Customs, Excise and Gold Tribunal - Delhi
Guljag Chemicals And Plastics Pvt. Ltd. vs Collector Of C. Ex. on 19 October, 1992
Equivalent citations: 1993(63)ELT710(TRI-DEL)
ORDER S.V. Maruthi, Member (J)
1. The appeal arises out of an order of Collector of Central Excise disallowing the deductions claimed by the appellants from the assessable value of synthetic detergent powder.
2. The facts in brief are the appellants M/s. Guljag Chemicals & Plastics Pvt. Ltd. engaged in the manufacture of Synthetic Detergent Powder. They entered to an agreement with M/s. Index Port Ltd. (I.E.L. in short) (wholly owned subsidiary of M/s. Hindustan Lever Ltd.) under which they produce and manufacture "wheel" detergent powder for and on behalf of Index Port Ltd., Bombay. IEL supplies all raw-materials including packaging material such as polythene pouches and HDPE bags and the appellants receive and hold all such material on behalf of IEL, carry out processing of these raw-materials into finished products as per the instructions of IEL, and pack the detergent powder under the brand name "wheel" belonging to IEL. The detergent powder is packed in retail pack size of 1 Kg. polythene pouches and 50 number of such polythene pouches and then packed in HDPE bags. The finished product is then despatched by the appellants to the specified destination as per instruction of IEL, and goods are cleared from their factory on payment of duty. The price lists are filed on the basis of price at which IEL sold in the wholesale market. IEL in turn despatches the goods to their depots (Clearing & Forwarding Agents) and from there, the goods are sold and delivered by them to their duly appointed re-distribution stockists. The stockists sell the goods in wholesale market. The appellants were authorised under Notification No. 305/77 dt. 5-11-1977. The appellants filed 13 price lists in Part I and claimed the following deductions :
1. Cost of durable and returnable HDPE bags.
2. Freight incurred in movement of finished goods from factory to wholesalers.
3. Handling expenses incurred after removal of goods from the factory gate till delivery to wholesalers.
4. Expenses and remuneration paid to Clearing and Forwarding Agents (C&FAS) for storage, handling and onward despatches to wholesale buyers.
5. Discount allowed to wholesale dealer for damages suffered during transit.
6. Quantity discount allowed to trade.
7. Turn-over tax.
8. Bank charges for collection of sale proceeds.
9. Interest on finished goods in stock at depots after removal from factory gate.
3. The Asstt. Collector issued a show cause notice requiring the appellants to show cause notice as to why the deductions claimed should not be disallowed. On receipt of reply, the Asstt. Collector approved the price list by disallowing the deductions claimed by the appellants. However, the Assistant Collector allowed freight, turn-over tax and Central Excise duty. On appeal the Collector confirmed the order of the Assistant Collector. Hence the appeal before us.
4. The main contention of Shri Lodha, Advocate for the appellants is that the eligibility for the deduction of handling expenses, remuneration paid to the Clearing Agents and discount on damages is covered by an order of the Tribunal in Tungbhadra Industries Ltd. v. Collector of Central Excise, 1992 (60) E.L.T. 512 . Therefore, following the said order, the appellant is entitled to these deductions. As regards, eligibility for deductions on interest on receivable, he submitted that the issue is covered by order of this Tribunal in Hindustan Gas v. Collector of Customs, 1992 (59) E.L.T. 306 .
5. Shri Lodha further submitted that HDPE bags being durable and returnable packing the cost of which is not includible in the assessable value of detergent powder. He relied on the judgment of the Supreme Court in K. Radha Krishaiah v. Inspector of Central Excise, 1987 (27) E.L.T. 598 , Mahalakshmi Glass Works (P) Ltd., 1988 (36) E.L.T. 727 , Collector of Central Excise v. E.I.D. Parry (India) Ltd., 1989 (40) E.L.T. 139 . He also brought to our notice the agreement provided under the invoice indicating " deliveries of wheel detergent powder, sunlight detergent powder, Vim and Surf 500 Gm. carry bag will be made in High Density Poly Ethylene (HDPE) bags. The HDPE bags being durable in the nature are capable of being returned by us, if therefore, these bags are returned to us in old but reusable condition, the cost thereof recovered as part of the price of the goods sold to you will be reimbursed by us to wholesaler". He submitted that in view of the endorsement on the invoice the principles laid down by the Supreme Court in the case of K. Radhakrishaiah is satisfied and therefore, the cost of durable and returnable HDPE bags is not includible in the assessable value of detergent powder. The next item of deduction is turn-over discount. Shri Lodha brought to our notice two affidavits filed by one Inder Pal Singh and Gulshan Roy wherein they have stated that "in addition to the above, the manufacturers with a view to promote sales, also announced from time to time schemes whereunder the wholesale dealers are offered some stocks free by way of quantity discount for sales beyond agreed limits. Such schemes are communicated to wholesale dealer from time to time by the salesman of the manufacturers and agreed the stocks are made available to wholesale dealers once purchases are made in excess of agreed limits. It is common practice in the trade and wholesale dealers take it and understand this as quantity discount". The next item of discount claimed by the appellants relates to trade discount. In reply to the show cause notice, the appellants have stated that the quantity discount allowed by IEL is only an incentive in terms of free quantity and hence cannot be treated as a trade discount is not correct and trade discount is given in the form of quantity and it is known prior to the removal of goods, therefore, they are entitled to the deduction of trade discount.
6. Mr. Lodha next submitted that the bank charges for collection being a post -removal expenditure is to be excluded from the assessable value.
7. Shri Singhal appearing for the Department submitted that since there is no factory gate price, the deductions not eligible to be deducted. As far as the trade discount is concerned, it is given as a bonus. Therefore, it is not a permissible deduction. As regards the exclusion of the value of HDPE bags, he pointed out that the stipulation for returnable bags is the conditional one and therefore, they are not entitled for deduction of the value of HDPE bags.
8. The question, therefore, is whether the appellants are entitled to the deductions claimed by them. In Tungbhadra Ind. Ltd. v. Collector of Central Excise (supra), this Tribunal under exactly similar circumstances namely M/s. Tungbhadra Ind. entered into an agreement with M/s. Index Port Ltd. a wholly owned subsidiary of Hindustan Lever Ltd., Bombay for manufacture on its behalf two bags of soaps namely Sunlight and Lifebouy. Index Port issued an authorization under Notification No. 305/77 dt. 5-11-1977 authorizing M/s. Tungbhadra Ind. Ltd. to manufacture the goods on their behalf. The raw-material was supplied by Index Port Ltd. M/s. Tungbhadra Ind. Ltd. sold the goods to Index Port who in turn sold the goods to wholesale market. The assessable value claimed in the price list the price at which M/s. Index Port Ltd. sold the goods in wholesale market. While doing so, they have claimed deductions in respect of freight, handling expenses incurred in the movement of finished goods to wholesaler, remuneration to Clearing and Forwarding Agents, discount for damages. This Tribunal on a consideration of the material allowed deductions in respect of all the items.
9. The facts of the present case are exactly similar to Tungbhadra Ind. Ltd. Therefore, following order in Tungbhadra Ind. we allow the following deductions namely:
1. Handling expenses
2. Remuneration to the clearing agents & forwarding agents.
3. Discount on damages.
10. As regards the claim of the appellants for deduction of cost of durable and returnable packing, the Supreme Court in K. Radha Krishaiah v. Inspector of Central Excise (supra) held "that packing must be one which is returnable by the buyer to the assessee and obviously that must be under an arrangement between the buyer and the asessee. It is not the physical capability of the packing to be returned which is the determining factor, in the event, the words "by the buyer to the assessee" need not have found a place in Section. They would be superfluous what is required for the purpose of attracting the capability of the exclusion clause in Section 4(4)(d)(i) is that the packing must be returnable by the buyers to the assessee. The question which has to be asked in each case is this packing in this case returnable by the buyer to the assessee and obviously it cannot be said that the packing is returnable by the buyer to the assessee unless there is an arrangement between them that it shall be returned". On the facts of this case, we have extracted in the above paragraphs the endorsement in the invoices categorically stating that the bags HDPE are durable and returnable containers and if the buyer returns the same, the cost of the hags would be reimbursed by the manufacturer. In our view the endorsement made in the invoices satisfy the test laid down by the Supreme Court in K. Radha Krishaiah (supra). Therefore, the HDPE bags bring durable and returnable, the cost of the bags is not includible in the assessable value.
11. The next item of deduction is the interest on receivables. In other words, it is interest charged for a delayed payment made by the customers. In this context, we may refer the observation by the Supreme Court in A.K. Roy v. Voltas Ltd. 1977 (1) E.L.T. (J 177) . It was held that "the section postulates that the wholesale price should be taken on the basis of cash payment thus eliminated the interest involved in wholesale price which gives credit to the wholesale buyer for a period of time and that the price has to be fixed for a delivery at the factory gate...". In other words, the interest payable for the delayed payment of goods is excludible according to the Supreme Court of India. It is true that the judgment of Voltas is under old Section 4 of the Central Excises and Salt Act. However, the Supreme Court in Bombay Tyres International, 1984 (17) E.L.T. 329 (S.C.) categorically pointed out that there is no difference between the old Section 4 and amended Section 4. The observations made by the Supreme Court in Voltas were followed in Hindustan Gas (supra). Therefore, the appellants are entitled to the deductions of interest payable on receivables.
12. As regards the deductions of turn-over discount, the Bombay High Court in Queen's Chemist Manufacturing Deptt. v. Collector of Central Excise 1979 (4) E.L.T. (J 454) held that the trade discount can be either in the form of cash or in the shape of goods. It was also held a quantity discount has precisely the same effect as the money discount because in both cases, there is deduction in the price charged to the purchasers, therefore, quantity discount in the form of goods is admissible deduction under Section 4. The Supreme Court in Bombay Tyres International, 1984 (17) E.L.T. 329 held that discount alone in the trade (by whatever name such discount is described) should be allowed to be deducted from the sale price having regard to the nature of goods, if established under agreements or terms of sale or established practice the allowance and the nature of the discount being known at or prior to the removal of goods. Such trade discount shall not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice price.
13. In other words, a trade discount by whatever name is described is eligible for deduction provided it is known either under agreement or under terms of sale or by established practice prior to the removal of goods. On the facts of this case, there is no evidence except the affidavits filed by two persons which we do not know whether they are before the lower authorities. Though in the reply to the show cause notice, the appellants have stated that they have issued circulars indicating payment of trade discount and quantity discount. Neither those circulars were filed before us nor before the lower authorities. In other words, there is no examination of the fact of giving trade discount in the light of the principles laid down by the Supreme Court in Bombay Tyres International (Supra) . We therefore, remand the matter to the Assistant Collector to examine whether the trade discount and turn-over discount given by the appellants are in accordance with the principles laid by the Supreme Court.
As regards the deductions on account of bank charges for collection, these admittedly being the post-removal expenditure cannot be added to the assessable value.
In view of the above, we allow the appeal and set aside the order of the Collector and direct the Asstt. Collector to determine the eligibility for deduction in respect of the trade discount and turn-over discount in the light of the observations made above.