Customs, Excise and Gold Tribunal - Delhi
Kota Oxygen (P) Ltd. vs Commissioner Of C. Ex. on 2 August, 2000
Equivalent citations: 2000(121)ELT369(TRI-DEL)
ORDER C.N.B. Nair, Member (T)
1. The appellants are manufacturers of oxygen and acetylene gases. These gases have to be filled in cylinders and delivered. Some of the buyers bring their own cylinders, get them filled in the appellants' factory and take delivery of the gas. Others receive them in cylinders belonging to the appellants or cylinders taken on hire by the appellants from others. The dispute is with regard to the appellants' claim for deduction of "cylinder maintenance charges" and "fixed rental charges" of cylinders while fixing the assessable value of gases. The period involved is March, 1994 to March, 1997.
2. Gases were liable to central excise duty at specific rates up to 1-3-1994. Therefore, till 1-3-1994, the value of cylinders used for packing and the cost of maintenance of cylinders were not relevant to the collection of central excise duty on the gases. During this period, appellants were charging the same price for gas from their buyers irrespective of whether gas was delivered in cylinders supplied by the buyers of the gas or gas was supplied in the cylinders owned or hired by the appellants. With effect from 1-3-1994, the appellants made certain deductions from the sale price of the gases towards "cylinder maintenance charges" and "fixed rental charges" from their sale price and paid central excise duty while fixing the assessable value.
3. Upon investigations, central excise authorities found that the amounts collected under these two heads by the appellants were either entirely without any basis, as in the case of collections made from buyers who brought their own containers, or collections were vastly in excess of the expenses incurred under these heads. Therefore, show cause notice dated 11/12-5-1999 was issued alleging that the assessee had charged higher price for the gases in the garb of cylinder maintenance charges and fixed rental charges. The show cause notice proposed recovery of central excise duty on the differential amount between the actual expenditure on these heads and the amounts realised under them.
4. The adjudication proceedings initiated by issue of the show cause notice culminated in confirmation of the duty demand of over Rs. 20.5 lakhs, imposition of penalty of Rs. 2 lakhs under Rule 173Q and a penalty equal to the duty demanded under Section 11AC. The present appeal challenges this order.
5. The appellants have challenged the impugned order both on merits and on time-bar. On merits, their challenge is that it is settled law that cylinder maintenance charges and cylinder rental charges are eligible for deduction and that it is also settled law that no duty is demandable on the differential amount between the actual expenses on these heads and the amount actually collected, the additional amount, if any, being earned from an ancillary activity and not relatable to manufacture of the gases. They have relied upon the decision of the Supreme Court in Collector of Central Excise v. Indian Oxygen Ltd. [1988 (36) E.L.T. 730 (S.C.)] and final order of the Tribunal Nos. 348- 355/2000-A, dated 6-6-2000 [2000 (119) E.L.T. 565 (Tribunal)] in the case of M/s. Gomti Carbon Dioxide, Kanpur and Ors. With regard to time-bar, they have submitted that the deductions claimed were indicated in the invoices themselves and therefore, question of suppression of facts or mis-declaration of facts with intent to evade duty did not arise in the facts of the case, permitting the department to issue the show cause notice for the extended period.
6. As against the above submissions of the assessee, learned DR has submitted that the facts of the present case make the above decisions entirely inapplicable to the appellants' case. On merits, his submission is that the appellants were selling gases both to customers who brought their own cylinders and in cylinders belonging to the appellants or which had been hired. The price was the same in respect of sale to both the categories. Therefore, there is no basis to the appellants' submission that deductions were required to be made from the sale price of the gases while making assessment to central excise duty. He submitted that when goods are sold at ex-factory price, that price constitutes the assessable value. In the present case, part of the gases was being sold on ex-factory basis to buyers who brought their own cylinders. Therefore, that price should have been adopted as the basis for assessable value. There was also no requirement for making any deduction from that sale price since the gases were collected by the buyers in their own cylinders. The price paid, therefore, represented entirely the consideration for the gas and did not include any cost towards packing, maintenance of cylinders or rental charges of cylinders. He also submitted that the appellants' submission that profits from amounts collected towards cylinder maintenance and cylinder rental are profits from incidental or ancillary activities has no factual basis, firstly because there was no occasion or justification to make such collections from buyers who collected the gases in their own cylinders. Secondly, such collections from others were also not towards such services. This is clear from the data itself. For the year 1994-1995, the appellants collected over Rs. 13 lakhs towards cylinder maintenance charges while the expenditure was only Rs. 86,000/-. In 1995-1996, the appellants collected over Rs. 10 lakhs in the name of cylinder maintenance while the expenditure was only Rs. 2.7 lakhs and in 1996-1997, the appellants collected over Rs. 12 lakhs towards this charge while expenditure was less than Rs. 2 lakhs. Similarly, under the fixed rental charges, the appellants collected over Rs. 32 lakhs in the year 1994-1995 as against an expenditure of about Rs. 1.8 lakhs. In 1995-1996, the appellants collected over Rs. 33 lakhs towards this cost while the expenditure was less than Rs. 11 lakhs. Similarly, in 1996-1997, the appellants collected about Rs. 38 lakhs towards cylinder rental charges as against an expenditure of over Rs. 13 lakhs. From this as well as the fact that collections towards cylinder maintenance and cylinder rental charges were being made even when cylinders were brought by the buyers themselves, it is clear that these were just two convenient headings used by the appellants to collect amounts. The collections essentially represented only the sale value of the gases and not any ancillary or allied activities connected with the activity of manufacturing and selling gases. He also submitted that these facts were in no way disclosed to the department or known to the department. Therefore, this is a fit case for invoking the provisions of extended period for realisation of duty short-levied and short-paid.
7. We have perused the records and have considered the rival submissions. The material facts about the case are that the appellants had two categories of buyers. One set of buyers collected the gas in their own cylinders. In those cases, there was no occasion to collect any charge towards cylinder maintenance or cylinder rental. The appellants still made the collections from them. It is also relevant that the appellants' collections under these headings had no relation whatsoever to the costs involved. The data shows that collections were made even from buyers who did not avail of the service and also that collections bore no ratio or relation to the costs involved in those services.
8. It is settled law that if ex-factory wholesale price is available, that should be the assessable value. In the present case, the goods were being sold at ex-factory basis. Therefore, that value should have been adopted as the assessable value for all clearances. No deduction was also required to be made from the price at which gases were sold to dealers who purchased them in their own cylinders, as the price of those gases represented only the value of those gases and did not include any elements which are extraneous to the price of the goods. The entire removals should have been assessed at that price and duty demanded accordingly. The facts of the case also belie the appellants' claim. The appellants' invoices showed two collections at fixed rates under the headings "cylinder maintenance charges" and "fixed rental charges". However, these levies were being made even in respect of sales where the goods were collected by the buyers in their own cylinders. That is to say cases which did not occasion such levy. Further, these collections were also several multiples of the cost incurred. Thus, giving credence to the Revenue's allegation that value of the gas was being collected under the headings of convenience.
9. From what is stated above, it is clear that the profits from realisation under the two headings "cylinder maintenance charges" and "fixed rental charges" were not profits or gains from ancillary or allied ventures, excludible while determining the assessable value. The entire production was also liable to be assessed at the price at which the gases were sold to buyers who collected the gases in their own cylinders. We, therefore, find no merit in the appellants' submission that the demands are not justified. The appellants' conduct also justifies the allegation that material facts were suppressed with intent to evade payment of duty thereby justifying raising of demand for the extended period as permitted under proviso to Section 11A(1). The invoices covering the sales which were submitted to the central excise authorities also, indicated a different arrangement than the actual one even when delivery of gases was in the buyer's cylinders and the price did not include payment for any other services, part of the price was shown in the invoices as representing maintenance and cylinder fixed rentals. These circumstances fully justify the allegation of intentional evasion of duty. Consequentially, the demand of duty and penalty under Rule 173Q are confirmed. With regard to penalty under Section 11AC of the Central Excise Act, we find that this section was not in force during most of the duty demand period. The duty demand is for the period of March, 1994 to March, 1997. Section 11 AC came into force only from 28-9-1996. Therefore, no penalty under this Section could have been imposed on account of duty evasion prior to 28-9-1996. In view of this, the penalty imposed under Section 11 AC is set aside.
10. Subject to the modification in penalty as indicated in para 9 above, the impugned order is confirmed and the appeal disposed of.