ORDER
S.V. Maruthi, Member (J)
1. These 3 appeals are disposed of by a common order.
2. The appellants manufacture Maaza Mango, falling under Tariff Item 1-B. They have filed price lists for the years 1984-85 and 1987-88. In the price list it is mentioned that an amount of Rs. 2.50 and Rs. 1.50 per crate would be realised towards rental for the bottles and wooden crates in which aerated water was supplied. The price lists were approved after loading the assessable value by the rental charges realised by the appellants.
3. In appeal Nos. 2266 and 2170 the appellants were also realising service charges at the rate of Rs. 3/- from their customers.
4. It was also mentioned in the price list that the appellants were charging service charges at the particular rate. The Supdt. issued a show cause notice dated 26-3-1985 and the Assistant Collector issued another show cause notice on 26th August, 1987 proposing to add the rental charges and the service charges realised by the appellants to the assessable value. On receipt of the reply the Assistant Collector added to the assessable value, the said charges. On appeal the Collector confirmed the order of the Assistant Collector. Hence the appeals before us.
5. The appellants relying on the judgments of Supreme Court in CCE v. Indian Oxygen Ltd. 1988 (36) E.L.T. page 730 (SC) and the order of this Tribunal in Aqueous Victuals Pvt. Ltd. v. CCE 1988 (38) E.L.T. page 42 submitted that the rental charges for the crates are not includible in the assessable value as such charges are not directly relatable to the cost of manufacture.
6. As regards the service charges, he submitted, that the service relates to unloading, sorting out the branded bottles, separating the broken bottles, before the bottles are sent to automatic bottle washing plant. Towards this service Rs. 3/- is charged. He also contended relying on the order of this Tribunal in CCE v. Century Spg. & Mfg. Co. Ltd. 1988 (37) E.L.T. page 277 that the full cost of durable and returnable containers was deductable from the assessable value which should take in not only the initial purchase price of the containers but also the further expenses on its maintenance and repairs. The appellants submitted that sorting out and cleaning and washing is similar to the maintenance of bottles, and therefore, the services are excludable from the assessable value.
7. Mr. Prabhat Kumar, appearing for the department submitted that though on principles that the rental charges and the service charges are not includible in the assessable value, in view of the decisions relied upon by the appellants, as they do not relate to the manufacturing activity, there is no verification of the actual amount incurred by the appellants towards these charges. Therefore, he sought for remand of the matter to the Asstt. Collector.
8. It is an admitted fact that the bottles and wooden crates are durable and returnable containers. In view of the judgment of the Supreme Court in Indian Oxygen holding that “here the sale is of gases. The levy is on the manufacture of gases and the excisable goods are these gases. It has to be borne in mind that the supply of the gas cylinder is ancillary to the supply of gases, but it is strictly not incidental thereto because there are classes of persons who can take delivery of these gases without supply of cylinders by the manufacturer and in those cases no question of charging rental would arise. Therefore, rental would be though ancillary but would not be the price for the manufacture, and accordingly would not constitute part of the assessable value.”
9. Following the above we hold that the rental charges are not includible in the assessable value.
10. As regards the service charges admittedly the excise duty levied on the manufacture of aerated water and the fact that the aerated water is bottled in the bottles and bottles are transported in crates is also not disputed. Under Section 4(4)(d) value in relation to excisable goods does not include the cost of packing which is of durable nature and is returnable by the buyer to the assessee. The facts that the bottles are durable and returnable are not disputed. Therefore, the cost of durable and returnable packing is not includible in the assessable value of the aerated waters, by virtue of Section 4(4)(d). It is also not in dispute that the excise duty is leviable on the aerated waters as duty under the Excise Act is on the manufacture of aerated waters. Therefore, when the cost of durable and returnable containers is not includible in the assessable value it is not clear how the cost incurred on account of maintenance of these bottles is includible. To the same effect is the order of this Tribunal in CCE v. Century Spg. & Mfg. Co. Ltd. 1988 (37) E.L.T. 277 wherein it was held that “once the department accepts that the containers in the present case were durable and returnable and for that reason, their cost was deductible from the assessable value the cost has to be full cost of packing which should take not only the initial purchase price of the container but also the further expenses on its manufacture and repairs.”
11. In the instant case the service charges claimed relate to sorting out branded bottles, separating the broken bottles before the bottles are sent to automatic bottle washing plant. These activities do not relate to the manufacture of aerated waters which are the subject matter of excise duty. Secondly, in view of Section 4(4)(d) the entire cost relating to durable and returnable containers should be excluded which include these miscellaneous service charges. As regards unloading within the factory, it relates to premanufacture as the bottles are not filled, therefore, the charges are includible.
12. However, the actual rental charges and the nature and actual service charges collected by the appellants are not available on record. Therefore, we direct the Asstt. Collector to verify the actual rental and service charges and redetermine the assessable value in the light of the above observation. The appellants should furnish the necessary material in order to ascertain the actual rental and service charges.
13. We allow the appeal by remanding the same to the Asstt. Collector.
Sd/-
(S.V. Maruthi)
Dated 19th Nov., 1990 Member (J)
V.P. Gulati, Member (T)
14. I have given a careful thought to the order recorded by learned sister, Member (J) and I agree with her that so far as the rental charges are concerned, in principle abatement of the same for the purpose of arriving at the assessable value has to be allowed. As observed by learned Member (J) actual element of rental charges however has not been ascertained by the learned lower authority as no verification in regard to the claim as made by the appellants has been done. I, therefore agree that the matter has to be remanded to the learned lower authority for this purpose.
15. In regard to the other service charges, I observe that the appellants claimed before us that empty bottles after return from the customers were sorted out and cleaned outside the factory premises and thereafter the same were being taken inside the factory for filling up the same. The claim made is for abatement of expenses incurred for sorting and cleaning of the bottles. It has been pleaded that this operation can be considered at par with repair and maintenance of cylinders in case of marketing of gases and the charges in respect of which it has been pleaded, have been held by the Hon’ble Supreme Court to be not includible in the assessable value. I observe that a distinction has to be made between the capital cost incurred on the cylinders for maintenance and repair and cleaning and sorting of bottles which are in the nature of operations preparatory to the manufacture of aerated or bottled drinks. In the nature of things this operation has to be carried out in the factory and by the manufacturers themselves as it is for them to ensure that the bottles which are taken in are rendered fit for bottling and in respect of this work the cleaning etc has to be done under the supervision of the staff of the manufacturing Unit. The question therefore that arises is whether the cost of this operation could be considered as attributable to the cost of manufacturing of aerated water etc. or not. It may be mentioned that even when new bottles are brought into the factory the appellants’ staff has to inspect the same and also the same are required to be cleaned before these could be taken for manufacturing purposes. For this reason, it has to be held that preparatory operations of this nature have to be considered a part of manufacturing process of the appellants’ product. That the operations are carried out outside the premises of the appellants’ factory does not really make much of a difference. The appellants are recovering the expenses of the said operations from the buyers and once it is held that this operation of cleaning etc is preparatory to the manufacturing process and the cost of the same has to be reckoned towards the manufacture of the appellants’ product and is therefore required to be included for arriving at the assessable value.
16. I, therefore, hold that so far as the service charges of the bottles as claimed are concerned, these have to be included for the purpose of arriving at the assessable value.
Sd/-
(V.P. Gulati)
20-5-1991 Member
POINT OF DIFFERENCE
Whether in the facts and circumstances of the case, the service charges do not relate to the manufacture of aerated water, as claimed by the Appellants, and are, therefore, to be excluded for arriving at the assessable value as held by Member (Judicial) or these relate to the manufacture of aerated water and are, therefore, to be included for arriving at the assessable value as held by Member (Technical).
Sd/- Sd/-
(S.V. Maruthi) (V.P. Gulati)
Member (J) Member (T)
20-5-1991
ORDER
P.C. Jain, Member (T)
17. Following point of difference has arisen between the learned Members who first heard the aforesaid matters :-
“Whether in the facts and circumstances of the case, the service charges do not relate to the manufacture of aerated water, as claimed by the Appellants, and are, therefore, to be excluded for arriving at the assessable value as held by Member (Judicial) or these relate to the manufacture of aerated water and are, therefore, to be included for arriving at the assessable value as held by Member (Technical).”
18. In the course of arguments before the learned Members, pleas regarding nature of service charges by the learned advocate, as recorded in Judicial Member’s Order, were as follows :-
“6. As regards the service charges, he submitted, that the service relates to unloading, sorting out the branded bottles, separating the broken bottles, before the bottles are sent to automatic bottle washing plant. Towards this service Rs. 3/- is charged.”
19. Learned Judicial Member relying on Tribunal’s decision in CCE v. Century Spg. & Mfg. Co. Ltd. 1988 (37) E.L.T. 277 has held that when the cost of durable and returnable containers is not includible in the assessable value it is not clear how the cost incurred on account of maintenance of these bottles is includible. Aforementioned activities undertaken before sending the bottles to automatic Bottle washing plant do not relate to the manufacture of aerated waters which are the subject matter of excise duty.
20. Learned Technical Member, on the other hand, has observed as follows :-
“I observe that a distinction has to be made between the capital cost incurred on the cylinders for maintenance and repair and cleaning and sorting of bottles which are in the nature of operations preparatory to the manufacture of aerated or bottled drinks. In the nature of things this operation has to be carried out in the factory and by the manufacturers themselves as it is for them to ensure that the bottles which are taken in are rendered fit for bottling and in respect of this work the cleaning etc. has to be done under the supervision of the staff of the manufacturing Unit. The question, therefore that arises is whether the cost of this operation could be considered as attributable to the cost of manufacturing of aerated water or not. It may be mentioned that even when new bottles are brought into the factory, the appellants’ staff has to inspect the same and also the same are required to be cleaned before these could be taken for manufacturing purposes. For this reason, it has to be held that preparatory operations of this nature have to be considered a part of manufacturing process of the appellants’ product. That the operations are carried out outside the premises of the appellants’ factory does not really make much of a difference. The appellants are recovering the expenses of the said operations from the buyers and once it is held that this operation of cleaning etc. is preparatory to the manufacturing process and the cost of the same has to be reckoned towards the manufacture of the appellants’ product and is therefore required to be included for arriving at the assessable value.”
20.1 Mr. N.K. Dev, learned consultant for the appellant company has stated that the service charges pertain to the following activities undertaken by them on behalf of their dealers/retailers :-
After unloading of the empty bottles at a place about 100 yards outside the factory, the bottles are sorted brandwise, (sometimes the bottles get mixed with bottles of other manufacturers which are to be separated). Thereafter, the bottles are examined for any defects which are also separated. Cleaning of the bottles is done chemically. These are then loaded in the trolleys, brought to the factory and placed in conveyors to automatic bottle washing plant from where they come out after washing. Bottles are examined again in strong light to avoid contamination.
20.2 Learned consultant submits that in the nature of things such sorting and cleaning has to be done outside because the plant cannot take these activities as being unconnected with the manufacturing process. He submits that the new bottles are straightway taken to automatic washing plant in the factory and they cannot be compared with the old bottles. He submits that the charges recovered by the appellant in respect of the above activities is akin to charges for maintenance of durable containers. At the worst, these are ancillary activities charges for which do not require to be included in the value of the excisable goods Maaza Mango Beverage. He relies on –
(1) 1988 (36) E.L.T. 161 (Tribunal) – AIMS Oxygen (P) Ltd. v. C.C.E.
(2) 1988 (36) E.L.T. 730 (SC) – CCE v. Indian Oxygen Ltd.
21. Learned SDR, Shri V.K. Jain for the Revenue, on the other hand, urges that the activities undertaken by the appellant for which service charges are collected relate to manufacturing activities. There is no duty on the goods if these are not bottled. He has reiterated the findings of the learned Technical Member, as set out above. He relies on 1991 (52) E.L.T. 455 [Jabalpur Oxygen Co. v. CCE].
22. Shri Dev, learned consultant in his rejoinder urges that Jabalpur Oxygen’s case does not apply because the activity of unloading and stocking therein occurred in the factory whereas the activities here have taken place outside the factory.
23. I have carefully considered the pleas advanced on both sides and have also gone through the available record. The short question before me for decision is whether the activities taken in respect of old bottles, namely sorting out the old empty bottles brandwise, separating the defective ones, cleaning them, loading them into the trolleys and placing them into the conveyor to automatic washing plant which would constitute manufacturing activities for the excisable goods ‘food product’ falling under TI 1-B. If these are to be treated as activities essential for manufacturing of the excisable goods then cost incurred in respect of them would form part of the value of the excisable goods because excise duty is relatable to manufacture of the excisable goods. On the other hand, if these activities do not relate to the manufacturing activities of the excisable product in question this would not form part of the assessable value of the goods. The original authority in coming to its conclusion that the service charges form part of the assessable value of the goods, has taken support from the Tariff description of the goods saying as follows :-
“It is absolutely necessary for marketing the Maaza Mango Beverage that the same is filled in bottles and placed in crates and the assessee has been compulsorily collecting the rental and service charges from each and every dealer. Since these charges are also recovered alongwith the price of the goods under assessment and since the product cannot be delivered out of the factory gate unless bottles and crates are used all expenses that are incurred on the goods for making them fit for marketing have to be included in the assessable value”.
23.1 It is also appropriate to set out the Tariff description, as it stood, during the relevant period under which ‘Maaza’ branded P or P Foods fell –
“1 -B Prepared or preserved foods put into unit containers and ordinarily intended for sale, including preparations of vegetable, fruit, milk, cereals, flour, starch, birds, eggs, meat, meat offals, animal blood, fish, crustaceans, or molluscs, not elsewhere specified.”
23.2 It is, therefore, apparent in view of the tariff description of the goods under which the product under consideration falls that goods have to be necessarily put in unit containers i.e. glass bottles in the present case before they can be termed as ‘excisable goods’. Any process, therefore, undertaken in respect of glass bottles i.e. sorting out brandwise, separating the defective bottles from the non-defective bottles, cleaning etc. becomes a part of the process of manufacture of the ‘P’ or ‘P’ food. These activities, therefore, cannot be taken as not related to the manufacturing activities of the excisable goods because the excisable goods, as stated above, come into existence only when they are filled in bottles. Accordingly, I am of the considered view that the service charges collected by the appellants in respect of the activities undertaken by them relate to manufacture of the excisable goods in question here. Reliance placed by the learned consultant for the appellants on a number of decisions, mentioned above, relate to manufacture of gases supplied in cylinders which have no application in the instant case. There is no indication in those judgments that duty was leviable on gases in cylinders. It was simply leviable on gases as such. It had, therefore, been held by the Apex Court in Indian Oxygen Ltd., mentioned supra, that any activity required for maintenance of the cylinders is merely an activity ancillary to the manufacture of the excisable goods. Therefore, the Supreme Court ruled that the expenses collected by the assessee on any such ancillary activity would not form part of the assessable value of the goods i.e. gases. In the instant case, however, the position, as mentioned above, is different. Excisable goods are prepared or preserved foods ordinarily intended for sale in unit containers; the unit containers, therefore, form part of the value of the excisable goods. Unit containers, however, are durable and returnable containers in the process of distribution of the excisable goods adopted by the assessee. Section 4(4)(d)(i) includes the cost of packing which is of a durable nature and is returnable by the buyer to the assessee. Explanation 4(4)(d)(i) defines ‘packing’ as meaning “the wrapper, container, bobbin, pirn, spool, reel or warp, beam or any other thing in which or on which the excisable goods are wrapped, contained or wound”. It is therefore, only cost of such containers in glass bottles and wooden crates which is liable to be excluded from the value of the goods. In view of Tribunal’s judgment in the case of Collector of Central Excise v. Century Spg. & Mfg. Co. Ltd. 1988 (37) E.L.T. 277 the deduction of cost from the value of the excisable goods has to be “the full cost of packing which should take in not only the initial purchase price of the container but also the further expenses on its maintenance and repairs”. The expenses collected by the appellants in the point of difference before me is not in respect of maintenance and repairs of the durable and returnable containers but these are in respect of certain other activities mentioned above which I have already held ‘relate to the process of manufacture of the excisable goods as per description of Tariff Item 1-B. No benefit of deduction from the total price of the goods realised by the appellants in respect of those activities can be given since they have collected these expenses in respect of such activity which relate to manufacture of excisable goods. They would duly form part of the value of the goods. Hence, I agree with the learned Technical Member.
Sd/-
(P.C. Jain)
27-4-1992 Technical Member
FINAL ORDER
S.V. Maruthi, Member (J)
In view of the majority opinion, the service charges namely for sorting out the printed bottles, separating the broken bottles before they are sent to automatic bottle washing plant relate to manufacture of aerated water and, therefore, they are includable in the assessable value of aerated water.
The appeal is remanded to the Assistant Collector to verify the actual rental charges of the bottles and re-determine the assessable value of aerated water for deducting the same from the price of the aerated water. The appeal is partly allowed and remanded.