Custom, Excise & Service Tax Tribunal
4. Whether Order Is To Be Circulated To ... vs Represented By Shri V.S. Nankani, Adv., ... on 22 September, 2008
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT AHMEDABAD
COURT:
II
Appeal No.E/247, 248, 488/2005
Arising out of OIA No.Commr.(A)/350/VDR-II/2004, dt.29.10.04
OIO No.45/BRC-II/MP/2004, dt.17.12.2004
Passed by: CCE/CCE(A) Vadodara.
For approval and signature:
Honble Mrs. Archana Wadhwa, Member (Judicial)
Honble Mr. B.S.V. Murthy, Member (Technical)
1. Whether Press Reporters may be allowed to see the No
Order for publication as per Rule 27 of the CESTAT
(Procedure) Rules, 1982?
2. Whether it should be released under Rule 27 of the Yes
CESTAT (Procedure) Rules, 1982 for publication
in any authoritative report or not?
3. Whether their Lordships wish to see the fair copy of Seen
the order?
4. Whether order is to be circulated to the Departmental Yes
authorities?
Appellant/s M/s Matsushita Lakhanpal Battery India Ltd.
(Formerly M/s Lakhnpal National Ltd.)
Shri H. Ono.
Represented by Shri V.S. Nankani, Adv., Shri H.P. Modh, Adv.
Shri Sheetal Kumbhatt, Adev.
Respondent/s CCE Vadodara.
Represented by Ms. M.I.J. Micheal, Jt.CDR.
CORAM:
MRS. ARCHANA WADHWA, MEMBER (JUDICIAL) MR. B.S.V. MURTHY, MEMBER (TECHNICAL) Date of Hearing : 22.09.2008 Date of Decision:
ORDER No. /WZB/AHD/2008 Per: Mrs. Archana Wadhwa:
All the three appeals are being disposed off by a common order as the issue involved is identical. As per facts on record, appellants are engaged in the manufacture of electric dry battery sells. The dispute relates to the valuation of the same and the deduction of various post manufacturing expenses. It is seen that the orders passed earlier were the subject matter of the dispute before Honble High Court of Gujarat as also before the Tribunal. It is seen that the Tribunal vide an order dt.13.05.2003, held as under in respect of various deductions being claimed by the assessee.
i) Handling charges were liable to be added to the assessable value and the duty correctly demanded by the adjudicating authority and that the payment was also not barred by limitation since the proviso to Section 11A(i) of the said Act was rightly invoked.
ii) The deduction on account of built-in-trade discount was permissible and hence the demand on account of the same was set aside.
iii) The issue relating to VOC was to be decided by the Commissioner (Appeals) since the same was pending before him pursuant to the order dt.13.5.03 of the Honble Tribunal referred to above and therefore did not express any views on the merits thereon.
iv) The Commissioner was directed to determine the question of penalty having regard to the duty payable by the Company by an order dt.13.5.03.
Subsequent applications filed by the assessee as ROM application were rejected.
2. In the impugned order passed in de-novo proceedings, the Commissioner (Appeals) rejected the appellants claim of deduction in respect of Van Operation Charges i.e. VOC. The said order is impugned in Appeal No.247/2005. The order passed by Commissioner, Central Excise dt.17.12.04 in respect of the same disputed issue is the subject matter of Appeal No.248/2005. Appeal No. 488/2005 stand filed by Shri H. Ono, challenging imposition of penalty of Rs.10 lakhs imposed upon him in terms of the provisions of Rule 209 A.
3. As already noted, the only surviving issue in the present appeal is as to whether the VOC claimed by the assessee as deduction from the assessable value is to be allowed or not.
4. After hearing both sides, we find that the factual position as taken note of in the impugned order does not stand disputed. The price declared by the assessee is the wholesale price charged by them from the wholesale dealer/distributor at depots and the transportation charges incurred by the assessee for delivery of the goods from the factory gate to the premises of wholesale dealer/distributor have been allowed deduction to arrive at the correct assessable value. The deduction being claimed on account of VOC is in respect of the cost of the transportation incurred by the wholesale dealer/distributor for transportation of the goods from the depot to the interior part of the country/remote areas where the goods are marketed and sold by the wholesale dealer/distributor. 50% of such transportation charges from the depot to the sellers premises were being reimbursed by the company to their dealer/distributor. The said reimbursement has been held to be as sales promotion expenses by the lower authority, whereas the assessee company has contented the same to be transportation charges, thus, admission for deduction. For holding that the said VOC are nothing but sales promotion expenses, Commissioner (Appeals) has relied upon the statement of Shri H. Ono, dt.4.11.88 as also on inter-office correspondence and confidential letter etc. For better appreciation, we reproduce the relevant part of the Commissioner (Appeals)s observations:
In this connection, Shri Ono had given a statement on 04.11.88 which mentioned, inter alia as under:
From 1.10.87 we have decided to deduct the Van operation subsidy and hired van expenses from the invoices that are made to the main wholesale dealer. The state discount will be inclusive of the expenses under these two heads. The van charges or van expenses means the transport charges incurred by the main wholesale dealer or the stockist or sub-stockist for transporting our batteries from their premises to interior markets. This expenses is subsidized by us in the interest of promoting sales in interior markets. Prior to 1.10.87, we receive debit notes for the van operations/expenses of the rates decided by us. From 1.10.87, these expenses are part of state discount. In our books of accounts i.e. expenses ledger we have debited the van operations expenses in the transportation account. In this account, the expenses incurred on account of transport of goods from factory to depot are also debited. It also includes onward freight from our depots to the distributors. The total transportation expenses in this account have been claimed by us as deduction towards freight-outwards from the price declared to the Central Excise Departments (Emphasis provided) Shri U. Raghavan, DGM (Marketing) of M/s LNL had corroborated the statement of Shri Ono, vide his statement dt.4.11.88, regarding Van expenses. Circular No.LNL/MA/25/10/81 dt.20.10.81 issued by M/s LNL, Baroda under the signature of Shri M. Ashara, Dy.Managing Director (F.No.10 of LNL Baroda), inter alia, mentions as under: This recent increase we can off-set by reducing trade promotion, advertising and publicity or van operation. But due to various reasons, this will not be admissible. Further, Shri H. Ono in his statement dt.27.10.88, inter alia, stated as under: The increase in the cost of zinc, other raw materials and transportation could not be off-set by reducing advertising, trade promotion, publicity or van operation due to various constraints. It is, therefore, obvious that Van operation was considered to be sales promotion and accordingly the aforesaid statements mentioned van operation together with the items like trade promotion, advertising and publicity. In the aforesaid second statement dt.27.10.88 (of Shri Ono) it is made clear that the increase in the cost, inter alia, of transportation could not be off-set by reducing advertising, trade promotion, publicity or van operation. This clearly proves that while van operation had no nexus with the transportation, it did have a nexus with sales promotion/ advertising.
A confidential letter of M/s LNL Baroda addressed to M/s LNL Bombay bearing No.LNL/MKT/CBL/SP/6/81/24, dt.30.6.81 (Page No.37) in F.No.A-37 of LPL Bombay) shows that the van operation expenses were shared between LNL and LPL at different rates for different territories.
The van operation charges were based on per-van per-day basis or per-case basis. A statement of M/s Sagar Distributors, Bangalore (Page No.4 & 5 in F.No.S/12) shows that the van operation charges (VOC) were claimed both on the basis of case lot as well as day-to-day basis. The van operation charges have been accounted for in the LNL S.P. Account of Sagar Distributors indicating that the VOC were considered as S.P. Expenses of LNL. Further evidence of VOC being credited to LNO S.P. Fund is found in the ex-distributor price structures, effective from 8.5.84 and 15.5.84 (vide Page No.64,66 and 52 of F.No.SD/5 and Page No.7 and 9 of F.No.SD/6).
Minutes of the meeting between LNL and LPL, West Division dt.24.12.83 (vide Page 1 to 5) in F.No.9 LPL) contains subject viz. Van Operation at S.No.6. It appears from the said minutes that LPL officials had brought to the notice of LNL officials that the van operation cost was going very high in remote areas of Sangli, Ratnagiri, Thane and Raigad Districts. Mr. Ono had suggested that LPL should acquire three vans for using them for sales publicity purpose wherein LNL subsidized the expenses. It was evident that the van operation was being subsidized as Sales Promotion expenses.
The Van operation expenses of M/s Sagar Distributors were approved under the signature of the sales officer of LNL as seen at Page No.57, 58, 60, 107, 108, 120 & 123 in F.No.SD/9.
A letter from LPL Regional Manager, Jaipur addressed to LNL, Baroda dt.10.4.87 (Page No.93 F.No.78 of LPL) shows that van hiring charges claimed by debit note from July 1986 to March 1987 were pending sanction by way of credit advice. The letter was copied to Shri H. Ono and Mr. P. Singhal of LNL with a mention that the debit notes upto December 1986 were duly verified by the marketing department. In view of the above, I hold that Van operation charges are nothing but Sales promotional expenses though shown and included in the outward freight/transportation. Therefore, the deduction on account of transportation expenses from the wholesale dealer/distributors price not admissible.
5. Apart from the fact that we find that the above evidences clearly established that the transportation of the goods from depot onwards and reimbursement of the same to the extent of 50% by the company to the dealer, is in the nature of sales promotion, we also note that the assessable value was declared by the said appellant on the basis of sales from the depot to their wholesale dealer. All the transportation charges incurred upto depot at which point sales were effected stand allowed as deduction and there is no dispute about the same. Subsequent sale by wholesale dealer to the customer is an activity, which is not required to be taken into consideration for arriving at the assessable value. As such, 50% expenses actually incurred by the wholesale dealer, cannot be added in the assessable value and on the same analogy 50% expenses incurred by the company by way of reimbursement to the wholesale dealer, cannot be allowed deduction. The same would have been an admissible deduction had the appellant adopted the final sale price at the buyers premises and then worked back way for arriving at correct assessable value. Taking an example, that the price of the goods per unit sold at depot to wholesale buyers is Rs.100/- and expenses undertaken by the wholesale dealer for sale of the goods in interior is Rs.10/-. The deduction of 5% of the same i.e. Rs.5/- (which is being claimed by the assessee), would be permissible if the total sale value of Rs.110/- is taken as a starting point. In fact, in that case, the entire Rs.10/- would be admissible as deduction so as to arrive at the same assessable value of Rs.100/- on which the goods were sold from the depots. After arriving at the assessable value of the goods sold from the depot, any further expenses undertaken by the wholesaler would not affect the above assessable value so as to further reduce the same. The appellant was admittedly undertaking the above exercise so as to promote its product and to bring the same within the reach of the every person located in the interior of India. This was more of an incentive to the dealers/distributors. As such, we do not find any favour with the appellants submission that the deduction on account of VOC should be held as admissible.
6. As regards the handling charges, the issue already stands decided against them by Tribunals order dt.13.5.03. It was also held that extended period would be invocable and as such we find no justification to deviate from the above findings of the Tribunal in respect of inclusion of handling charges or invocation of longer period.
7. As regards imposition of penalty upon all the three appellants, we find that though the Tribunal in the earlier order has observed that Commissioner would determine the question of penalty having regard to the duty payable by the Company, the same does not mean that the penalty has to be imposed, if otherwise found not admissible. It only means that the issue of penalty is left open. We, accordingly, deal with the appellants contention that the issue being a bonafide issue of admissibility of VOC as deduction from the assessable value as also the handling charges having been disclosed in the Circular as well as in the invoices which were being filed in the monthly returns, the appellants bonafide cannot be doubted. Similar VOC was held as a permissible deduction from the assessable value as cost of transportation by the original adjudicating authority, whose orders were appealed against and reversed by Commissioner (Appeals). In this scenario, we do not find any justification for imposition of penalty upon the manufacturing company.
8. As regards imposition of penalty of Rs.10 lakhs upon Shri H. Ono, apart from that there was no malafide, we also note that the demand period is from 1978 to 1986 and provisions of Rule 209A, which stand invoked, were introduced w.e.f. 30.01.86 and cannot be made applicable for the past period, as held by Honble Supreme Court in the case of M/s Elgi Equipments Ltd. 2001 (128) ELT 52. As such, we set aside the penalty of Rs.10 lakhs imposed upon Shri H. Ono.
9. All the three appeals are disposed off in above manner.
(Pronounced in Court on ___________________)
(B.S.V. Murthy) (Archana Wadhwa)
Member (Technical) Member (Judicial)
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