galvanisation was done, no duty will be attracted. In such a view of the matter, the learned Counsel argued that when once M.S. black pipes emerged in their factory as fully manufactured products and are cleared on payment of duty, no further demand can be made on the same goods.
3. Shri T.R. Malik, learned Senior Departmental Representative contended that the final product which emerges is galvanised M.S. pipes. The appellants have also filed classification list showing such galvanised pipes as their final product, alongwith ungalvanised pipes. The learned Senior Departmental Representative contended that galvanisation is a process which is necessary for the completion of the manufacture of galvanised pipes. The learned Senior Departmental Representative also relied upon the Supreme Court judgment reported in 1990 (47) E.L.T. 326 to say that lamination of kraft papers in that case was found to bring out new product laminated paper which the Supreme Court held was a product different from kraft paper to be subjected to the duty again and the assessee in such a case can also claim input duty relief like proforma credit to mitigate the duty burden when both the products fall under same tariff as in the case of papers.
4. The submissions made by both sides have been carefully considered. The appellants herein are relying upon the fact that following the Supreme Court decision reported in 1989 (42) E.L.T. 513 (SC) in the case of Gujarat Steel Tubes Ltd. v. State of Kerala that galvanisation does not amount to manufacture the Department cannot levy duty once again on galvanised pipes after having collected duty at the stage of removal M.S. black pipes. However, the question here is that of determining the assessable value of the galvanised M.S. pipes. In this regard the Supreme Court judgment in the case of Bombay Tyre International has to be borne in mind. In para-28 of the judgment of Supreme Court had observed that in every case the criterion for computing the value of the excisable articles is the price at which the excisable goods or a article of the like kind and quality is sold by the manufacturer and the Supreme Court held that it is not the bare manufacturing cost and manufacturing profit which constitutes the basis for determination of such value. Further it observed that the normal price under Section 4(l)(a) is the wholesale price charged by the manufacturer. Another observation made by the Supreme Court in that case at Para-38 is that the Section 4 of the Central Excisies and Salt Act determined the value on the basis of price charged or chargeable by the particular assessee and the price is charged or is chargeable in respect of article manufactured by him. The value of the excisable article is determined in that context. Again, in para-49 of the decision of the Supreme Court has observed that the price of an article is related to its value and into that value are poured several components including those which have enriched its value giving to the article its marketability in the trade. Therefore, expenses incurred on account of several factors which have contributed to its value upto date of the sale, which would be the date of the delivery are liable to be included. Similarly, the Supreme Court judgment in the case of Texmaco Ltd. v. Collector of Central Excise, Calcutta reported in 1995 (77) E.L.T. 501 will also be relevant in this context. In that case Texmaco fabricated and delivered to the railways wagon-bodies mounted on "wheel sets" supplied free by the Railways. Invoice raised by the Texmaco in repsect of these wagons reflected only the price of the wagon-bodies without including the value of the "wheel sets". The goods were cleared on payment of duty on the invoice value in terms of Notification No. 120/75. This notification exempted duty paid on value in excess of invoice price. The Department sought to recover short levy on the basis that the value of the "wheel sets" should also be included in the assessable value. On appeal, the Tribunal upheld the Department's contention. While disposing of appeal against Tribunal order, inter alia Supreme Court endorsed the following observation of the Tribunal :-
"On the issue of determination of assessable value, the Supreme Court has held that for the purpose of levy of excise duty, the value of the article is the full intrinsic value of the article inclusive of the materials and components supplied free by the customer and irrespective of the fact that no expenditure was incurred by the manufacturer on such components".
Thereafter the Supreme Court observed that the value has to take into account the full commercial value including that of the "wheel sets" but for the exemption. The same concept of assessable value as reflecting the full commercial value or the intrinsic value has been followed in another Supreme Court judgment in case of Ujagar Prints, Etc. Etc. v. Union of India and Ors, reported in 1988 (38) E.L.T. 535 (S.C.). Valuation of grey fabrics at the hands of job workers who subjected grey fabrics to the processes of bleaching, dyeing, printing etc. was involved. These processes were held to be processes amounting to manufacture. On the question of valuation of the processed fabric it was contended that the assessable value should be only the job work charges received and cannot be the selling price of the processed fabrics by their customers who sent the grey fabrics to them for processing. Dealing with the contention the Supreme Court observed as follows :-
This contention was considered in detail in Empire Industries case [1985 (1) Supp. SCR 293 at 327] wherein it was held :
"When the textile fabrics are subjected to the processes like bleaching, dyeing and printing etc. by independent processes, whether on their own account or on job charges basis, the value of the purposes of assessment under Section 4 of the Central Excise Act will not be the processing charges alone but the intrinsic value of the processed fabrics which is the price at which such fabrics are sold for the first time in the wholesale market. That is the effect of Section 4 of the Act. The value would naturally include the value of grey fabrics supplied to the independent processors for the processing. However, excise duty, if any, paid on the grey fabrics will be given proforma credit to the independent processors to beutilised for the payment on the processed fabrics in accordance with the Rules 56A or 96D of the Central Excise Rules, as the case may be".
The Supreme Court further held, "The nature of the excise duty is not to be confused with, or tested with reference to the measure by which the tax is assessed. The standard adopted as the measure of assessment may throw light on the nature of the levy but is not determinative of it. When a statutory measure for assessment of the tax is contemplated, it "need not contour along the lines which spell out the levy itself", and "broader based standard of reference may be adopted for the purposes of determining the measure of the levy". The Supreme Court decision in the case of Gujarat Steel Tubes was with reference to provisions of Central Sales Tax classification of declared goods and that decision had been followed by the Gujarat High Court 1992 (61) E.L.T. 225 to decide a question under Central Excises and Salt Act, 1944 wherein only the issue was whether galvanisation would be a process of manufacture as defined under Section 2(f) Central Excises and Salt Act, 1944. No question of determination of assessable value under Section 4 of Central Excises and Salt Act arose therein as in the factual situation of the present case. Therefore, it is clear for the purpose of value for assessment expenses incurred on account of several factors contributing to the enrichment of the value of the goods and its marketability have to be considered. That a particular process is not one amounting to manufacture will not be relevant when what is sought to be done is to determine the value of the goods for assessment. Admittedly, price charged by the appellants for the galvanised pipes includes cost incurred by them on galvanisation which enriches its value and adds to its marketability in the trade. Surely the appellants would not be selling galvanised pipes to a customer who is prepared to pay them only the price they charged for the ungalvanised pipes. It is to be noted in this context that the appellants had in the relevant column in the classification list filed before Collector declared M.S. pipes black and galvanised pipes as their products. In such a situation the mere fact that galvanisation was done subsequent to paying duty on M.S. black pipes cannot by itself be a ground for not includinig the cost of galvanisation in the assessable value of black pipes subjected to the process of galvanisation and cleared by them. That process may not amount to one of manufacture; but it adds to the intrinsic value of the product to make up its full commercial value which is realised by the appellants by charging a higher price for such pipes covering the cost of; galvanisation. Such valuation will then be in accordance with the law laid down by the Supreme Court in its decisions cited supra on the question of determination of assessable value. Therefore, on the facts and in the circumstances of this case, the Collector is right in including the galvanisation charges in the assessable value. The appeal is, therefore, rejected. The Cross objection which is only supportive of the impugned order is also accordingly disposed of.
U.L. Bhat, President
5. I agree with Shri K.S. Venkataramani, Member Technical that the appeal has to be rejected. I would like to indicate my reasons in this order.
6. Process of galvanisation - does it amount to "manufacture" for the purpose of the Central Excises and Salt Act, 1944 (for short, the Act)? The Collector held it does not. Shri T.R. Malik, SDR tried to sustain the impugned order by canvassing the correctness of this finding of the Collector. He pointed out, and rightly too, that in Gujarat Steel Tubes Ltd. v. State of Kerala, 1989 (42) E.L.T. 513 (SC) the Supreme Court considered the question in the context of the Kerala General Sales Tax Act, 1963 and, therefore, had no occasion to consider the question in the light of the definition of "manufacture" in the Act. We do not think we can pursue this line of enquiry since the High Court of Gujarat in Zaverchand Gaekwad Pvt. Ltd. v. Union of India 1992 (61) E.L.T. 225 invoked the ratio of the above decision to hold that galvanisation of steel tube did not amount to "manufacture" under the Act. The Tribunal in Collector of Central Excise v. Kamani Engineering Corporation Ltd. 1989 (39) E.L.T. 437 had taken the same view. This view has been followed by the Central Board of Excise and Customs in its circular dated 9-12-1994. As the law stands today, we have to accept that mere galvanisation does not amount to manufacture so as to attract liability for excise duty.
7. The appellant manufactures black pipes and tubes falling under Heading 73.06 of Central Excise Tariff inviting duty rate of 15%. Heading 7215.30 relates to other bars and rods of iron and non-alloy steel plated or coated with zinc, also inviting duty rate of 15%. The product even at the pre-galvanisation stage is admittedly a complete marketable product, the manufacture of which is an excisable event, though the actual collection, as in the generality of cases, is postponed to the stage of clearance for captive consumption or for delivery on sale. About 30% of such black pipes and tubes are cleared for delivery of sale at the factory gate on payment of excise duty. The rest of the pipes and tubes (70%) are galvanised in the galvanising shed in the same premises and after galvanisation, cleared for delivery of sale at the factory gate. The dispute in this appeal is whether in regard to 70% of the products cost of galvanisation is to be included in the assessable value for the purpose of excise duty. The appellant also purchases black pipes and tubes from the market and galvanises and sells the same for which admittedly no excise duty is demanded, as the department has accepted that galvanisation is not "manufacture" for the purpose of the Act.
8. According to the appellant, since galvanisation is not manufacture for the purpose of the Act, the cost of galvanisation is not be included in the assessable value. Appellant relies on Collector of Customs and Central Excise and Anr. v. Oriental Timber Industries, 1989 (20) E.L.T. 202, J.K. Spinning and Weaving Mills Ltd. and Anr. v. Union of India and Ors., 1987 (32) E.L.T. 234 (SC), J.G. Glass Industries Ltd. v. Union of India, 1992 (62) E.L.T. 291 (Bom.) and Ahmedabad Mfg. and Calico Printing Co. Ltd. v. Union of India, 1993 (63) E.L.T. 601 (SC).
9. In Collector of Customs and Central Excise and Anr. v. Oriental Timber Industries, 1985 (20) E.L.T. 202 (SC), the assessee was manufacturing plywood "circles" to be used as component parts of packing materials for wires and cables. Excise duty was demanded on value of total area of circles manufactured and the same was paid at the stage of clearance from the factory. The department subsequently demanded excise duty on the total area of manufactured plywood (and not merely the circles) on the ground that the cutting into circles was not ancillary and incidental to the completion of manufacture of plywood. The Supreme Court held that under Item 16B of the Central Excise Tariff plywood is liable to excise duty whether in sheets, blocks, boards or the like, that plywood except in the case of tea chests is liable to be charged at the rate of 15% ad valorem whether in sheets, blocks, boards or the like. Plywood is manufactured as soon as the product comes out of the press and plywood in sheets, blocks, boards or the like come within Item 16B, even if they are not trimmed and their edges are not sanded, as the item does not speak of trimmed or sanded plywood. The plywood remains unaltered and unaffected by cutting it into circles and plywood manufactured for producing circles becomes liable to duty at the block stage or panel stage.
This decision is of no assistance in this case, since it was not contended before the Supreme Court that after the manufacture of sheets or blocks, any processing was conducted which enriched or added to its value or that it became a separate commercially known product as contended in the present case.
10. In J.K. Spinning and Weaving Mills Ltd. case, 1987 (32) E.L.T. 234 (SC), the assessee was a composite mill in which yarn was produced and a part of it sold for which duty was paid on removal and other part was sized before it was used in the same mill for manufacture of fabrics. The question arose if regarding yarn sized for manufacture of fabrics, the assessee was liable to pay excise duty on it after sizing. It was found that actually yarn was not produced in any intermediate stage of an integrated process of manufacture. Yarn produced was dutiable and fabric was dutiable. There was no separate excisable event at the stage of sized yarn. It was held that no distinction could be made between unsized yarn and sized yarn, since the unsized yarn when converted into sized yarn does not lose its character as such.
This decision is not relevant for the purpose of the present case, since we are not dealing with a case of manufacture of pipes and tubes being galvanised and the galvanised pipes and tubes being used in the manufacture of some other product. The above decision was followed in Ahmedabad Mfg. and Calico Printing Co. Ltd. v. Union of India, 1993 (63) E.L.T. 601 (SC).
11. In J.K. Glass Industries Ltd. case, 1992 (62) E.L.T. 291, the assessee who manufactured glass and glasswares contracted to supply bottles with printed logo of his customers. The question for consideration was whether the cost of printing was to be included in the assessable value for the purpose of excise duty. The court held that taxable event occurred when manufacture of glass bottles was complete and by printing logo, identity of the bottles was not changed and the value of the bottles was not increased. The process of printing did not bring into existence a different article with a distinct identity and the process did not increase or lower the value of the article. Therefore, it was held that cost of printing was not required to be added to the assessable value. I shall later on examine how these principles are to be applied to the facts of the present case.
12. The classification list filed by the appellant showed ungalvanised pipes and tubes as well as galvanised pipes and tubes as final product. While the former are covered by Heading 73.06, the latter are covered by Heading 7215.30, both attracting the same rate of excise duty. It is not disputed that both are commercial known products. When a pipe or tube is galvanised, it remain the same, though it is improved in quality and longevity. The purpose of galvanising is to make it weather proof and rust proof, [see Collector of Central Excise v. Kamani Engg. Corporation Ltd., 1989 (39) E.L.T. 437 (Tribunal), Gujarat Steel Tubes Ltd. v. State of Kerala, 1989 (42) E.L.T. 513 (SC), Zaverchand Gaekwad Pvt. Ltd. v. Union of India, 1992 (61) E.L.T. 225 (Guj.)] It cannot also be disputed that when pipes and tubes are to be used in circumstances where they are like to be exposed to weather or moisture, only the galvanised variety is used and in other cases the ungalvanised variety is used. Commercially, the galvanised variety commands higher price than the ungalvanised variety. It is, therefore, clear that galvanisation adds to the quality and increases the value of pipes and tubes. 70% of the pipes and tubes manufactured by the appellants are gal vanised and sold and delivered for sale as galvanised products at price higher than those charged for the ungalvanised variety. The Bombay High Court in J.G. Glass Industries Ltd. v. Union of India, 1992 (62) E.L.T. 291 (Bom.) held that since the process of printing logo on bottles did not bring into existence a different article with a distinct identity and the process did not increase or lower the value of the article, the cost of printing could not be included in the assessable value. The underlying principle is attracted to the present case, since by galvanisation the article became improved in quality and in value and also since the galvanised variety is a distinctly known commercial product.
13. The above conclusion is consistent with the principles of valuation as explained by the Supreme Court in the Union of India and Ors. v. Bombay Tyre International 1983 (14) E.L.T. 1896 (SC). The Supreme Court observed :-
"28. In every case the fundamental criterion for computing the value of an excisable article is the price at which the excisable article or an article of the like kind and quality is sold or is capable of being sold by the manufacturer, and it is not the bare manufacturing cost and manufacturing profit which constitutes the basis for determining such value."
"49...Now, the price of an article is related to its value (using this term in a general sense), and into that value how poured several component, 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 up to the date of sale, which apparently would be the date of delivery, are liable to be included".
13. It is accepted that the process of galvanisation does not amount to manufacture for the purpose of the Act. That does not mean that the fact that what is cleared at the factory gate for delivery in the wholesale market is galvanised tube or pipe is to be ignored for the purpose of valuation. It cannot be ignored since the process of galvanising has enriched its quality and enhanced its value and as a matter of fact, higher price obtains for this product in the wholesale market. The cost of galvanising or the enhanced price referable to galvanisation is one of the components which is related to the value of the galvanised product and this has to be taken into account in its valuation for the purpose of excise duty.
14. Learned counsel for the appellant submitted that rejection of his contention will lead to an anomalous result, inasmuch as a person who purchases pipes and tubes and galvanises the same and sells the galvanised product is not liable to pay excise duty, but a concern like the appellant which manufactures tubes and pipes and galvanises the same will have to pay excise duty inclusive of the galvanising charges. The two situations are not comparable. In the former case, since the process of galvanising does not amount to manufacture for the purposes of the Act, there is no duty liability. In the latter case also, the mere activity of galvanisation does not amount to manufacture for the purposes of the Act, but galvanisation improves the quality and enriches the value of the product and, therefore, this cost component or the price component should go into the valuation of the galvanised product which is cleared at the factory gate. The anomaly suggested does not really exist or, if it exists, it is inevitable in view of the legal position that the process of galvanising does not amount to manufacture for the purposes of the Act.
15. The appeal is dismissed.