Customs, Excise and Gold Tribunal - Delhi
Govind Poy Oxygen Ltd. vs Collector Of Central Excise on 9 December, 1987
Equivalent citations: 1988(15)ECC222, 1988ECR661(TRI.-DELHI), 1988(34)ELT725(TRI-DEL)
ORDER K.L. Rekhi, Member (T)
1. Since a common issue is involved in the lour appeals and one cross objection listed above and they pertain to the same appellants, they were clubbed together, heard together and hence this common order.
2. The point of dispute in these proceedings is whether the charges recovered by the appellants towards testing, maintenance and handling of the gas cylinders belonging to the customers should be included in the assessable value of the gas supplied in the cylinders. The period in dispute is from 15-5-1980 to 16-3-1985. During this period, the appellants manufactured acetylene gas. The customers sent their own cylinders to the appellants. The appellants filled the gas in those cylinders and delivered them to the customers. The appellants had filed two price lists during this period. The gas itself was priced at Rs. 24 to Rs. 26 per cubic metre. A sum of Rs. 44/- per cylinder of 5 to 7 cubic metre capacity was recovered by the appellants from the customer additionally. The appellants declared this additional sum in the price list and asked for its abatement in the following terms :-
"Service charges @ Rs. 42/- per cylinder will be charged on account of testing the parties' cylinders or certifying for fitness for filling, repairs to damaged valves, replacement of valves, painting and acetoning the parties' cylinders. Further @ Rs. 2/- per cylinder will be charged for supervising, loading and unloading and preparing delivery challans as per the instructions of parties."
The lower authorities have not allowed abatement of the aforesaid sum of Rs. 44/- per cylinder.
3. The appellants invited our attention to the Bombay High Court (Goa Bench) judgment in their own case reported at 1984 (23) ELT 394. It had been held in this judgment that in a situation where the cylinder belonged to the customer, the manufacturer sold only the gas and, therefore, the cost of buyer's cylinder for which the manufacturer did not spend anything, was not includible in the assessable value as per Section 4(4)(d)(i). The appellants stated that in the impugned order, the lower authority had accepted that cost of packing supplied by the buyer was excludible in terms of Exemption Notification No. 313/77-Central Excises, dated 8-11-1977 but the said authority held at the same time that the cost of servicing and handling of the, cylinder within the appellants' factory was not to be deducted. The appellants argued that testing of the cylinders in which acetylene gas was filled was required to be done statutorily as per Gas Cylinders Rules, 1981 framed under the Indian Explosives "47. Examination of dissolved acetylene cylinders before filling. Whenever a cylinder is charged with acetylene, it shall be subjected to a thorough visual examinations, if the history of the cylinder shows that it has not been subjected to such an examination within the previous two years and at the same time the valves will be removed and the conditions of the porous substance at the neck of the cylinder ascertained. This period of periodical examination shall be one year in case the cylinders are filled with loose porous mass."
The appellants stated that in order to fulfil the statutory requirements, a History Card was maintained for each cylinder. Only a duly licensed establishment was authorised to do the testing. It was open to the customer to get the cylinder tested by the appellants or by any other licensed establishment. The appellants maintained that only a duly tested cylinder was a proper cylinder for packing acetylene gas and hence the cost of testing and maintenance of the cylinder was a part of the cylinder cost itself.
4. Regarding supervision, unloading and loading charges of Rs. 2/-per cylinder, when it was put to the appellants that as per the Supreme Court judgment in the case of Bombay Tyres International Limited -1983 ELT (14) 1896 (S.C.) all costs incurred for delivery of the goods at the factory gate were includible, the appellants stated that since the amount involved was not much they would not press for its exclusion.
5. The learned representative of the department pleaded that the Bombay High Court (Goa Bench) judgment aforesaid permitted only exclusion of the cost of customer's cylinder and not the cost of testing and maintenance of that cylinder which was incurred within the appellants' factory. Since acetylene gas could not be marketed without incurring cylinder testing and repair charges, such testing and repairs were an essential ancillary process of manufacture and their costs were includible in the assessable value.
6. We have carefully considered the matter. Since the work of unloading of customer's empty cylinders, their filling with gas and loading of filled cylinders on a conveyance takes place within the factory and prior to the delivery of the goods at the factory gate, the charges incurred thereon, as well as the cost of supervision over unloading, loading and filling have to be included in the assessable value. It is obvious that without such work within the factory, no delivery of the gas is possible at the factory gate. We, therefore, reject the plea of the appellants for exclusion of these charges amounting to Rs. 2/~ per cylinder.
7. However, corning to the other exclusion asked for testing and maintenance of the customer's cylinders, we agree with the appellants that a cylinder means a cylinder fit for filling the acetylene gas. A gas cylinder is a durable container and has a long life. It is inevitable that some costs would have to be incurred on proper maintenance of the cylinder during its life period. It is, therefore, not only the initial purchase price of the cylinder which forms the cylinder cost but also the charges incurred on its essential repairs, maintenance and testing. The appellants are, therefore, entitled to exclude the full cost of the cylinder, including the cost incurred on its essential repairs, maintenance and testing. According to the High Court judgment, whether such testing and maintenance cost is incurred within the appellants' factory or in another licensed establishment, is hardly material.
8. However, it appeared to us that the amount of Rs. 42/- per cylinder claimed by the appellants for exclusion towards testing and maintenance cost of the buyer's cylinder was rather high. Other cases relating to gas cylinders have also come to our notice wherein the amounts claimed were much lower. Secondly, the appellants were recovering Rs. 42/-per cylinder every time they delivered gas filled in it. But it is not every time that they were required to fully test the cylinder as per the Gas Cylinders Rules, 1981. The rules prescribed full testing to be done only once a year. Before each filling only a thorough visual examinations of the cylinder was required. Similarly, painting of the cylinder, repair or replacement of damaged valves etc. would not be required to be done every time but only when needed. In the circumstances, repeated recovery of Rs. 42/- per cylinder by the appellants at the time of each trip of the cylinder appeared to us to be excessive. We put our observations to the appellants in the course of hearing before us. They stated very fairly that the Asstt. Collector could be directed to go into the costing of the testing and maintenance charges.
9. Therefore, while we order in principle that the charges incurred for testing and maintenance of buyer's cylinder should be excluded from the assessable value of the gas, we direct the Asstt. Collector to go into the costing of such charges and satisfy himself that there was no attempt at diverting a part of the true price of the gas to the cylinder cost. A reasonable margin of profit even on testing and maintenance activity would be O.K. because, we do not expect a business establishment to work on 'no profit no loss' basis. But beyond the actual costs incurred on testing and maintenance of cylinders plus a reasonable margin of profit, there should be no exclusion from the assessable value on that count.
10. The cross objection filed by the department does not seek any further relief. It contains only arguments of the department for rejecting the appellants' appeal. We have already dealt with these arguments in the preceding paragraphs. No separate order is, therefore, required to be passed on the cross/ objection.
11. All the 4 appeals and the cross objection are disposed of in terms of paragraphs 6 & 9 above.