ORDER
V.P. Gulati, Vice President
1. The issue in the appeal relates to includibility of the costs incurred towards cutting described as rebate cutting by the Collector (Appeals), Painting and external lipping vision hole cutting of fixation of kick plate are required to be added for the purpose of arriving at the assessable value of the doors which are manufactured by the appellants. The appellants are manufacturers of flush doors falling under tariff heading 16(B) of the Central Excise Tariff. The appellants in pare 2 of the appeal memorandum have set out the processes carried out for the manufacture of the flush doors and the percentage of doors which are sold without the kick plate, vision hole cutting, rebate and external lipping. The said para 2 is reproduced below for convenience of reference :-
“The manufacturing process of flush door is as follows :
First a timber frame of required dimensions is made with rails and stiles. They are enclosed by the frame is filled with wooden strips laid side by side. Two or three layers of veneers are pressed on each side of the core with an adhesive stratum between two layers in a hydraulic hot press. The doors are then cut to required size bringing them to full shape, sanded and got ready”. As soon as the above process is complete the flush door comes into existence and duty is paid on the assessable value of these flush doors. The appellants sell at the factory gate about 90% of doors in the above condition.
In some stray cases the customers place special orders for which the appellants make kick plate, vision hole cutting, rebate cutting and external lipping on the manufactured flush doors. The charges for these services rendered are being collected separately from the respective customers.”
The processes of kick plate fixing, vision hole cutting, rebate cutting and external lipping are described by them as under :
(a) Kick Plate Fixing :
According to the customers’ orders a plastic laminate of about 6″ height is affixed on to the bottom of the manufactured flush door so that any kicking of the door does not damage the door and floor washing does not spoil the door.
(b) Vision Hole Cutting :
After the flush door is completely manufactured, when specific orders are placed by the customers an opening for glazing is provided. Here a portion of the door at the appropriate place is cut and removed so that a glazing panel can be fixed. The vision hole enables a person to view another person on the other side of the door. This is occasionally asked for some of the front doors etc., only.
(c) Rebate Cutting:
Most of the doors are in single leaf. Where the door is wider, the customers may order them in two pieces. In such cases, the rebating is done on the flush door which is already manufactured. On the flush door, an edge is cut so as to give an inclined or square shape so that the door can overlap with another door.
(d) External Lipping:
This is a job done on a door after it reaches full shape. A small piece of timber caller reaper is fixed on all or on the specific edges of the door. This is done manually for the purpose of protecting the edges of the door.
2. Arguing on behalf of the appellants, Shri Lakshmi Kumaran, learned Counsel pleaded that after manufacture of flush doors, in some cases, to suit the needs of the particular customers, they provide key holes and also lipping on the outside of the doors at the bottom. He has pleaded that 99% of the goods were sold without these additional feathers and only in respect .of one per cent of the goods these additional features were added. In this context he has pleaded that flush doors chargeable to excise duty came into existence as soon as the same were ready for clearance in the condition in which 99% of the goods were sold. Embellishment done subsequent to that at a stage after that stage of the manufacture could not be charged to duty. In this connection he referred us to the decision of the Hon’ble Supreme Court in the case of CCE v. Oriental Timber Industries reported in 1985 (20) E.L.T. 202. This decision he pleaded was rendered in the context of tariff entry 16B of the erstwhile tariff which is the predecessor tariff heading to the present chapter 44. He pointed out that the issue that fell for consideration in that case was whether there could be levy in the case of ply wood after the same was cut into circles. The observation of the Hon’ble Supreme Court in para 16 in this regard is as under:
16. Item 16-B in the First Schedule which we have earlier set out contains the relevant provisions which, as the High Court rightly pointed out, throw proper light on the question. On a careful consideration of the provisions contained in Item 16-B, we find it difficult to agree with the view expressed by the High Court. The main provision in Item 16-B indicates that plywood is liable to excise duty whether in Sheets, Blocks, Boards or the like. Sub-item (1) provides that plywood for tea-chests when cut to size, in panels or shooks and packed in sets will be charged duty at the rate of 10% ad valorem and sub-item (2) provides that in all other cases duty will be charged, at the rate of 15% ad valorem. A proper reading of this item indicates that plywood, except in case of tea-chests, is liable to be charged at the rate of 15% ad valorem whether in sheets, blocks, boards or the like. In other words, this item makes it clear that the excise duty is payable on plywood whether in sheets, blocks, boards or the like at the rate of 15% ad velorem, except in case of plywood for tea-chests; and, in case of plywood for tea-chests when cut to size in panels or shooks and packed in sets, duty payable is 10% ad valorem. It is only in case of tea-chests, plywood, when cut to size in panels or shooks and packed in sets, is to be taken into consideration and this item does not indicate that in other cases like making of circles, plywood in the form of circles can be taken into account for assessment of duty. The exceptional provision made in case of tea-chests and the general provision made in all other cases, makes it clear that plywood, whether in sheets, blocks, boards or the like has to be assessed at the stage of plywood blocks or panels before circles are made out of the same. Whether cutting of plywood blocks or panels into circles constitutes a manufacturing process and whether circles made out of the plywood blocks or panels constitute a different product from the plywood may be debatable. There can, however, be no doubt that plywood is manufactured as soon as the product comes out of the press and plywood in sheets, blocks, boards or the like come within Item 16B, even if they are not trimmed and their edges are not sanded, as the Item does not speak of trimmed or sanded plywood.. Even if plywood blocks or panels manufactured by the firm can be said to constitute the raw material of the firm for producing plywood circles and not as the finished product of the firm, the position, in view of the definition of ‘manufacture’ as given in Section 2(f) of the Act, the provisions of Rule 9 and the provisions contained in Item 16B in the First Schedule, remains unaltered and unaffected; and plywood manufactured for producing circles becomes liable to duty at the block stage or panel stage. No question of double taxation arises as duty is leviable only once on the plywood as it comes out of the press in the panel or block stage and no further duty is to be levied on the circles which are made out of the plywood blocks or panels.
He pointed out that tariff heading 16B of the erstwhile tariff as reproduced in the same judgment reads as under:
14. Item 16B of the First Schedule as it read at the relevant time, was : –
“Plywood, block board, laminboard, batten board, hard or soft wall boards or insulating board, and veneered panels, whether or not containing any material other than wood; cellular wood panels; building boards of wood pulp or of vegetable fibre, whether or not bonded with natural or artificial resins or with similar binders: and artificial or reconstituted wood being wood shavings, woodchips, saw dust, wood flour or other lineous waste agglomerated with natural or artificial resins or other (organic binding substances, in sheets, blocks, boards or the like):”
(i) Plywood for tea-chests when cut in Ten per cent ad valorem.
panels or shocks and packed in sets;
(ii) all others... Fifteen per cent ad
valorem."
The Hon’ble Supreme Court, he pleaded took note of the fact that levy was on plywood and the stage for levy after cutting circles would not be relevant for the purpose of charging duty and the duty was to the paid at the anterior stage i.e. the form in which the plywood emerged. He also pressed in support of his plea the decision of the Tribunal in the case of Universal Luggage Manufacturing Co. Ltd v. CCE reported in 1990 (45) E.L.T 508. He has pleaded that in that case it has been held that items like wheel kit which was attached to suit cases as an optional accessory could not be taken into reckoning for the purpose of arriving at the assessable value of the goods. He has pleaded that in the present case also what was being done was after manufacture of the flush doors and additional features like key hole, and lipping at the bottom of the door was provided at the request of the customers. The kick plate as mentioned earlier was fixed subsequent to the manufacture of the flush doors. In this connection, he referred us to the decision of the Hon’ble Bombay High Court in the case of Sreenivas Cotton Mills and Anr. v. UOI reported in 1981 (8) E.L.T. 867. He pointed out that in that case, the question that fell for consideration was the stage at which yarn was to be charged to duty i.e. as soon as it was formed in spindle or after the sizing stage. The Hon’ble Bombay High Court after taking into consideration (sic) the scheme of the tariff and the description of the tariff item held that since yarn came into existence at the spindle stage same would become chargeable to duty at that stage and sizing of yarn subsequent to that is not relevant for the purpose of charging the same to duty. In this connection, he referred us to para 3 of the judgment. In this connection he also referred us to the judgment of the Hon’ble Supreme Court in the case of J.K. Spinning and Weaving Mills Ltd. v. UOI reported in 1987 (32) E.L.T. 234 (S.C.) wherein the Hon’ble Supreme Court has held in para 46 in regard to sizing of yarn. This para is reproduced below for convenience of reference :
46. In the instant case, the appellants are liable to pay Excise duty on the yarn which is obtained at an intermediate stage and, thereafter, further processed in an integrated process for weaving the same into fabrics. Although it has been alleged that the yarn is obtained at an intermediate stage of an integrated process of manufacture of fabrics, it appears to be not so. After the yarn is produced it is sized and, thereafter, subjected to a process of weaving the same into fabrics. Be that as it may, as we have held that the commodity which is obtained at an intermediate stage of an integrated process of manufacture of another commodity, is liable to the payment of Excise duty, the yarn that is produced by the appellants is also liable to payment of Excise duty in our view, the High Court by the impugned judgment has rightly held that the appellants are not liable to pay any Excise duty on the yarn after it is sized for the purpose of weaving the same into fabrics. No distinction can be made between unsized yarn and sized yarn, for the unsized yarn when converted into sized yarn does not lose its character as yarn.
The Learned Counsel therefore pleaded that value of the items enumerated above would not be includible and assessment is required to be done based on the value of 99% of the flush doors which were cleared from the factory, without these additional features.
3. Shri V. Thyagaraj, the learned SDR for the department urged the following points :-
(1) The issue involved before us is not classification but of valuation and in view of the background therefore, the value is to be arrived at based on condition in which the goods leave the factory of the appellants and the price at which they sell the doors.
(2) For determining the value for assessment, the features which enriched the value should be taken into consideration.
He has pleaded that the appellants can be taken to have manufactured two types of flush doors i.e. providing the key hole and lipping attached and without these features. In this connection he pointed out that in the case of castings, the same were assessed after including the cost of machining.
4. We have considered the pleas made by both the sides. The following issue arises for consideration –
(1) Whether in view of the description of the tariff entry the goods i.e. flush doors can be taken to have become excisable the moment the product emerged as flush doors.
(2) Whether attachment of lipping and making key hole etc. can be taken to be process incidental or ancillary to the manufacture of flush doors and these operations are to be treated as manufacturing operations.
5. We observe that the appellants have placed reliance on the judgment of the Hon’ble Supreme Court in the case of CCE v. Oriental Timber Industries reported in 1985 (20) E.L.T. 202. In that case, the question that arose for consideration was whether the plywood manufactured by the assessee and utilised as plywood circles as component part of the packing material for wires and cables was exigible. The appellants in that case were paying duty based on the area of plywood as emerged in the form of circles and this was objected to by the audit and duty was asked to be paid based on the total area of plywood which was manufactured and out of which the circles were cut. In that case the appellants were using the goods for captive consumption of get them cut into circles. In the context of tariff entry 16B the Hon’ble Supreme Court in para 16 extracted above has held that the legislature envisaged the levy of excise at the cut stage only in the contingency when the plywood was cut in the panels for making tea-chest and not otherwise and it was held that duty was required to be paid at the plywood stage which was taken into captive consumption for making circles. Reliance has also been placed on the judgment of the Hon’ble Bombay High Court reported in 1981 (8) E.L.T. 867 in the case of Shreenivas Cotton Mills Ltd. v. UOI and that of the Hon’ble Supreme Court in the case of J.K. Spinning and Weaving Mills Ltd. v. UOI reported in 1987 (32) E.L.T. 234. There the question that arose was as to at which point the duty on yarn which was manufactured at the intermediate stage was to be collected as yarn after it was manufactured was sized and the Revenue sought to collect duty at the sized yarn stage. There again the issue was levy of duty in respect of the goods which were captively consumed and the Hon’ble Supreme Court held that the stage at which the yarn came to be manufactured was the spindle stage as the unsized yarn did not lose its character as yarn after it was sized and observed it was doubtful whether sizing could be considered as a process of manufacture. The case law cited were not in the context of Section 4. The issue in our view stands concluded by the judgment of the Hon’ble Supreme Court in the case of Metal Box India Ltd v. CCE, Madras reported in 1995 (75) E.L.T. 449 SC). The facts in the case as set out in the order of the Hon’ble Supreme Court are as under :
The respondent, Metal Box Company of India Limited, were manufacturing tubes popularly known as “aluminium collapsible and rigid tubes”. The collapsible tube is a cylinder of pliable metal. These tubes were originally manufactured from lead but later they were being manufactured predominantly from aluminium. The respondent was manufacturing the said tubes from aluminium by extrusion, i.e., by forcing slugs or lumps of aluminium through a die under pressure. This process is called Extrusion process. After the tube is delivered from the extrusion press, it is trimmed to a correct length and its nozzle is threaded to the appropriate specification. According to the respondent, the operation of extrusion is completed at this stage and the resultant product is known as an extruded tube. According to the respondent further, several processes/operations are done to such tubes like, making the tube collapsible, giving coating with appropriate colour to the tubes, printing the appropriate material as per the desire of the customer, fitting caps to the tubes and packing them into cartons. According to the respondent, all these operations are postextrusion operation and totally distinct from the operation of extrusion.
The learned Single Judge of the Bombay High Court found in favour of the assessee by holding as under :
“It is accepted on behalf of the respondents that the extruded tubes are sold in the market either in their maked (naked?) form or after lacquering or printing or fitting with caps thereon. It is accepted that the extruded tubes are known in the market although they are neither lacquered nor printed or fitted with caps. The respondents, by paragraph 5 of the return, have further conceded that certain processes are carried out after the process of extrusion takes place … what is liable for excise duty is a manufactured product of extruded tubes … only those processes which are incidental or ancillary to the completion of the manufactured product would come within the expression of manufacture. It is undoubtedly true that the excise duty is leviable on an article when it is taken outside the factory and the rate of the duty is determined with reference to the date of which the article is taken outside the place of manufacture. But that fact would no enable the respondents to take into consideration the cost of printing, painting or fitting the caps which is really in the nature of postmanufactured cost. The process of manufacture of extruded tubes is not postponed till such tubes are painted, lacquered, printed or fitted with caps. That operation is done only to suit the convenience of the customer and is clearly a post manufactured operational process. That being so, it is not possible to include the cost of those operations while determining the value of extruded tubes for the purpose of excise duty.”
The Hon’ble Supreme Court has taken note of the concept of manufacture as contemplated in Section 4 and provisions of Section 2(f) as under :
Now coming to the merits of the case, the relevant tariff item, viz. Tariff Item 27 in the Schedule to the Central Excise Act, as it stood at the relevant time, read as follows :
ALUMINIUM
(a) (i) In any crude from including ingots, bars, blocks, slabs, billets, shots and billets,
(ii) Wire bars, wire rods and castings, not otherwise specified.
(b) Manufactures, the following:
Namely, plates, sheets, circles and strips in any form or size, not otherwise specified.
(c) Foils, that is a product of thickness (Excluding any backing) not exceed in 0.15 millimetres.
(d) Pipes and tubes, other than extruded pipes and tubes.
(e) Extruded shapes and sections including extruded pipes and tubes.
Subsequently, Clause (f) has been added in the above Tariff Item, which reads: (f) Containers, plain, lacquered or printed or lacquered and printed. The definition of manufacture, as inserted by the Finance Act (No. 25) of 1975 with effect from March 1,1975 reads, insofar as is relevant, thus:
“(2f) Manufacture includes any process incidental or ancillary to the completion of a manufactured process; and…”.
Section 4 provides that where the duty of excise is chargeable with reference to value, such value shall, subject to other provisions of the said section, be deemed to be the normal price thereof. The normal price means 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 of removal, where the buyer is not a related person and the price is the sole consideration for the sale vide Section 4(1)(a).
In Bombay Tyre International, it has been held by this Court that the wholesale cash price at the place of removal is the basis for determination of value of an excisable article and whatever be the wholesale cash price at which the excisable article is sold in wholesale trade at the place of removal would represent the value of the excisable article on which excise duty is leviable and that no deduction from such wholesale cash price is permissible except in respect of trade discount and the amount of excisable duty payable at the time of removal of the excisable article from the place of removal. It has been held that the expenses incurred by the assessee upto the date of delivery cannot be excluded from the assessable value. Of course, so far as the cost of packing is concerned, separate principles have been enunciated in that behalf which have been reiterated and explained recently in Madras Rubber Factory Limited, where it has been reiterated that tile fundamental criterion for computing the value of the excisable article is the price at which the excisable article is sold by the manufacturer and that it is not the bare manufacturing cost and manufacturing profit which constitute the basis for determining such value. It has also been held that no deductions except those provided by Section 4 are permissible to be made from the wholesale price and that all expenses incurred on account of several factors which have contributed to the value of the excisable goods upto the date of sale/date of delivery are liable to be included. Applying the said test, it would be evident that the theory underlying the judgment of the learned Single Judge that only the value of the extruded tube shall from the basis of the assessable value and that the costs/charges for coating/printing etc. are not includible in the assessable value, is unsustainable in law. It is not necessary to discuss the issue relating to packing charges for the reason that it has not been agitated before us. [As we have said earlier, the law in that behalf is enunciated in Bombay Tyre International and Madras Rubber Factory Limited.]
For these reasons, it is also not possible for us to agree with the decision of the Gujarat High Court in Extrusion Process Private Limited.
The Hon’ble Supreme Court has gone on to further hold as under in that case.
The contention is that the Finance Bill introducing Clause (f) in Tariff Item 27 was introduced in Parliament on June 18, 1980 and that the Bill became law on passing of the Finance (No. 2) Act, 1980 with effect from August 25, 1980. It is submitted that though a declaration as provided by Section 3 of the Provisional Collection of Taxes Act, 1981 was made while introducing the said Bill in Parliament, such declaration cannot enable the excise authorities to include the charges of printing and lacquering in the assessable value of the said tubes and rigid cans. Not only is this argument untenable in law but it does not actually arise for consideration in view of our holding in Civil Appeal No. 100 of 1981, that even apart from the said Clause (f), the said charges are includible in the assessable value.
It is clear from the above that the price at which the goods at the time of clearance from the factory is the prime consideration and the factors which have gone into enrich the value of the goods will have to be taken into reckoning notwithstanding the fact that some of these factors related to the post manufacturing operations. We, therefore, following with respect the decision of the Hon’ble Supreme Court hold that flush doors which are of the category of having lipping and key hole etc. will have to be assessed based on the price which they fetch at the time of clearance from the factory in terms of Section 4 of the CEA 1944. In the above view of the matter, we hold that the lower authority has rightly demanded duty from the appellants. The appeal is therefore, dismissed.