PETITIONER:
INDIAN OXYGEN LTD.
Vs.
RESPONDENT:
COLLECTOR OF CENTRAL EXCISE.
DATE OF JUDGMENT28/07/1988
BENCH:
MUKHARJI, SABYASACHI (J)
BENCH:
MUKHARJI, SABYASACHI (J)
RANGNATHAN, S.
CITATION:
1988 AIR 1809 1988 SCR Supl. (1) 687
1988 SCC Supl. 658 JT 1988 (3) 291
1988 SCALE (2)291
CITATOR INFO :
D 1990 SC 977 (4)
ACT:
Central Excises and Salt Act, 1944.: Section 4-
Valuation of excisable goods-When ex-factory price is
ascertainable, assessment to be made on that basis only-If
ex-factory price is not ascertainable and assessment to be
made ex-depots/service centres, deductions may be claimed
towards charges for transportation, delivery and collection,
and charges for loading within the premises, on the basis of
actual evidence.
HEADNOTE:
The appellant has been manufacturing compressed oxygen
and dissolved acetylene, falling under tariff item No. 14H
of the First Schedule to the Act. These items were sold to
Government undertakings at the rates determined by DGS&D. In
respect of other buyers the appellant charges prices on slab
basis which is related to quantitative discount. These
prices were found to be much more than the prices indicated
in the approved price list. The appellant did not furnish
quantities of the products sold from its depots/service
centres. Apart from the declared price, the appellant
charged delivery and collection charges, cylinder deposit
and rentals.
The appellant explained that the difference in prices
was due to special delivery and collection charges incurred
for transporting the goods from the place of manufacture to
the depot from where it was sold. The appellant's claim for
abatements of account of freight and handling charges was
not accepted as no evidence was produced for the same. In
respect of the price lists submitted by the appellant for
approval, show cause notices were issued. The appellant
replied that in the past, under similar circumstances the
claim for abatement had been upheld by the Department and
therefore, there was no reason to deviate from the previous
practice. The Assistant Collector rejected the plea and
approved the price list after disallowing the abatement on
account of freight and handling charges. The appellant
preferred an appeal before the Collector of Central Excise
(Appeals) which was dismissed. Thereafter both the appellant
and the Assistant Collector filed separate appeals before
the Customs Excise and Gold (Control) Appellate Tribunal.
688
The Tribunal emphasised that the ex-factory prices were
ascertainable and there was no scope of deduction from that
price. However it directed that if ex-factory prices were
not ascertainable and the goods were to be assessed ex-
depot, then it would be for the appellant to claim on the
basis of actual evidence, and remanded the case to the
Assistant Collector to refix the assessable value
accordingly. These appeals under section 35L(b) of the Act
are against the Tribunal's decision.
Disposing of these appeals,
^
HELD: 1. The cost of transportation from factory to the
depot cannot normally be included in computation of the
value under Section 4(1)(a) read with section 4(4)(d)(i) of
the Act. Where the wholesale price is ascertainable at the
factory gate, the question of transportation charges becomes
entirely irrelevant. The cost of transportation from the
factory gate to the place of delivery and transit expenses
were not to be added to the wholesale price at factory gate
for purpose of duty under the Act. It is clear from section
4 that the delivery and collection charges have nothing to
do with the manufacture as they are for delivery of the
filled cylinders and collection of the empty cylinders.
These charges have to be excluded from the assessable value.
Insofar as the loading charges incurred for loading the
goods within the factory are concerned, they are to be
included in the assessable value, irrespective of who has
paid for the same, but the loading expenses incurred outside
the factory gate are excludible. Duty of excise is a tax on
the manufacture, not a tax on the profits made by a dealer
on transportation. [690F-H; 691A]
2. In the instant case, there is a clear finding that
the ex-factory price was ascertainable. If once that is the
position that should be the basis upon which the value is to
be determined, the other expenses, costs or charges must be
excluded. [693B]
Union of India & Ors. etc. etc. v. Bombay Tyre
International Ltd. etc. etc., [1984] 1 SCR 347 referred to.
[This Court observed that the Tribunal's order stood
modified accordingly and directed the Assistant Collector to
re-fix the assessable value as indicated in this judgment. ]
[693C]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeals Nos. 2801-
06 of 1987.
689
From the Judgment and Order dated 8.7.1987 of the
Customs Excise and Gold (Control) Appellate Tribunal, New
Delhi in Appeal Nos. E 1533, 1521, 1528-30 & 1531 of 1986and
Order No.498 to 503 of 1987.
Soli J. Sorabji, V.J. Francis, N.M. Popli, Mrs. Nisha
Bagchi and S. Ganesh for the Appellant.
Mrs. Indu Malhotra and P. Parmeshwaran for the
Respondent.
The Judgment of the Court was delivered by
SABYASACHI MUKHARJI, J. These are appeals under Section
35L(b) of the Central Excises & Salt Act, 1944 (hereinafter
called ‘the Act’).
The appellant manufactures compressed Oxygen and
dissolved acetylene falling under tariff item No. 14H of the
First Schedule of the Act as it stood at the relevant time.
The appellant had received showcause notice in respect of
the period from 1.1.1984 to 31.1.1984 and also five other
show-cause notices for different periods, in respect of the
price lists submitted by the appellant seeking approval of
the price list of gases in question. It was found by the
Tribunal that the appellant manufactures and sells oxygen
and D.A. Gases. These are sold from the factory of the
appellant at Visakhapatanam and from their depot/service
centres at Vijayawada, Rajamundry, Vadlapudi, Jeypore and
Damanjodi. They sell their product to Government
undertakings as per the rates determined by DGS & D, New
Delhi. In respect of other buyers the appellant sell their
product at various prices on slab basis. It is stated that
the slab basis is related to what the manufacturers call a
quantitative discount. According to the Tribunal, the
revenue had undertaken verification of the prices charged by
the manufacturers at their depots and service centres. These
were found to be much more than the prices indicated in the
approved price list. It also observed that the manufacturers
did not furnish to the department quantities of their
product which were sold from their depots/service centres
and that the appellant charged from their buyers, apart from
the declared price list, the following:
(i) Delivery and collection charges (where
applicable);
(ii) Cylinder deposit; and
(iii) Rentals.
690
The department’s case was that these being additional
charges, should form part of the assessable value.
It was urged on behalf of the revenue that the price
list submitted by the manufacturers in respect of clearances
from their Vijayawada depot the appellant claimed abatements
on account of freight and handling charges in respect of
which they did not produce any evidence. It was, therefore,
held by the Department that no such deduction was
admissible. It, however, appeared to the Tribunal that the
manufacturers have admitted that separate prices were
indicated for the same goods in respect of Visakhapatnam
factory which is the place of manufacture and Vijayawada, a
place about 400 Km. away which is only a depot. It was
explained that the difference in the prices was in
consideration of special delivery and collection charges
which were admittedly incurred for transporting the goods
from Visakhapatnam to Vijayawada.
The Tribunal noted that the appellant had not come
forward to offer concrete evidence of actual freight charges
etc. It, however, emphasised that the price at the factory
gate is ascertainable. Assessment should, therefore, be made
in terms of that price. Hence, there was no scope of
deduction from that price. It, therefore, directed that if
the ex-factory prices were not ascertainable and the goods
were to be assessed ex-depot, then it would be for the
manufacturer to claim on the basis of actual evidence. It
remanded the case to the Asstt. Collector to refix the
assessable-value as directed. It is necessary to reiterate
the principle upon which the assessable-value will have to
be determined in this case. The cost of transportation from
factory at Visakhapatnam and the depot at Vijayawada cannot
be included normally in computation of the value. The value
has to be computed under Section 4(1)(a) read with Section
4(4)(d)(i) of the Act, Where the wholesale price is
ascertainable at the factory gate, the question of
transportation charges becomes entirely irrelevant. The cost
of transportation from the factory gate to the place of
delivery and transit expenses were not to be added to the
wholesale price at factory gate for purposes of duty under
the Act. In this case the price of the goods at the factory
gate Visakhapatnam is known. It is clear from Section 4 that
the delivery and collection charges have nothing to do with
the manufacture as they are for delivery of the filled
cylinders and collection of the empty cylinders. These
charges have to be excluded from the assessable-value.
Insofar as the loading charges incurred for loading the
goods within the factory are concerned, they are to be
included in the assessable-value, irrespective of who has
paid for the same but
691
the loading exepnses incurred outside the factory gate are
excludible. Duty of excise is a tax on the manufacture, not
a tax on the profits made by a dealer on transportation.
It is necessary to reiterate that value for assessable
goods must be determined in terms of section 4 of the Act.
The said section 4(1) provides that where the duty of excise
is chargeable on any excisable goods with reference to
value, such value shall, subject to the other provisions of
this section be deemed to be the normal price therefore,
that is to say, the price at which such goods are ordinarily
sold by the assessee to a buyer in the course of wholesale
trade for delivery at the time and place or removal, where
the buyer is not a related person and the price is the sole
consideration for the sale. “Place of removal” under section
4(4)(b) has been defined to mean a factory or any other
place or premises of production or manufacture of the
excisable goods or a warehouse or any other place or
premises wherein the excisable goods have been permitted to
be deposited without payment of duty, from which such goods
are removed. The scope of determination of value has been
explained and reiterated by this Court in Union of India and
others etc. etc. v. Bombay Tyre International Ltd. etc.
etc., [1984] 1 S.C.R. 347. Following the principle of the
said case the Tribunal noted in the judgment under appeal
that the price ex-factory is ascertainable. If once that is
the position as the Tribunal rightly pointed out, the issue
of deduction of rate from the prices ex-depots does not
survive for the decision. But if the ex-factory prices were
not ascertainable and the goods were to be assessable ex-
depot, then it would be for the manufacturer to claim on the
basis of actual evidence the deductions that should be
admissible from the price list as per the provisions of the
Act.
Counsel for the respondent, Ms. Indu Malhotra who
argued this case with considerable ability before us drew
our attention to the following observations in the Bombay
Tyre International (supra) at pages 376 and 377 of the
report:
“Accordingly, we hold that pursuant to the old s.
4(a) the value of an excisable article for the
purpose of the excise levy should be taken to be
the price at which the excisable article is sold
by the assessee to a buyer at arm’s length in the
course of wholesale trade at the time and place of
removal. Where, however, the excisable article is
not sold by the assessee in wholesale trade but,
for example, is consumed by the assessee in his
own industry the case is one
692
where under the old s. 4(a) the value must be
determined as, the price at which the excisable
article or an article of the like kind and quality
is capable of being sold in wholesale trade at the
time and place of removal.
Where the excisable article or an article of
the like kind and quality is not sold in wholesale
trade at the place of removal, that is, at the
factory gate, but is sold in the wholesale trade
at a place outside the factory gate, the value
should be determined as the price at which the
excisable article is sold in the wholesale trade
at such place, after deducting therefrom the cost
of transportation of the excisable article from
the factory gate to such place”.
She also drew our attention to the observations of the
Court at pages 391 and 392 of the Report:
“Therefore, the expenses incurred on account of
the several factors which have contributed to its
value upto the date of sale, which apparently
would be the date of delivery, are liable to be
included. Consequently where the sale is effected
at the factory gate, expenses incurred by the
assessee up to the date of delivery on account of
storage charges, outward handling charges,
interest on inventories (stocks carried by the
manufacturer after clearance), charges for other
services after delivery to the buyer, namely
after-sales service and marketing and selling
organisation expenses including advertisement
expenses can not be deducted. It will be noted
that advertisement expenses, marketing and selling
organisation expenses and after-sales service
promote the marketability of the article and enter
into its value in the trade. Where the sale in the
course of wholesale trade is effected by the
assessee through its sales organisation at a place
or places outside the factory gate, the expenses
incurred by the assessee upto the date of delivery
under the aforesaid heads cannot, on the same
grounds, be deducted. But the assessee will be
entitled to a deduction on account of the cost of
transportation of the excisable article from the
factory gate to the place or places where it is
sold. The cost of transportation will include the
cost of insurance on the freight for
transportation of the goods from the factory gate
to the place or places of delivery.”
693
She contended that in the instant case, in view of the
conduct of the dealer, there was doubt as to what was the
real ex-factory price. If there was a finding that there was
no real ex-factory price, then the aforesaid observations
would have required serious examination. But in this case,
the case has not proceeded on that basis. On the contrary,
there is a clear finding that there was a ex-factory price
which is ascertainable. If once that is the position that
should be the basis upon which the value is to be
determined, the other expenses, costs or charges must be
excluded.
Inasmuch as that is the correct position in law, we
direct that the Assistant Collector will re-fix the
assessable value as indicated in this judgment. The
Tribunal’s judgment is modified accordingly. These appeals
are disposed of. There will be no order as to costs.
G.N. Appeals disposed of.
694