Customs, Excise and Gold Tribunal - Delhi
Fenner (I) Ltd. vs Collector Of Central Excise on 22 October, 1990
Equivalent citations: 1991ECR164(TRI.-DELHI), 1991(52)ELT460(TRI-DEL)
ORDER I.J. Rao, Member (T)
1. The question to be decided in all these appeals relates to valuation. The basic facts are that M/s. Fenner (I) Ltd. (Fenner for short) manufacture, among other things V-belts. They sold some of the V-belts at the factory gate paying duty on the basis of approved price list and the remaining belts they sold through their depots. At these depots they sell not only V-belts manufactured by them in their Madurai Factory but also V-belt's manufactured by BMF Beltings Ltd., Hyderabad (BMF for short) a sister concern of theirs. By two separate orders impugned before us the Department wanted to revise the assessable value of the V-belts sold to the sales depots (having been manufactured by the two Units). Inter-alia, some penalties were also imposed and differential duties demanded. Hence these appeals before us.
2. We heard Shri V. Lakshmikumaran, the learned Advocate for the appellants and Shri L. P. Asthana, Jt. CDR for the respondent Collector.
3. The facts in the present matter are that the show cause notice alleged that the sales from the depots were not retail in character as made out by Fenner India Ltd. but were wholesale in nature. The show cause notice, therefore, proposed to adopt the sale price prevailing at the depots (in respect of sales made through depots) for arriving at the assessable value. A total duty of Rs. 76,18,614/- was consequently sought to be demanded in the show cause notice, from Fenner (India) Ltd. While arriving at the assessable value in respect of the sales made through the depots, certain deductions towards transport charges, taxes paid and certain branch expenses were abated. The show cause notice proposed to demand duty for the period 1982-83 to 1986-87. The main thrust of the allegations in the show cause notice is that Fenner have suppressed/misdeclared information in showing that the sales from the depots were retail in character while they were in fact, wholesale in nature.
4. Shri Lakshmikumaran's main argument in these appeals is that the Department did not question the correctness of the assessable value approved for the wholesale sales effected at the factory gate, and that being the case, the Department cannot take the depot price as the basis for arriving at the assessable value in respect of the sales made through the depots of Fenner. He stated that Fenner, apart from dealing with this legal question sought to prove that the factory gate wholesale price is genuine. The learned Advocate stated that in the detailed written reply and the written submissions before the Collector during the personal hearing, the appellants filed detailed submissions to prove that if the permissible deductions are deducted from the depot price the net sales realisation from the depot will be less than the assessable value already approved in respect of factory gate wholesale sales. The advocate stated that the appellants contended that the Department took into account the total sales realisation from the depots which included not only the sales of V-belts made by Fenner but also V-belts made by BMF and sold to Fenner as alleged in the show cause notice issued to BMF. The learned Advocate stated that the appellants' plea is that from the total gross sale price realised by a Depot of Fenner, the Department should deduct the value of the 'traded' goods i.e. V-belts bought from BMF and sold by the depots. It was seriously contended on their behalf that if the value of the traded belts was deducted from the total sale price realised by Fenner depot and thereafter the permissible deductions are allowed, the net realisation by the depot would be less than the original assessable value already approved. This argument was advanced to show that the wholesale price at the factory gate was not a fictitous one but a genuine one. Shri Lakshmikumaran stated that Fenner also placed material to establish before the Collector that the show cause notice while calculating the duty demand for various depots, confined the demand to some years, in respect of some depots, while in some years, for some depots, no differential duty has been demanded. The learned advocate stated that in fact the show cause notice indicates'-' (dash) for these no-demand situations. The learned Advocate submitted that it does not mean that there were no sales of belts through that Branch in that year, but sales were effected through that depot in that year but even according to the calculations adopted in the show cause notice, the net realisation for that year from that depot was less than the price-realisation which should have been there on the basis of the assessable value on which excise duty was already paid. This is yet another instance, according to Fenner, to prove the genuineness of factory gate sales. The learned Advocate submitted that the total duty demand of Rs. 76 lakhs worked out in the show cause notice is on a price difference of 1.5% between the factory gate price and the depot price. In other words, even according to the allegations in the show cause notice, the price difference between the depot price and the factory gate wholesale price was only about 1.5%, even without deducting the permissible deductions as pleaded in the written reply to the show cause notice.
5. Shri Lakshmikumaran pleaded that the question now raised by the Department in the show cause notice, was specifically raised on a number of occasions earlier while approving the price lists, and also subsequently. He stated that thus, in the year 1975, when new Section 4 was introduced, and the appellants filed a detailed marketing pattern (page 163 to 174 of the paper book), in which it was stated specifically that Fenner was compelled to open depots to bring in price discipline for the V-belts when sold by the dealers to their customers. The advocate stated that according to the appellants, the depots of Fenner were compelled to offer healthy competition of their own dealers in order to maintain the desired price level in the market. The learned Advocate submitted that both on merits as well as on the question of time bar, the show cause notice has to be dropped.
6. The learned Advocate submitted that in the impugned order the learned Collector made certain vague allegations for the first time in so far as he gave a finding that the sales to the wholesale dealers at the factory gate were selective and restrictive. Further sales of belts only during the lean period November 1986 to January 1987 (three months) were taken into consideration to arrive at a distorted picture that the percentage of sales made through the factory gate was 'nominal'. The learned Advocate submitted that the learned Collector in the impugned order did not appreciate the submissions made by the appellants in the written reply as well as in the written submissions made during the personal hearing.
7. Shri Lakshmikumaran, the learned Advocate further submitted that as regards BMF, a subsidiary of Fenner, the assessable value of identical belts sold by BMF should be the same assessable value as was approved by the Department for Fenner. The learned Advocate stated that whatever may be the assessable value for identical belts determined by the Department for Fenner may be applied ipso facto to the identical belts sold by BMF. The advocate submitted during the hearing that this question was specifically gone into by the Assistant Collector of Central Excise, Division Hyderabad in his order-in-original dated 28-3-1985 wherein he held that the price at which BMF was selling the belts at the factory gate to the independent wholesale dealer was the same as the price at which the identical belts were sold by the BMF to Fenner depots and accordingly there was no need for filing a separate price list for sales effected to Fenner. This order-in-original dated 28-3-1985 was relied upon by the Department in the show cause notice. It was further submitted by the learned Advocate that the demand raised in the show cause notice issued to BMF was in respect of sales of V-belts effected by BMF to Fenner Branch to be sold ultimately to the customer. He stated that these sales of belts sold by BMF to Fenner were already included in the final sale-price realised by Fenner from their customers which formed the basis for the show cause notice to Fenner. Accordingly, it was submitted that the demand raised by the show cause notice issued to BMF is already included and forms part of the demand raised in the show cause notice issued to Fenner. The learned Advocate submitted that the show cause notice be quashed both on merits as well as limitation.
8. In reply to the arguments advanced by the learned Advocate for Fenner and BMF, the learned Jt. CDR contended that the sales effected at the depots of Fenner were not retail but wholesale. Further the dealers who purchased the goods at the depot would form a different class of buyers and the price charged to them would, therefore, be separately applicable in terms of Clause (i) of Section 4(1)(a). The learned Jt. CDR cited the decision of the Supreme Court in the case of Mc Dowells - reported at AIR 1986 SC 649 to say that the appellants have devised a method to avoid taxation. He also submitted that sales of 5% to 10% of the goods to the selected buyers at the factory gate should not constitute the basis for arriving at the assessable value in terms of sales made through depots. The Jt. CDR stated that the sales effected at the depots were not retail in nature but were wholesale in nature and, therefore, the wholesale price was to be adopted. He argued that if the deductions given by the Collector from the sale price of the depots was not correct or adequate, the matter has to be remanded. Shri Asthana further submitted that since there was suppression of facts regarding the nature of sales at the depots, invocation of longer period of limitation was justifiable.
9. Shri Asthana argued that in respect of BMF, since admittedly Fenner was related to BMF, in, respect of sales made to Fenner, price charged by the Fenner to the wholesale should form the basis of assessment. The Ld. JCDR supported the order passed by the Collector of Central Excise, Hyderabad in respect of BMF.
10. We have considered the rival arguments. We note, to begin with, that in both the cases of Fenner and BMF, the respective Collectors are n6t disputing the wholesale price charged by them at the factory gate to the wholesale dealers. In other words, there is no dispute regarding the assessable value already approved in Part-I in respect of sales made to the wholesale dealers. We note the Advocate's plea that Fenner's factory is in Madurai, almost the southern corner of India and it is not possible for the dealers, spread all over the country, to go to Madurai to purchase the V-belts, especially in small quantities. The controversy as to whether the sales made by the depots of Fenner were retail or wholesale is, in our view, really not relevant. If the sales made by the depots of Fenner to their customer were retail in character as contended by Fenner, question of adopting that retail sale price is ruled out. If these sales made by the depots of Fenner were not retail but wholesale, still such wholesale price cannot be adopted when the Department is not questioning the correctness of the assessable value adopted for the wholesale dealers at the factory gate. The Collector of Central Excise, Madurai has given a finding against Fenner that the sales made at the factory gate were nominal and sold to selected buyers. We do not see any such allegation in the show cause notice. Even otherwise, the Collector's order in this regard is not based on acceptable evidence and, therefore, cannot be sustained.
11. We also find that as argued by the learned Advocate for the appellants, there are some flaws in the reasoning of the Collector of Central Excise, Madurai in the impugned order. The appellants submitted before us (as they did before the Collector) that if we exclude the price of traded V-belts (bought-out from BMF) from the total price realised by any depot and deduct the permissible deductions permitted by the Collector, the net realisation from the depot would be much lower than the assessable value already approved. They made a further plea that in respect of a number of depots during the period in question, there were huge sales and yet no demand has been made because even according to the Department's own calculations, the net realisation from those depots in those periods was less than the assessable value already adopted for the factory gate sales. These two factors indicate that the factory gate price could not be considered as artificial. We make this observation in view of the attempt made by the learned Collector in the impugned order to show that the sales made by Fenner was nominal and restrictive. Further, the difference between the assessable value approved for the sales made at the factory gate and the sales made through the depots was admittedly 1.5% to 2%, even according to the calculations of the Department. This small difference between factory gate price and the depot price appears to be reasonable. We are, therefore, not impressed with the finding of the Collector casting doubts on the approved assessable value at the factory gate. Once the factory gate wholesale price is determined the question of adopting any different assessable value for the sales made through the depots does not arise. This is clear from a plain reading of Section 4 of CES Act. The decision of the Supreme Court in the case of Indian Oxygen Ltd. reported at 1988 (36) ELT 723 reinforces this view. Here the factory gate price being available, and we having found that there is nothing wrong in it, it appears that the assessable value already approved for the V-belts sold through depots need not be revised as ordered by the Collector, whose order cannot be sustained on facts as well as in law.
12. We examined the case law cited by both sides, keeping in mind the arguments advanced and referred to above. The learned Advocate for the appellants cited the following six judgments in his support:
i) Union of India v. Bombay Tyre International Ltd. - 1983 (14) ELT 1896
ii) Union of India v. Duphar Interfan Ltd. - 1987 (27) ELT 599
iii) Usha Martin Industries v. Collector of Central Excise - 1987 (27) ELT 728
iv) Collector of Central Excise v. Enfield India Ltd. - 1988 (34) ELT 654
v) India Pistons v. Collector of Central Excise - 1990 (46) ELT 3
vi) Indian Oxygen Ltd. v. CCE - 1988 (36) ELT 723
13. In Bombay Tyre International (supra) the Supreme Court clearly held that the price at which excisable goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal is the basis for determination of assessable value unless the buyer is a related person and the price is not the sole consideration for sale. Applying this criterion to the facts of the present matter it is clear that the Department not having found fault with the factory gate price declared by the appellants, the order that there should be a separate price for assessment based on the wholesale price at the depots cannot be sustained. In this context we recall the submissions made, without contradiction by Revenue, that the difference between the factory gate price and the sales depot price was marginal and in some cases and sometimes the difference is even negative.
14. In Duphar Interfan Ltd. (supra) the Supreme Court was referring only to extra charges, for packing and distribution costs when delivery was not at factory gate. The present matter does not have any issue relating to packing charges and, therefore, this citation is irrelevant.
15. In Usha Martin Industries (supra) (paragraph 7) the Supreme Court held that where there is a factory gate price, the wholesale cash price/normal price was ascertainable at the time and place of removal itself and it was not lawful to assess the goods on the subsequent actual sale price or ex-depots as this was not the price at the time of removal or at the place of removal. In this judgment the Tribunal took note, while approving the Appellate Collector's finding that the wholesale price was not confined to a particular class of buyers, and was available right at the factory gate. (We shall examine the arguments of the learned Jt. CDR that the sales at factory gate and sales at the depots were to different classes of buyers later).
16. In Enfield India Ltd. (supra) the Tribunal ordered valuation of motorcycleson the basis of 20.1% sales to dealers as these sales were held to be bona fide sales and were made in the normal course of wholesale trade and such price was held to be the basis for valuation for all motorcycles removed from the factory. We note that the ratio of this judgment is applicable to the facts of the present matter also.
17. In India Pistons Ltd. (supra) the Supreme Court was merely extending the benefit of a finding, that distributors of the appellants were not related persons to other buyers from whom duty was charged on the basis that distributors were related persons. Therefore, this judgment is not relevant to the present proceedings.
18. In Indian Oxygen Ltd. (supra) the ratio was that where the goods are sold from the factory and also from the depots/service centres at various places and to Government at DGS&D rate contract, ex-factory price which was ascertainable should be the basis for determination for value under Section 4(d) of the Central Excises and Salt Act. In the same judgment the Supreme Court held that if ex-factory price is ascertainable the issue of deductions from the ex-depots price does not arise. But if the ex-factory prices are not ascertainable and the goods are to be assessed ex-depot, then, it is for the manufacturer to claim on the basis of actual evidence on the admissible deductions from the price list. This judgment applies on all fours to the facts of the present matter, in that there is an ex-factory price available here and the Department is seeking to prescribe another price on the basis of depot sales. In view of the importance of this judgment we reproduce para six of the judgment for ready reference:
"It is necessary to reiterate that value for assessable goods must be determined in terms of Section 4 of the Act. The said Section 4(1) provides that where the duty of excise is chargeable on any excisable goods with reference to value, such value shall, subject to the other provisions of this Section be deemed to be the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale. "Place of removal" under Section 4(4)(b) has been defined to mean a factory or any other place or premises of production or manufacture of the excisable goods or a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty, from which such goods are removed. The scope of determination of value has been explained and reiterated by this Court in Union of India and Others etc. etc. v. Bombay Tyre International Ltd. etc. etc. 1984 1 S.C.R. 347. Following the principle of the said case the Tribunal noted in the judgment under appeal that the price ex-factory is ascertainable. If once that is the position as the Tribunal rightly pointed out, the issue of deduction of rate from the prices ex-depots does not survive for the decision. But if the ex-factory prices were not ascertainable and the goods were to be assessable ex-depots, then it would be for the manufacturer to claim on the basis of actual evidence of the deductions should be admissible from the price list as per provisions of the Act."
19. In paragraph 7 of the judgment the Supreme Court also referred to Bombay Tyre International wherein the judgment held that the value of an excisable article for the purpose of levy should be taken to be the price at which the excisable article is sold by the assessee to a buyer at arm's length in the course of wholesale sale at the time and place of removal.
20. The learned Jt. CDR placed reliance on the judgment of the Supreme Court in Mc Dowell and Company v. Commercial Tax Officer [AIR 1986 S.C. 649]. The ratio of the judgment is that devices to avoid tax should not be given judicial benediction. The Department's view is that the sales at the depots where V-belts are sold in wholesale lots are designed as a device to save tax. Whether tax was saved in the instant matter is a big question. That the Department selected certain years and certain depots to show that the appellants were getting 1.5% to 2% more realisation was shown before us. But the appellants' argument that the price paid for the V-belts purchased from BMF was not deducted stood undisputed. Selling products through sales depots is a wide commercial practice and is not confined to the appellants alone. In our opinion sale in wholesale lots even at the wholesale depots does not take away the validity of the approved factory gate price especially when the difference between such prices is marginal. We cannot overlook the plea of the learned Advocate that there are in certain years/months, certain depots obtained less price for the V-belts as compared to the normal value. In the face of all the circumstances we reject the argument that the appellants adopted any device to evade duty. Establishment of sales depots cannot be considered even as a method of avoidance, given the facts of the matter.
21. The next question is whether the buyers at the factory gate and the buyers at the depots were different classes of buyers. Prima facie it appears that a class of buyers is relevant when the assessee wants to clear the goods at a lower rate claiming that he is selling to a different class of buyers. The expression "class of buyers" is not defined under Section 4 of the Act. But there is sufficient indication in Section 4(4)(c) that the dealers, industrial consumers, Government and local authorities, share holders of a co-operative society or an employee of a manufacturer constitute different classes of buyers. In the present matter no factual justification has been made to show that sales at the factory and the sales at the depots are to different classes of buyers. The Department's view is that the factory gate sales are restricted to selected buyers. To extend the meaning of the words class of buyers to cover the so called selected buyers at the factory gate and buyers from the depots would not only be unjustified but would go directly against the Supreme Court's judgment in Indian Oxygen Ltd. (supra). It is not as if the appellants want to give a special low price and want to nominate a particular class of buyers. For that purpose it is the other way round in that it is the Department who wants to treat the buyers at the depots as a separate class of buyers. In the absence of any legal and factual justification we cannot accept this argument.
22. In the result we take note that the appellants have an approved factory gate price and order that this price should form the normal price for assessment, even for goods which are ultimately sold at the depots. We further take note from 1975 onwards the Department was raising the issue of valuation and the appellants were filing replies to the queries. Therefore, there cannot be any question of suppression by the appellants. Besides, there is no requirement under the law that sales at the depots should be in retail or in single unit only. We note that it is not the Department's plea that the factory gate price should be disturbed. Sales at the factory gate were not impugned before us and there is no threat from the Department against the approved price list for the factory gate sales. This position taken together with all the attendant facts and circumstances discussed by us in detail in earlier paragraphs leads to the conclusion that the appeals filed by Fenner against the order passed by the Collector of Central Excise, Madurai should be allowed.
23. In respect of BMF, the position is clear that as they are a sister concern of Fenner, the other appellants and the goods are sold by them through Fenner, they should pay duty on the basis of the normal price of Fenner.
24. In view of these findings there would be no justification to uphold the penalties against the individuals including the Managing Director, Executive Director, General Manager and two Managers. We set aside these penalties.
25. The appeals are allowed with consequential relief.