Customs, Excise and Gold Tribunal - Bangalore
Voltas Ltd. vs Cce on 28 March, 2005
ORDER T.K. Jayaraman, Member (T)
1. In the impugned Order-in-Original (Adjn. Order) No. 42/90 dated 30.11.90, the Adjudicating Authority has confirmed duty demand of Rs. 7,46,84,653.68 under proviso to Section 11A of the Central Excise Rules, 1944. Further, he has imposed a penalty of Rs. 25,00,000/- under Section 173Q of the Central Excise Rules, 1944. The demand covers a period from 1.3.1982 to 28.02.1987.
2. The brief facts of the case are as follows:-
The appellants were formerly known as M/s. Hyderabad Allwyn Metal Ltd. They were a Government of Andhra Pradesh Undertaking Unit engaged in the manufacture of refrigerators, an excisable commodity. Till 28.02.1987,, refrigerators were chargeable to duty on ad valorem basis. The appellant's company became sick. After rehabilitation, M/s. Voltas Ltd. took over the refrigerator business of the appellant's company. Presently, the appellant is known as Hyderabad Unit of Voltas Ltd. During the relevant period, the appellants were selling the refrigerators at their factory gate to dealers. They were also stock transferring the goods to their Area Sales Offices (ASO) in various places in the country on payment of duty at the factory gate price for sales to dealers. While selling their goods in their area sales offices, the appellants added the transport cost, the inventory cost, the establishment payable at the depot to the ex-factory price. In addition to the above, the taxes payable at the area sales offices were also charged to the dealers. This practice is adopted by the appellants since 1975. the appellants filed price lists in Part I under Section 4(1) (a) of the Act, declaring the price at which the refrigerators to be sold at the factory gate. These price have been duly approved. The Departmental conducted investigation and issued show cause notice to the appellants alleging that the appellants had wrongly applied the factory gate sales price of refrigerators to the goods stock transferred to the area sales offices and sold through the said offices to dealers situated in other part of the country. It was further stated that he sales made at the factory to dealers of the Telangana region constituted a small percentage ranging from 2.45% to 5.67% as against the rest of the country. There were certain restrictions in purchasing goods at the factory gate. According to the Revenue, the dealers to whom the goods were sold to the area sales offices constituted a distinct and identifiable territorial class of buyers under Section 4(1)(a)(i) of Central Excise Act, 1944 and therefore, the price at which the goods sold by the area sales offices were to be taken as the basis for payment of duty. In respect of the clearance made by the factory, there was no demand for differential duty. After hearing the appellants, the adjudicating authority passed the impugned order. The appellants have com before the tribunal for relief against the impugned order.
3. Shri G. Shivadass, learned Advocate appeared for the appellants and Shri Hitesh Shah, learned SDR appeared for the Revenue.
4. The learned Advocate urged the following points: -
(i) The price lists filed by the appellants were approved by the jurisdictional officer. Once the normal price under Section 4(1) (a) has been established at the factory gate, the same price would form the basis of which duty is payable in respect of the refrigerators stock transferred to the area sales offices for sales to dealers from such area sales sales offices also. The following case laws were relied on -
(a) India Oxygen Ltd. v. CCE,
(b) DCM Ltd v. Union of India, 1991 (51) ELT 305 (Raj.)
(c) Transpeck Industry Ltd. v. CCE,
(d) CCE v. Falcon Tyres Ltd., 2002 (147) ELT 1166 Affirmation by SC reported in 2003 (155) ELT A247)
(e) Andaman Timber Industries Ltd. v. CCE 1999 (114) ELT 946
(ii) The adjudicating authority held that the factory gate price cannot be applied to the goods stock transferred in view of the following reasons :-
(a) The sales to dealers in Telangana region is of a small percentage being 5% of the total turnover;
(b) Some of the models were not sold at all at the factory gate;
(c) These sales can only be considered as retail sale and not in wholesale trade;
(d) The dealers in Telangana cannot sell to customers in other states;
(e) The dealers in other states therefore cannot purchase at the factory gate.
With regard to the above ground, the learned Advocate submitted that the quantum of sales made to the dealers at factory gate is irrelevant to decide the genuineness. Since the Department does not demand duty on the clearance made at the factory gate, the price at factory gate is accepted as genuine by the Department. The fact that a particular model is not sold at the factory gate cannot dislodge the fact of a factory gate price being available for the same goods. Reliance is placed on the decision of the Supreme Court in the case of A.K. Roy v. Voltas Ltd., 1977 (1) ELT J177 (SC). The sales made at the factory gate cannot be considered as retail sales as the dealers in Telangana have purchased the goods and have further sold them. Hence, they cannot be considered as retail sales. The averments of the dealers in Telangana in the statement recorded by the Department that they cannot sell the goods in other regions represent only a commercial practice where a dealer of one region is advised not to sell in other areas to avoid conflict with the dealers in other areas. From the statement of the above-mentioned dealers, it does not follow that the dealers in other regions cannot purchase at the factory gate. The fact that they are not doing so is because of the extra expenses they need to incur for purchasing the goods at factory gate and also to avail of the various after sales facility at the regional area sales offices. It has been the repeated assertion of the appellants right from 1975 that dealers all over India had the option of purchasing the goods the factory gate.
(iii) The principle of different prices at different classes of buyers will apply only when sale made at the factory gate is in terms of the proviso (i) to Section 4(1)(a) of the Act. In this case, in respect of the dealers who buy from area sales office, the sale does not take place at the factory gate. The goods are stock transferred from the place of removal to the area sales office from where they are sold. Hence proviso (i) to Section 4(1) (a) would not apply. The above distinction has been noted by the Tribunal in the following decisions: -
(a) Weston Electronics v. CCE, Final Order No. 1367/98-A dated 7.10.98
(b) Blue Star Ltd. v. CCE, The other requirement in the proviso is that the assessee should have been adopted a practice of treating the dealers in different regions as different classes of buyers. This requirement has been laid down by the Supreme Court in the case of CCE Vs TISCO Ltd., . The Adjudicating authority's finding that the appellant had been treating the dealers in different regions as different classes of buyers is not correct as terms and conditions of sale to their dealers are the one and the same and the difference in price is represented by expenses for transportation of the goods to the depot, and the casts incurred at the depot with the taxes to the cost of the purchasing dealer. This principle has been well explained by the Tribunal in the case of Telco Ltd. v. CCE. Therefore, the learned Advocate urged that eh proviso to Section 4(1)(a) cannot be applied.
(iv) It was further urged that the decision of the Larger Bench in the case of CCE v. Tapariya Tools, would not apply in this case, since the said decision was rendered on the basis of evidence placed on records. This distinction has been noted by the Tribunal in the case of TELCO Ltd. referred to earlier. Similarly in the case of Bharat Aluminium Co., the Tribunal has rejected in similar circumstances, the reliance on the larger Bench decision. The decision of the Apex Court in this case of GOI v. MRF, would not apply in this case since in that case it was a clear case of sale to different classes of buyers namely, the dealers and the Government whereas in the present case, all the sales are made to the dealers only.
(v) The Board Circular No. 3/90-CX.1 dated 25.1.1990 has clearly stated that in the case of regional sales depots, there was only a transfer of goods and there was no question of sales. Therefore, the board has clarified that the factory gate price would apply, provided it is a genuine price. The Board has further clarified that the wholesale dealers in India cannot be considered as belonging to different classes simply because they are located in different places. The above circular has been taken note of in the case of Bharat Aluminium Co. Ltd. (supra). Since the Board has taken a view in June 19910 that all wholesale dealer in India constitute the same class of buyers, such a view is binding on the Department and the impugned order passed in November 1990 is against the circular and is liable to be set aside.
(vi) The Commissioner (Appeals) in his orders dated 16.09.1983 and 26.05.1984 has held that he price at which the refrigerators has been sold at the factory would be applicable to the sales made to dealers from the areas sales offices also. The above orders have not been appealed against and have therefore attained finality.
(vii) The difference in depot selling price and factory gate price is on account of freight and insurance, loading and unloading, handling, cash discount, inventory costs and depot expenses, each of the above expenses, the same is includible in the assessable value. As regards the depot expenses, the same is includible only if entire sales are made from the depot. If the sales are made at the factory and depot and factory gate price is not disputed then the depot expenses become a post removal expense.
(viii) The marketing pattern adopted by the appellants was always known to the department as is evident from the correspondence exchanged between the appellants and the Department since 1975 onwards. The appellants in reply to the Department's letter dated 19.12.1975, furnished the list of zonal offices, depots, dealers, pattern of sale and pattern of pricing of the goods, etc. to the Department. The appellants in the their letter dated 01.11.1983 submitted the 'sales policy letter' and enclosed the sales invoices of their zonal offices, Telangana, Chandigarh and Kanpur. Therefore, no suppression can be alleged. In view of the above, there are no grounds for invoking larger period.
5. The learned SDR adduce the following arguments :
There is a restriction on the sales of refrigerators a from the factory gate. Only dealers from Telangana can purchase from the factory gate. In view of this, we cannot save that the Section 4(1)(a) price exists. In these circumstances, proviso to Section 4(1)(a) would be applicable. The price charged to dealers at the different places is different. A dealer from one area cannot purchase from their depot in another area. In view of this restriction, the dealers in each area sales office would constitute a class of buyers. The learned SDR urged that this case is squarely covered by the decision of the Tribunal in the case of CCE, Chandigarh v. Tapariya Tools Ltd., 2001 (131) ELT 306 (Tri.-L.B.), wherein it was held that the wholesale buyers at factory gate and wholesale buyers from depot constitute separate classes of buyers. He said that the appellants filed price lists in Part I only. Even though the sales at he factory gate were very few compared to the sales at the regional sales offices, the appellant had moral responsibility to have filed a price lists in Part VII in respect of the sales from the area swales offices. Since they have not done it, there is clear evidence of suppression of facts, hence there is very justification in invoking the longer period. With regard to the binding nature of the Board's Circular of 1990, the learned SDR urged by citing several case laws that when there is conflict between the law and the Board Circular, the law would prevail as per the Supreme Court decisions. He said that the instructions issued by the Board have to be within the four corners of the Act. He relied on the following case laws: -
(a) Phawas Chemicals Pvt. Ltd. v. CCE, New Delhi, 2005-TIOL-43-SC-CX-LB
(b) CCE, Eswaran & Sons Engineers Ltd., 2005 (179) ELT 272 (SC) Referring to the first Para of the Board Circular dated 25.1.1990, the learned SDR said that this Circular refers to Board letter dated 13.07.1976 which clarified that dealers in a particular region or an industrial consumers could be considered as a class of buyers to whom good are sold under contract, at different prices, if such is the normal practice of trade and in such cases, the different prices to each such class of buyers will be the normal price if the other ingredients of the price exists. In view of the above, the learned SDR urged that before the issue of circular dated 25.1.1990, the Appellant should have followed Board's letter of 1976. But, the appellant chose to file only Part 1 price lists. This clearly amounts to deliberate suppression of the facts and the longer period is definitely applicable. The thrust of the submissions of the learned SDR is that the factory gate price declared by the appellants is not genuine in view of the various restrictions in past and there was a failure on the part of the appellants to declare the correct marketing pattern to the Department and therefore, the longer period is clearly applicable. Therefore, the pleaded that the Bench should uphold the impugned order.
6. We have gone through the rival contentions. The appellants sold the refrigerators at their factory gate and also to the various dealers from there are sales offices situated in different parts of the country. The Revenue's contention is that the dealers purchasing the goods from various area sales offices constitute distinct classes of buyers. Therefore, the price charged by each area sales office should be the assessable value as per Section 4(1)(a)(i). Let us take a re-look at the law prevailing on then. Section 4 of the Act reads as under:
"(1) Where under this Act, the duty of excise is the chargeable on any excisable goods with reference to value, such value shall, subject to the other provisions of this section, be deemed to be-
(a) the normal price thereof, that is to say, the price at which such goods, such goods are sold by the assessee to buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a relate person and the price is the sole consideration for the sale.
Provided that -
(i) where, in accordance with the normal practice of wholesale trade in such goods, such goods are sold by the assessee at different prices to different classes of buyers (not being related persons) each such price shall, subject to the existence of the other circumstances specified in clause (a), be deemed to be normal price of such goods in relation to each such class of buyers.
(ii) ...
(iii) ...
In this case, in spite of the restrictions, the factory gate price is available. The Revenue has not demanded any differential duty in respect of the factory gate sales. In these circumstances, it is very clear that Section 4(1)(a) exists. If Section 4(1)(a) price exists, that should be the assessable value. The case laws cited by the learned Advocate are quite relevant. There is no need to go to proviso. Proviso 4(1)(a)(i) will come into effect under the following circumstances :-
(a) There should be a normal practice of sales of goods at different prices to different classes of buyers.
(b) The other circumstance satisfy in Section 4(1) (a) should exist.
When all the above condition are fulfilled, proviso (1) will apply. What are the circumstances mentioned in Section 4(1)(a)? The circumstances are - There should be deliver at the time and place of removal. In the present case, as per the law existing at that time, the place of removal is the factory. The depots in area sales office are not places of removal. Hence, a sale from the area sales office will not satisfy the conditions of proviso (1) for the simple reason that the sale is not from the place of removal and the circumstances satisfy in Section 4(1) (a) do not exists for such a sale. In other words in respect of the goods stock transferred from the factory, proviso to Section 4(1)(a)(i) would not at all applied. The law is very clear. This point has been reiterated in Board all applied. The law is very clear. This point has been retreated in Board Circular dated 25.1.1990. In Para 6 of the above mentioned circular, it has been clearly stated that in case of transfer of goods to regional sales depots, the factory gate price will apply, provided it is genuine price. The Revenue cannot say that the factory gate price in this case is not genuine. The very fact that they have not demanded differential duty in respect of the clearance made to show that the factory gate prices are genuine. The learned Advocate clearly explained the reason for restrictions in respect of sales at the factory gate. It is also a common sense; a person in Ludhiana would not like to purchase goods directly from Hyderabad when they are available with the area sales office at Ludhiana. Moreover, it would be possible to organize after sales service from dealer in Ludhiana. Moreover reasons of logistic and other factors compelling the appellant to adopt a certain commercial practice have nothing to do with the Central Excise Law. Excise authorities cannot contend that excise law alone influences the decision making process of the trade. There is no strong ground to hold that the appellants treat dealers in different areas have different classes of buyers. In these circumstances and in view of the clarification in Board Circular of 1990, there is no merit in the adjudication order. After going through the various correspondence exchanged between the appellants and the Department, we are convinced that the Department was very much aware of marketing pattern of the appellant's unit. Moreover, the Collector (Appeals) had also held that when the factory gate price is available, the price at area sales office cannot be taken up as basis of charging duty. It is also noticed that on the date of issue of adjudication order, the Board's clarification was already therein. Since the Department had full knowledge of the marketing pattern, there are no grounds to invoke the longer period. M/s. Taparia Tools Ltd. case (supra) which appears to be favorable to the Revenue has been distinct in the case of TELCO Ltd. (supra). IT has been held in the above mentioned case, that the decision in the case of M/s. Tapariya Tools Ltd. did not lay down as a principle that dealers buying from the depot manufacturers and dealers buying from the factory gate area to be treated as different classes of buyers. M/s. TELCO Ltd. decision relies on the clarification issued by the Board in Circular dated 25.1.1990. it is also seen that the difference in price at the area sales office and the factory gate in on account of freight, insurance, depot expenses, etc. All these price during the relevant period were not includible in the assessable value and also in view of the legal position existing at that time. Once the factory gate price is available, the same should be the assessable value.
7. In view of the above observation, the Order-in-Original has not merit. We allow the appeal with consequential relief.