Custom, Excise & Service Tax Tribunal
Godrej & Boyce Mfg. Co. Ltd vs Cce Mumbai Ii on 31 January, 2011
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI
COURT NO. II
APPEAL NO. E/661 & 662/07 Mum
(Arising out of Orders-in-Original No. I/CEX/2007 dated 27.1.2007 passed by the Commissioner of Central Excise, Pune and 06/COMMR/M-II/2007 dated 16.3.2007 passed by the Commissioner of Central Excise, Mumbai)
For approval and signature:
Honble Shri Ashok Jindal, Member (Judicial)
Shri. P.R. Chandrasekharan, Member (Technical)
1. Whether Press Reporters may be allowed to see : No
the Order for publication as per Rule 27 of the
CESTAT (Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the :
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether Their Lordships wish to see the fair copy : Yes
of the Order?
4. Whether Order is to be circulated to the Departmental : Yes
authorities?
Godrej & Boyce Mfg. Co. Ltd.
:
Appellant
Versus
CCE Mumbai II
Respondent
Appearance Shri A. Hidayatullah, Sr. Advocate with for Appellant Ms Shailaja Kher-Hidayatullah, Advocate Shri R.K. Mahajan, Jt. CDR for Respondents CORAM:
Shri. Ashok Jindal, Member (Judicial) Shri. P.R. Chandrasekharan, Member (Technical) Date of Hearing : 31.03.2011 Date of Decision : .
ORDER NO.
Per : Ashok Jindal The appellants are in appeals against the impugned orders wherein demand of duty along with interest is confirmed and equivalent amount of penalty has been imposed under Section 11AC of the Central Excise Act, 1944 on account of charging consideration of Optional Service Charges (OSC in short) and Rust Proof Protection Charges (RPP in short) over and above the MRP of the impugned goods i.e. Refrigerators and Washing Machines.
2. The facts of the case are that the appellants are the manufacturer of Refrigerators and Washing Machines and clearing their goods to various depots located all over the country. The goods are to be charged Central Excise duty on the basis of MRP under Section 4A of Central Excise Act, 1944 after allowing the applicable abatement under Notification No. 41/2003 dated 01.04.2003. On the basis of intelligence that the appellants are collecting charges described by them as OSC and RPP separately over and above the MRP of the product and thereby they were altering the MRP thereby under valuation of MRP and short paying duty, the factory was visited and records were scrutinised. After scrutiny of the records, it was alleged that the appellants are charging OSC and RPP over and above the MRP of the product through separate invoice and show-cause notice was issued which was adjudicated and impugned demands were confirmed. Aggrieved by the said orders the appellants are in appeals before the Tribunal.
3. This is a second round of litigation. In the earlier round this Tribunal has remanded the matter vide Order A/433/WZB/06/C-II/EB dated 27.02.2006 with the following observations:-
3. Inasmuch as the impugned order suffers from violation of principles of natural justice, we set aside the same and remand the matter to Commissioner for fresh decision after taking into consideration the Tribunal decision in the case of Electrolux Voltas Ltd. learned DR request that the detailed facts in the case of Electrolux Voltas Ltd. has not been discussed by the Tribunal, Commissioner be directed to look in to the appellants submission that the facts in their case and the facts in the Electrolux Voltas Ltd. are identical, who would handover the copy of Electrolux Voltas Ltd. order to him. The appellant is also at liberty to place other defence during the denovo adjudication. On remand the matter was taken up by the adjudicating authority afresh and resulted in confirmation of the demands as per the impugned order.
4. During the course of arguments the learned Advocate for the appellants submits that -
(i) the assessment of the goods viz. Refrigerators and Washing Machines were covered by the provisions of Section 4A of the Central Excise Act, 1944 and, accordingly, the Central Excise duty was paid thereon at the time of clearance on MRP declared less applicable abatement.
(ii) He further submitted that the appellants have sold the subject goods with a built-in warranty of one year for the refrigerators and two years for washing machines, the cost of which was a part of the MRP of the product.
(iii) He further submitted that the appellants also offered to its customers an OSC for a period of 4 years in the case of refrigerators and 3 years in the case of washing machines. The appellants also offered to its customers an optional 5 year RPP on select models of refrigerators. There are separate contracts for OSC and RPP. The contracts of OSC are in operation only after the expiry of one or two year warranty period. He also explained that the said option could be exercised by the buyer of the goods either at the time of purchase of the goods or at any time during the one or two year period of the warranty of the product.
(iv) He also submitted that the customer exercised this option by actually declaring the said option on the body of the printed contract which was a part of the operations manual. A copy of the said contract was to be handed over to the customer and the original copy of the said contract was sent to the appellants service department for further reference.
(v) He also submitted that the customer had right to opt out of the said contract during any time of the warranty period and on such opting out of the contract the amount of OSC would be refunded. Therefore, it is submitted that the amount of OSC was in no way an additional consideration over and above the MRP as held by the adjudicating authority.
(vi) He also submitted that the issue in this case is whether OSC or RPP is an additional consideration recovered separately from the dealers or directly from the customers at the time of sale so as to affect the value under Section 4/4A of the Act.
(vii) It was also submitted that the OSC is nothing to do with the sale of the product in fact there is a separate contract for servicing of the product after the expiry of the warranty period.
(viii) It was also submitted that as the OSC/RPP are being a service contract attracted service tax and the service tax has been paid on that.
(ix) It was also argued that on the same activity levy of both Central Excise duty as well as service tax is not chargeable.
(x) He further submitted that it is a well settled law and the Honble Tribunal has consistently held that when goods are assessed under the provisions of Section 4A the assessable value of goods would be the MRP declared on goods less the amount of abatement as prescribed and no addition or deletion from the value is contemplated. The actual price paid by the dealer is irrelevant as long as the product reaches the ultimate consumer at MRP declared on the goods. To support this contention he relied on the following case laws:-
Gujarat Gold Coin Ceramics vs. Commissioner 2007 (210) ELT 220 (T).
Gujarat Gold Coin Ceramics vs. Commissioner 2007 (216) ELT 527 (T).
Gujarat Gold Coin Ceramics vs. Commissioner 2007 (239) ELT 458 (T).
(xi) He further strongly relief on the decision of this Tribunal in the case of Commissioner vs Electrolux Voltas 2006 (193) ELT 288 (T) wherein it was held that after-sales service charges for 4 years being optional, the same is not includable in the value while determining MRP under Section 4A of the Act and the facts of the said case are squarely applicable to the appellants case.
(xii) He further submitted that on identical facts in appellants own case it was held that OSC is not an additional consideration and in this case the factual matrix has not even been alleged to be altered by the department in these proceedings. To support this contention he relied on Collector vs. Kelvinator 1988 (36) ELT (SC). Voltas vs. Commissioner (56) ELT 329 (BOM) which was confirmed by the Honble Apex Court, Electrolux Kelvinator vs. Commissioner 2004 (170) ELT 449 (T), Commissioner vs. Electrolux Voltas 2006 (193) ELT 288 (T), Whirlpool of India, Faridabad OIA No. 34-35/RH/Adj/2004 dated 29.09.2004, Godrej & Boyce vs. Commissioner Order No. A/180/08/WZB/C-I/EB (Tri.MUM), Godrej & Boyce vs. Addl. Commissioner OIA No. PII/PAP/223/2009 dt. 26.10.2009 and Godrej & Boyce Commissioner Chandigarhs order-in-original No. 58/CE/CHD/2006 dated 29.12.2006.
(xiii) He further submitted that the issue whether OSC is an additional consideration or not has attained finality that OSC is not additional consideration affecting the value of the goods chargeable to duty under MRP valuation. Therefore the said principle is binding in this case. He further submitted that OSC is not a condition of sale and it is an unconnected, independent activity. Therefore, it cannot be an additional consideration for the purposes of valuation of the product.
(xiv) It was also contented that the goods in question were always sold at a price much lower than the MRP declared on the goods. Therefore in any case the OSC was added to the price of the goods sold, the same will add up to a figure much lower than the MRP declared. Hence in any event the said goods are never sold to ultimate buyer at a price exceeding the MRP declared on the goods.
(xv) It was also contended that out of total units sold, 1,94,534 customers opted not to enter OSC contract therefore these OSC charges are not includable in the assessable value.
(xvi) He further submitted that the order of the Pune Commissionerate has referred to and given immense weightage to the expression and the like. The expression has to be read noscitur sociis. The only consideration which can form part of the retail sale price as per explanation 1 of Section 4A of the Act, are those charges which have a direct nexus for the completion of sale and not optional charges which by their very nature are not essential for the completion of the sale. To support he relied on the decision in the case of Harichand Shri Gopal vs. Collector 1996 (83) ELT 281 (T).
(xvii) He further submitted that the demands are barred by limitation as the issued regarding OSC was the subject matter of dispute and the department has been auditing the records of the appellants on regular basis and taken copies of commercial invoices for verification from time to time and it was in the knowledge of the department that the appellants are charging OSC and RPP over and above the MRP valuations. Therefore, the impugned orders are liable to be set aside.
5. On the other hand, the learned Jt. CDR supported the impugned order and submitted that the facts of the case are distinguishable from the facts of the Electrolux Voltas Ltd., (supra). He further submitted that in case of Electrolux Voltas (supra) it was observed that there is no finding that retail sale price was increased by Rs.200/- in case of option to the customers for additional 4 years OSC as against the present case. In this case these charges are collected at the time of removal by way of separate invoices. He also submitted that the fact is that the advertisement sticker of 5 years guarantee at the time of sale has enhanced the marketability of the product and therefore the product is of 5 years warranty at the time of sale the charges on account of OSC and RPP have become the consideration for sale and therefore is includable in terms of Explanation 1 to Section 4A of the Act. He also relied on the Board Circular No. 432/64/98-CX.3 dated 23.11.98 where the aspect of optional warranty charges has been clearly dealt with that where such charges were are collected over and above RSP, they are includable for the purpose of charging duty. He also submitted that the appellants are clearing the goods to their dealers and at the time of clearing goods, the appellants are charging OSC/RPP by separate invoices apart from the invoice on MRP basis of the product from the dealers. These charges are taken by the appellants from the dealers at the time of clearances of the product. Thereafter, the dealer sells these goods by issuing consolidated single invoice to the consumers which was inclusive of MRP as well as aforesaid OSC/RPP charges. Therefore, these charges found part of additional consideration over and above MRP of the product. He further submitted that the facts of Electrolux Voltas Ltd. (supra) are different and sub silentio therefore can change the decision. To support this contention he relied on the decision in the case of CCE Calcutta vs. Al Noori Tobacco Products 2004 (170) ELT 135 (S.C). Therefore, the facts of Electrolux Voltas Ltd. blindly are not applicable to the facts of this case. Hence cannot be taken as precedent. He further submitted that the important aspect that whether dealers can be buyers as admitted by the appellants that the dealers are their buyers as they collect the entire amount on account of sale of goods as well as RPP & OSC charges upfront also gets support from the case of Fiat India Ltd. vs. CCE Mumbai II 2006 (193) ELT 126 (Tri.-Mum). He also relied on the decision of MRF Ltd. Vs. CCE Madras 1997 (92) ELT 309 (SC) which laid down that after clearances of goods on the classification and the price indicated by the assessee at the time of removal of goods from the factory gate the assessee becomes liable to payment of duty on that date and time and subsequent reduction in prices for whatever reason cannot be a matter of concern to the Central Excise department in so far as liability to payment of excise duty was concerned. He further submitted that the case law relied upon by the appellants are not at all relevant to the facts of the case. Therefore, the impugned order is to be confirmed and the appeals of the appellants be rejected.
6. Heard both sides.
7. After considering the submissions of rival sides, we find that in the earlier round of litigation this Tribunal has remanded the matter with the following observations:-
3. Inasmuch as the impugned order suffers from violation of principles of natural justice, we set aside the same and remand the matter to Commissioner for fresh decision after taking into consideration the Tribunal decision in the case of Electrolux Voltas Ltd. learned DR request that the detailed facts in the case of Electrolux Voltas Ltd. has not been discussed by the Tribunal, Commissioner be directed to look in to the appellants submission that the facts in their case and the facts in the Electrolux Voltas Ltd. are identical, who would handover the copy of Electrolux Voltas Ltd. order to him. The appellant is also at liberty to place other defence during the denovo adjudication. 7.1. As per the remand order the Commissioner was directed to consider the submissions of the appellants whether the facts of their case are identical to the facts of the case of Electrolux Voltas Ltd. are not. If the facts are identical then the Commissioner has to follow the decision of Electrolux Voltas Ltd. otherwise the Commissioner shall hear the appellants on the other ground also. In the remand proceedings the Commissioner has not relied upon the decision of Electrolux Voltas Ltd. therefore, first we have to examine whether the facts of the case of Electrolux Voltas Ltd. are identical to the facts of the case in hand before us or not?
7.2. The case of Electrolux Voltas Ltd. are reproduced here as under:-
The assessee had filed a price declaration w.e.f. 1.3.2000 for clearing the goods on MRP based price under Section 4A of Central Excise Act, 1944 for various models of refrigerators. For the purpose of this Section, retail sale price meant the maximum price at which the excisable goods in packed form might be sold to the ultimate consumer & included all taxes, local or otherwise, freight, transport charges, commission, payable to dealers & all charges towards advertisement, delivery, packing forwarding & the like as the case may be & the sale price was the sole consideration for such price.
The A.C.C. Ex Chandrapur, observed that the asssessee had recovered Rs.200/- against each refrigerator towards Optional Service Contract (hereinafter referred as OSC for brevity sake) of 4 years commencing upon the expiry of stipulated one year warranty period from the buyers. This was nothing but an additional consideration flowing directly or indirectly from such sale to the assessee, as such Rs.200/- recovered by the assessee per refrigerator was includible in the assessable value & appropriate duty was to be leviable on such amount. He therefore issued a show-cause notice dated 6.11.2000 asking the assessee to explain as to why the amount of Rs.200/- shown in the price declarations filed from time to time w.e.f 1.3.2000 towards OSCs should not be included in the assessable value & why appropriate Central Excise duty should not be recovered under Section 11A of Central Excise Act, 1944 along with interest as per Section 11AA of Central Excise Act, 1944.
7.3 In reply to the show-cause notice M/s. Electrolux Voltas Ltd. submitted that prior to introduction of MRP basis under Section 4A of Central Excise Act, 1944 vide Notification No.9/2000-C.E. NT dated 1.3.2000, the refrigerators were chargeable to duty on advalorem basis under Section 4 ibid and accordingly they were filing price declarations and paying duty on wholesale price on the refrigerators cleared from the depots after stock transferring them from their factory. They also replied that they were not including the OSC in the MRP as the sole consideration for sale of the refrigerator was the MRP and the OSC was not considered for sale of the refrigerators. The price of the refrigerators remained totally unaffected by the fact that whether the customer went for OSC or not. Therefore, OSC was not taken into account. In the show-cause notice there is no allegation that they have either charged or recovered any amount over and above the MRP declared. It was also submitted that OSC was not related to the sale of refrigerators. It was also contended that the customer need not pay OSC for purchasing a refrigerator, the question of alleging that OSC was a payment related sale was incorrect and not based on any facts on the records. Therefore, in those facts and circumstances it was held that the OSC is not part of sale price and not includable in the assessable value.
7.4 The case in hand, we find that on top of the packing box of each refrigerators/washing machines there is a sticker showing 5 years warranty which is very much in the knowledge of the customers when they buy the refrigerators/ washing machines. Moreover, in the inner part of the refrigerator there is a kit wherein it has been shown that the refrigerators/washing machines are having warranty of 1 year/2 years and for the remaining period they have to pay optional service charges. It is also apparent on records that the appellants are clearing these refrigerators/washing machines to their dealers through two different invoices, one for the sale of the refrigerators/ washing machines and another one for OSC/RPP. It is also the fact on record that when these refrigerators/ washing machines were cleared by their dealers to retail customers, dealers issue a composite invoices for the sale price+ OSC/RPP. Therefore, the facts of this case are distinguishable from the facts of the case of Electrolux Voltas Ltd., as the customer has to pay OSC/RPP to the dealer at the time of purchase. In case, the customer does not opt for OSC/RPP, the customer has to file refund claim. Hence the facts of Electrolux Voltas Ltd. is distinguishable to the facts of this case.
7.5 We have seen that the advertisement sticker showing 5 years warranty of the product sold by the appellants clearly affects the sale price of the product. Moreover, the optional service charges are to be optional to the customer to be paid separately at the time of purchase of the product. In this case, it is clear from the facts that the retail customers are paying OSC/RPP at the time of purchase of refrigerators/washing machines through a composite invoice which includes the sale price + OSC/RPP. Therefore, the customers have no option to choose not to pay optional service charges at the time of purchase of refrigerators/washing machines but in case the customer does not opt for OSC/RPP, the customer has to file a claim of refund of Optional Service Charges/RPP paid by them through composite invoice issued by the dealer. The allegation in the show-cause notice against the appellants are that the appellants are charging OSC/RPP over and above the maximum retail price, therefore, the charges recovered on account of OSC/RPP are to be includable in the assessable value. The contention of the appellants are that the OSC are optional only after the expiry of 1 years/2 years warranty period is not convincing as on the face of the packing of the refrigerators/washing machines, the warranty of 5 years/4 years/3 years is shown to attract the customers. Another contention of the appellants is that the customer has to exercise option through contract whether customer needs extra warranty through OSC or not is not convincing as these OSC has been recovered from the customers at the time of sale. If the customer does not to opt for this extra warranty of 3 years/4 years then the customers has to file a refund claim which is not correct in the eyes of law for an offer of option.
7.6 We do not agree with the contention of the appellants that there is a separate contract for OSC/RPP as at the time of sale the consolidated invoice is issued by the dealer wherein the OSC/RPP is included in the value of the product. When OSC/RPP are included in the assessable value, the appellants are not required to pay service tax thereon. If the appellants are paying service tax thereon voluntarily, then it cannot be said that as the appellants are paying service tax, the excise duty is not payable. The contention of the appellants that the actual price paid by the dealer is irrelevant as long as the product reaches to the ultimate consumers at MRP declared on the goods less abatement as per the explanation to Section 4A, any amount charged from the customer over and above MRP is to be includable in the assessable value of the product whether the dealers are clearing the product on MRP but no data is available that this MRP includes OSC/RPP charges which is not shown by the appellants in their costing data that the OSC/RPP are over and above cost of production while determining MRP. Therefore these OSC/RPP charges are includable in the assessable value. The contention of the appellants that the OSC is an additional consideration and is not effecting the value of the goods chargeable to duty under MRP valuation is not convincing as the goods were cleared by the dealers of the customers through consolidated invoices wherein the MRP+OSC and RPP are collected from the customers collectively. Therefore, the Board Circular No. 432/64/98-CX.3 dated 23.11.1998 is applicable to the facts of the case wherein it was clarified that where extra amounts are collected over and above the retail sale price declared are includable in the assessable value for the purpose of charging excise duty.
8. To sum up the above mentioned discussion we find that the facts of this case are distinguishable from the case of Electrolux Voltas Ltd (supra) as discussed herein above and when the goods have been cleared to the customers/ultimate buyers through a consolidated invoice which includes the price of the product plus OSC/RPP. Therefore, we hold that the goods have been sold over and above the MRP, therefore the OSC/RPP are includable in the assessable value. With these findings we do not find any reasons to interfere with the impugned orders and the same are upheld. Appeals filed by the appellants are rejected.
(Pronounced in Court on.) (P.R. Chandrasekharan) Member (Technical) (Ashok Jindal) Member (Judicial) nsk 2