Customs, Excise and Gold Tribunal - Delhi
Collector Of Central Excise vs Detergents India Ltd. on 22 September, 1992
Equivalent citations: 1993(63)ELT167(TRI-DEL)
ORDER P.C. Jain, Member (T)
1. The facts given in the appeal filed by the Revenue are as follows :-
1.1 The respondents herein are manufacturers of detergent cake. They manufacture detergent cake of their own brand and also manufacture and supply on job work basis to M/s. Hindustan Lever Ltd. who supply the raw materials. In the case of goods manufactured on job work basis i.e. detergent cake is initially wrapped in manufacturer's label/wrapper and further a number of cakes (e.g. 144 nos.) are kept in corrugated boxes and the goods are despatched direct to the depots/nominees of M/s. Hindustan Lever Ltd., according to the direction of the latter company. From there the goods are sold to wholesale buyers.
1.2 The respondents were filing price lists in Part I as per the direction of M/s. Hindustan Lever Ltd. in respect of detergent cakes manufactured on job work basis. In the relevant price lists the respondents claimed the following deductions, amongst others, which are now in dispute before us :-
(i) Cost of corrugated boxes used for packing the product as special secondary packing.
(ii) Handling expenses incurred in movement of finished goods to wholesale dealers.
(iii) Remuneration to clearing and forwarding agents for handling of goods in transit and other incidental services.
(iv) Bank charges for collection of sale proceeds.
1.3 On receipt of the price lists the Assistant Collector of Central Excise, Anantapur issued show cause notice to the respondents asking them to show cause as to why the deduction should not be disallowed. Pending decision and approval of the price lists the respondents had been paying duty under protest. The Assistant Collector vide his various orders-in-original dated 14-11-1988, 5-12-1988, 28-12-1988 and 20-3-1989 disallowed the aforesaid deductions from the prices declared by the respondents.
1.4 In appeal before the Collector (Appeals), the respondents herein succeeded. Hence the Revenue has filed the appeals against the impugned order-in-appeal No. 106 to 109/89(H), dated 28-7-1989 passed by the Collector of Central Excise (Appeals), Madras.
2. We shall take up the pleas advanced from both sides and give our findings on each of the items as below :-
(i) Deduction of cost of special secondary packing -
2.1 The original authority has held that the detergent cakes packed in primary packing cannot be sold on wholesale basis because single cakes are not saleable in wholesale. It has, therefore, been held by the Assistant Collector that the corrugated boxes in which a number of primary packed detergent cakes are kept would be a normally wholesale packing and therefore, its cost cannot be excluded from the value of the goods under Section 4 of the Central Excises & Salt, 1944.
2.2 The lower appellate authority, on the other hand, relying on Bombay High Court's decision in the case of Godrej Soaps v. UOI 1986 (25) E.L.T. 482 has held that cost of packing in corrugated boxes was not to be included in the assessable value.
2.3 At the time of hearing, the learned JDR for the Revenue has relied upon Tribunal's judgment in the case of Kusum Products Ltd. [1988 (38) E.L.T. 513 (Tribunal)] which, according to him, is directly applicable to the facts and circumstanes of this case. He submits that this judgment has also considered the carton packing for soap and detergent powder and therefore, this ratio should be squarely applicable in this case as well. The Tribunal has held in that case that the primary packing of soap is of paper or thin cardboard paper, it is very flimsy; it is liable to be torn and punctured during storage and handling, what to talk of long distance transport. Unless the soap cakes are put in a viable bigger packing, their stacking and accountal in wholesale lots would be extremely difficult and their loading/unloading uneconomical. Besides, observed the Tribunal, the nature of goods is such that moisture of the soap cake is required to be preserved at least for some time during wholesale marketing and storage. It was, therefore, held that by their very nature the soaps could not come to the wholesale market in their primary packing.
2.4 Learned advocate for the respondents, on the other hand, has submitted that after the judgment of the Tribunal, Supreme Court has given an important ruling as to what cost of packing is to be included in the value of goods in the case of Ponds India Ltd. [1989 (44) E.L.T. 185]. The Supreme Court has also laid down certain guidelines in the said judgment as to how to determine whether a certain packing is necessary for selling the goods in the wholesale market at the factory gate. He further submits that keeping in view the above observation of the Supreme Court and in similar circumstances of another job worker of a subsidiary of Hindustan Lever Ltd., namely in the case of Tungbhadra Industries Ltd. v. CCE, Hyderabad Order No. 95 & 96/92-A, dated 27-3-1992 reported in 1992 60, E.L.T. 512 (Tri.), the matter has been remanded to the adjudicating authority to determine afresh the question of inclusion of the cost of corrugated boxes in the instant case.
2.5 We have carefully considered the pleas advanced on both sides. We are in agreement with the learned advocate for the respondents. We reproduce below para 16 of the Tribunal's judgment in the case of Tungbhadra Industries, supra :-
"It is true that if the corrugated boxes are only meant for safe transportation, then in view of the judgment of the Supreme Court in Godfrey Philips, the cost of corrugated boxes is excludible from the assessable value. However, neither the Asstt. Collector nor the Collector considered whether the corrugated boxes are necessary for putting the soaps in the condition in which they are generally sold in the wholesale market at the factory gate or they are only meant for safe transportation. In case, the packing in corrugated boxes is necessary for putting the goods in the condition in which they are generally sold in the wholesale market at the factory gate, the cost of corrugated boxes is includible in the assessable value. We, therefore, direct the Assistant Collector to ascertain in the light of the above observations and if he finds that the packing in corrugated box is necessary for putting the goods in the condition in which they are generally sold in the wholesale market at the factory gate, then he may include the same in the assessable value otherwise exclude the same."
Accordingly, we direct the Assistant Collector to ascertain in the light of the above observations whether the packing in corrugated boxes is necessary for putting the goods in the condition in which they are generally sold in the wholesale market at the factory gate, if the corrugated box is considered to be so necessary then its value is to be included, otherwise not. In determining this question both the sides would be at liberty to adduce any evidence in support of their pleas after disclosing to the other side and the Assistant Collector shall decide the question in accordance with the principles of natural justice.
(ii) Handling expenses incurred in movement of finished goods to wholesale dealers &
(iii) Remuneration to clearing and forwarding agents for handling of goods in transit and other incidential services.
2.6 The original authority has simply held that these are in the nature of post- manufacturing expenses (PME) and in the light of Supreme Court's judgment in the case of Bombay Tyres International Ltd. [1983 (14) E.L.T. 1896], these would form part of the value of the goods.
2.7 Lower appellate authority holding in favour of the respondents has, however, held that these are admissible deductions and these would be allowed subject to production of proof in that regard.
2.8 Learned JDR for the Revenue arguing against the findings of the lower appellate authority has relied on -
(1) 1984 (17) E.L.T. 607 (SC) - Caromandel Fertilisers Ltd. v. U.O.I. (2) 1989 (47) E.L.T. 202 (SC) - Seshasayee Paper & Boards Ltd. v. C.C.E. (3) 1988 (34) E.L.T. 239 (Trib.) - Prabhat Zarda Factory v. C.C.E. All these three judgments relied upon by the learned JDR hold that commission paid to agents for services rendered by such agents are not deductible as trade discount from the assessable value. Learned JDR has submitted that these deductions are claimed on account of the services rendered by the carrying and forwarding agents in the course of handling of goods in transit and other incidental services, these are not liable to be deducted from the value of the goods under Section 4 of the Act.
2.9 Learned advocate for the respondents, on the other hand, relies on -
(1) 1988 (36) E.L.T. 151 (AIMS Oxygen Pvt. Ltd.) (2) 1987 (27) E.L.T. 599 (SC) [UOI v. Duphar Interfran] (3) Tungbhadra Industries, supra.
Both these items of deductions, claimed by the respondents had come up for examination in the case of Tungbhadra Industries in similar circumstances.
2.10 We reproduce below the relevant paras 10,11 and 12 from the said judgment which deal with the cases relied upon by either side in this case as well :-
"10. As regards the handling expenses, the claim in the reply reads as follows :
'Such handling expenses are basically in the nature of loading/unloading charges incurred in the course of transportation of the goods to the depot and from the depot to the wholesale dealers as the goods have to be transhipped from one truck to another or from wagon to a truck etc.'
11. The Supreme Court in Indian Oxygen v. CCE 1988 (36) E.L.T. 723 (SC) held that loading expenses incurred outside the factory gate are excludible from the assessable value. Admittedly, the handling expenses are incurred outside the factory gate and therefore, the Collector is justified in excluding the handling expenses from the assessable value.
12. The next item is the remuneration paid to the clearing agents, for-warding agents. The reply to the show cause notice stated that it is paid on account of handling, storage, despatch and other services rendered by them in the course of transportation of finished goods after removal from the factory gate till they are delivered to the wholesale dealers. Admittedly, the expense is incurred after the removal of goods from the factory gate. In U.O.I. v. Duphar Interfran Ltd., the Supreme Court is of the view that extra charge incurred outside the factory gate is not includible in the assessable value. Therefore, the Collector is right in allowing these deductions. The judgment of the Supreme Court in Coromandel Fertilizers v. U.O.I. 1984 (17) E.L.T. 607 is distinguishable as it is a case of selling agents appointed under an agreement, the commission paid to the selling agents is different from the expenses incurred in paying the remuneration to the clearing agents and forwarding agents as the expense is incurred outside the factory gate. On the facts of this case, the expenditure is incurred on duty-paid goods for the purpose of loading/unloading, storage, despatch and other incidental activities. Therefore, we see no reason to interfere with the order of the Collector".
One of us was a party to the Tribunal's judgment in the case of Tungbhadra Industries Ltd. and agreeing with the findings as above, we do not find merit in the appeal of the Revenue and we hold that these charges would not form part of the value of the goods.
(iv) Bank charges for collection of sale proceeds 2.11 Original authority has treated them as PME and therefore, are liable to be included, according to it, in view of the Supreme Court's judgment in the case of Bombay Tyres International Ltd.
2.12 Lower appellate authority, on the other hand, has held to the contrary if they are identifiable.
2.13 Learned JDR for the Revenue urges that Bank charges are collected from the customers in respect of the sale proceeds of the excisable goods. Therefore, these are directly related to the sale of goods and hence would form part of the assessable value of the goods.
2.14 Learned advocate, submits that bank charges for collection of sale proceeds are analogous to "interest on receivables" which have been held by the Tribunal in the case of Hindustan Gas & Industries Limited (Order No. 126/89-A, dated 1-1-1990) as not forming part of the assessable value of the goods. He, therefore, submits that bank charges are also not liable to be included for the purpose of determining the value of the goods.
2.15 We have considered the pleas advanced on both sides. We observe that Section 4(l)(a) envisages price of goods/or delivery at the time and place of removal in the course of wholesale trade as the value of goods on which duty is to be assessed. In other words, it envisages cash payment by the buyer of the goods to the assessee in lieu of delivery of the goods at the time and place of removal; thereby it eliminates all expenses connected with recovery of such payment. Bank charges is nothing but an expense incurred by the assessee in realisation of the sale proceeds of the goods. These charges are recovered by the assessee from its customers. These would not therefore, form part of the value of goods in terms of Section 4(l)(a) of the Act. It is on this basis that interest on receivables has been held by the Tribunal in the case of Hindustan Gas, supra, as not to form part of the assessable value of the goods. Analogy of the ratio of the said judgment would apply to the bank charges as well. Accordingly, we do not find any merit on this point as well.
3. In short, the appeals are disposed of in the above terms.