Lajja Ram, Member (T)
1. These are three appeals filed by M/s. Vijayawada Bottling Company Ltd., against (1) Order-in-Appeal No. 12/85(G)(2); (2) Order-in-Appeal No. 13/85(G), and (3) Order-in-Appeal No. 14/85(G), all dated 25th January, 1985, and all passed by the Collector of Central Excise (Appeals), Madras. As they raise common issues, they were heard together, and are being disposed of by this common order.
2. The appellants were engaged in the manufacture of aerated waters, falling under Tariff Item No. 1D of the erstwhile Schedule to the Central Excises and Salt Act, 1944, (hereinafter referred to as the 'Tariff'), and P or P foods, falling under Item 1B of the Tariff.
3. In the price lists filed, the appellants on their own, worked out and declared assessable values after deducting amounts towards what they considered their post-manufacturing expenses and selling profits.
4. The Assistant Collector, Central Excise, Vijayawada disallowed their claim for deduction of the so-called post-manufacturing expenses, and the so-called selling profits.
5. After the publication of the judgment of the Hon'ble Supreme Court in the case - Union of India v. Bombay Tyres International Ltd. 1983 (17) E.L.T. 329 (SC), the appellants dropped their claim for distribution expenses (except freight, which had been included in the distribution expenses), and advertisement expenses.
6. The price lists were finally approved in 1984 in the light of the judgment of the Hon'ble Supreme Court in the case of Union of India v. Bombay Tyres International Ltd. The Assistant Collector, Central Excise while finalising the price list allowed abatement of freight expenses but disallowed other abatement claims which the appellants have claimed to be the post-manufacturing expenses and the selling profits.
7. On appeal, the Collector, Central Excise (Appeals), Madras noted that the appellants have not been able to substantiate their claim for deduction as being legally admissible. As regards abatement of trade discount, he noted that the appellants have not been able to substantiate with documentary evidence that they do extend a trade discount to their buyers in the form of free coupons.
8. In the grounds of appeal, the appellants have made the following points :-
(1) As the petition was presented before the High Court well within the time limit of 3 months from the date of communication of the Assistant Collector's Order-in-Original, the appellate authority's finding that the appeal was time-barred, is not correct.
(2) The Supreme Court's judgment in the case of Bombay Tyres International was delivered only in respect of specific deductions involved and claimed in the bunch of appeals dealt with by them. That judgment was no bar against the appellants convassing their claim for deductions in respect of the various items pressed by them before the Assistant Collector, Central Excise, and rejected by him;
(3) Regarding breakages of glass bottles/wooden crates, it was stated that most breakages occur after the goods leave the factory, in the premises of the wholesale dealers and retailers, as well as in the hands of the consumers. In their view, when the cost of the bottles/crates in sound condition is excluded from the assessable value, it would be quite odd for the department to seek to include the cost of the broken bottles/crates in the value of the goods under assessment. At the same time they contended that broken pieces had no relation to the excisable goods under assessment;
(4) The cost of repairs of the crates was an extraneous element unconnected with the assessment of excisable goods;
(5) The amounts by way of interest in respect of certain sums borrowed from banks for the purchase of materials, like glass bottles and wooden crates, are extraneous element for the purpose of calculation of assessable value, and do not qualify for inclusion in the value;
(6) Office expenses and other administrative expenditure were unconnected with manufacturing activities, or clearance of excisable goods;
(7) Their claim towards trade discounts could not be rejected on the ground that there was no documentary evidence for the same.
9. The case was posted for hearing on 17-3-1993 when Shri S. Ganesh, Advocate with Ms. Amrita Mitra, Advocate appeared for the appellants. The respondents were represented by Shri Prabhat Kumar, S.D.R.
10. Shri S. Ganesh, the learned Advocate at the outset stated that there were 3 appeals before the Tribunal for their decision and all the 3 appeals, involved common issues. In appeal No. 1357 exactly the same issues as in appeal No. 1355 were involved. In appeal No. 1356,3 items not common with other two appeals were (1) servicing charges (2) rental charges for bottles and crates and (3) Packing charges.
11. He dealt with the proceedings before the Andhra Pradesh High Court and the Supreme Court, and stated that they had claimed a series of deductions at different stages of these proceedings.
12. In brief, they have claimed the following deductions from their wholesale prices :-
(a) Breakages of glass bottles and repair of wooden crates. He referred to the decision of the Tribunal in the case of Real Drinks Pvt. Ltd. v. Collector, Central Excise, 1991 (54) E.L.T. 436 (Tribunal), and the un-reported decision in the case of Goa Bottling Company Pvt. Ltd. v. Collector, Central Excise, Goa, order No. E/14/1993-D, dated 11-1-1993 since reported in 1993 (67) E.L.T. 721 (Tri.);
(b) Repair charges for wooden crates. In this connection, reliance was placed upon the Tribunal's decision in the case of Collector, Central Excise v. Century Spinning and Manufacturing Company Ltd., 1988 (37) E.L.T 277 (Tribunal).
(c) Deductions towards interest on borrowings for purchase of glass bottles and crates;
(d) Quantity discount for breakages of bottles at the rate of 2 bottles for 24 bottles. It was, however, admitted that there was no documentary evidence for giving this trade discount. In this connection, reliance was placed on the Supreme Court's decision in the case of Union of India v. Bombay Tyres International Ltd., 1984 (17) E.L.T. 329 (SC).
(e) As regards the administrative expenses it was submitted that such expenses had nothing to do with the manufacturing of excisable products;
(f) Regarding service charges and rental charges for empty bottles and wooden crates, reference was made to the Tribunal's decision in their own case - Vijayawada Bottling Company Ltd. v. Collector, Central Excise, 1993 (63) E.L.T. 526 (Tribunal).
13. Shri Prabhat Kumar, the learned SDR stated that there was no merit in the claims submitted by the appellants. A series of deductions have been claimed even when such claims did not form part of the declared prices. Wherever and whatever was legally permissible, actuals have already been allowed. For the rest of the claims, they have not been substantiated. There were duplication in the various claims as between breakages, repairs, rentals etc. The free coupon scheme was by way of incentive to customers and was not a trade discount. It was not known prior to the clearances. In support of his arguments that no claim as put up by the appellants was allowable, the learned SDR relied upon a number of decisions, which will be dealt with while discussing the merits of the case in subsequent paras.
14. In reply, the learned Advocate submitted that on overlapping a new case has been sought to be made out by the department, and that there was no double deduction. He admitted that there were no formal agreements with the buyers about discounts, charges etc.
15. Shri S. Ganesh, the learned Advocate cited a number of decisions in support of his arguments. We propose to deal with them during the course of our discussions of the facts of the case.
16. We have carefully gone through the facts and circumstances of the case and have given our careful consideration to the arguments advanced on both the sides.
17. The points for our consideration are the following :-
(1) Deduction from the declared prices, of the expenses incurred towards (a) breakages of glass bottles/wooden crates; (b) Repairs of the wooden crates; (c) Service charges and rental charges for empty bottles and wooden crates,
(2) Deduction from the declared prices of the (a) Bank interest on the sums borrowed for purchase of material and (b) office expenses/administrative expenditure, and
(3) Free supply of bottles by way of trade discount;
18. The appellants had filed their price lists in Part-I of the proforma for determination of value under Section 4 of the Central Excises and Salt Act, 1944 (hereinafter referred to as the 'Act'). Price lists in Part-I are filed for prices of excisable goods for sale by the assessee to buyers (not being related persons) in the course of wholesale trade - Section 4(1)(a) of the Act - the main definition clause.
19. The normal price mentioned in Section 4(1)(a) of the Act is the price at which the goods are ordinarily sold by the assessee in the course of wholesale trade. It is the wholesale price charged by him.
20. In the case - Union of India v. Bombay Tyres International Ltd., 1983 (14) E.L.T. 1896 (SC), the Hon'ble Supreme Court in para 42 of their judgment had held as under :-
"It is true, we think, that the new Section 4(1) contains inherently within it the power to determine the true value of the excisable article, after taking into account any concession shown to a special or favoured buyer because of extra-commercial considerations, in order that the price be ascertained only on the basis that it is a transaction at arm's length. The requirement is emphasised by the provision in the new Section 4(1) (a) that the price should be the sole consideration for the sale. In every such case, it will be for the revenue to determine on the evidence before it whether the transaction is one where extra-commercial considerations have entered and if so what should be the price to be taken as the value of the excisable article for the purpose of excise duty."
21. We may now take up the various deductions as claimed by the appellants.
1 (a) Breakages of glass bottles and wooden crates/
(b) Repair charges for the wooden crates.
Repairs only indicate that the same crates are used repeatedly and if the party's contention is accepted then the cost of the crate will be deducted again and again leading to repeated deductions on old and used crates. In what way the cost of such breakages/repair is included in the price of the aerated water (which by no imagination could be contained in such broken bottles, broken crates) has not been shown.
22. In the case of Union of India v. Bombay Tyres International, 1983 (14) E.L.T. 1896 (SC), the Hon'ble Supreme Court, while dealing with the law of valuation, "from a general perspective" have observed that :-
"It is not possible to accept the contention that because the levy of excise is a levy on goods manufactured or produced, the value of an excisable article must be limited to the manufacturing cost plus the manufacturing profit."
23. They answered the question whether the value of an article for the purpose of the excise levy must be confined to the manufacturing cost and the manufacturing profit in respect of the article, in the negative (para 40).
24. In para 23 of their judgment, the Hon'ble Supreme Court had referred that the post-manufacturing operations did not relate "to the sale transactions effected by the manufacturer but to those pertaining to the subsequent sale transactions effected by the wholesale buyer in favour of other dealers."
25. The claims to various deductions have been dealt with by the Hon'ble Supreme Court, 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 (para 26).
26. It was held that "where the sale is effected at the factory gate, expenses incurred by the assessee upto 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-sale service and marketing and selling organisation expenses including advertisement expenses, cannot be deducted."
27. The Hon'ble Supreme Court in their judgment in the case of Bombay Tyres International (supra) referred to their earlier decision in the case of Atic Industries Ltd. v. Assistant Collector, Central Excise, 1978 (2) E.L.T. J 444 wherein it has been observed that
"once the goods have entered the stream of trade and are on their onward journey to the consumer, whether along a short or a long course depending on the nature of the goods and the conditions of the trade, excise is not concerned with what happens subsequently to the goods. It is the first immediate contact between the manufacturer and the trade that is made decisive for determining the wholesale cash price which is to be the measure of the value of the goods for the purpose of excise."
28. When excise is not concerned with what happens to the goods after they "have entered the stream of trade", how breakages of glass bottles and wooden crates, and repair of wooden crates, after the clearance of the aerated water could be relevant for arriving at the assessable value of the goods already cleared or to be cleared subsequently.
29. The bottles broken along with the spilling of the aerated water in the factory are no more a 'packing' under the provisions of Section 4(4)(d) of the Act. No aerated water is delivered in such broken bottles. No excise duty is charged on the aerated water so spilled as a consequence of the breakage of the bottle. The cost of such broken bottles cannot be excluded from any price as this cost has not entered into the price of the aerated water, (as no aerated water could be contained in such broken bottles.)
30. The appellants have contended that "when the department has all along recognised that glass bottles and wooden crates are durable and returnable packing material for which statutory exemption from levying duty and their value is available in terms of Section 4(4)(d)(i) of the Act and has excluded their cost from the value determined under this provision and that neither under the existing law nor in terms of the Supreme Court's decision there is any ground for the department for not excluding the value of the breakages from the assessable value."
31. When the cost of a packing is not included in the value of the excisable goods, how any expenses incurred in respect of such packing could be deducted from the value (in which they have not been included.)
32. Further, the appellants have themselves stated that these breakages/repairs etc. took place after the removal of the goods. When excise is not concerned with the goods after their removal, then how excise could be concerned with the packing in which the goods have earlier been removed.
33. Regarding the breakages of glass bottles and repairs of wooden crates the appellants have referred to the decision of the Tribunal in the case of Real Drinks Pvt. Ltd. v. Collector, Central Excise, 1991 (54) E.L.T. 436 (Tribunal).
34. The Tribunal in that case had observed that if a deduction is permissible to the assessee under the law on the basis of the real nature of the cost then there was no reason as to why it should not be permitted. They held that the deduction towards replacement of bottles and replacement/repair of crates was a permissible deduction.
35. In that case no valuation issue was involved. It was a matter of claiming the exemption under Notification No. 148/82-C.E., dated 22-4-1982 (as amended), and mis-declaration of turnover and limit of clearance in a financial year for entitlement to the benefit of small scale exemption, and was decided by Special Bench 'D' of the Tribunal.
36. Reliance has also been placed on the Tribunal's decision in the case of Goa Bottling Company Pvt. Ltd. v. Collector, Central Excise, Goa - Order No. E/14/1993-D, dated 11-1-1993.
37. In that case also, decided by Special Bench 'D' of the Tribunal, the issue for determination was the eligibility of aerated water, manufactured by Goa Bottling Company, to the benefit of the small scale exemption in terms of Notification No. 175/86-C.E., dated 1-3-1986. The dispute related to the classification list and the gross value of the clearances.-
38. The Tribunal's observations in both these cases about bottle breakages had to be seen in the light of the issues for determination before them. In these cases, they were not concerned with the assessable values under Section 4 of the Act for the purpose of levying Central Excise duty.
39. Regarding repair charges for wooden crates the appellants have placed reliance upon the Tribunal's decision in the case of Collector, Central Excise v. Century Spinning and Manufacturing Company Ltd.., 1988 (37) E.L.T. 277 (T).
40. In that case the Tribunal was concerned with the cost of packing claimed by the assessee as expenses incurred on account of maintenance of cylinders/toners, service charges etc., which were recovered by them from their customers separately In that case the assessee had claimed deduction of Rs. 100 in the case of toners (800 to 1000 Kgs. capacity), and Rs. 150/- in the case of cylinders (20 to 100 kg. capacity) which the assessee claimed as cost of packing.
41. As clarified in the case of the same appellants Collector, Central Excise, Bombay v. Century Spinning and Manufacturing Company Ltd., 1986 (26) E.L.T 265 (Tribunal) instead of recovering the full cost of packing, the assessee had spread over the recovery commensurate with the life span of containers. In other words, the amounts were equalised recovery of the cost of packing.
42. In the classification list there was no indication in that case that the amounts were recovered from the customers, either as service charges or as manufacturing charges.
43. No such claim has been made by the appellants in the case before us. They had not indicated the cost of wooden crates in their cum duty prices, and on their own had ommitted their cost from the price lists filed in Part-I. Thus, full cost in respect of such packing had in no way been included in their declared prices, and in this manner (by not including), had already been deducted by them on their own.
44. In the circumstances, the rationale of these cases is not applicable to the facts of the case before us.
45. A point has also been made that glass bottles sealed with lid made of tin should be considered as metal containers for the purposes of Notification No. 34/83-C.E., dated 1-3-1983. Glass bottles with crown cap, called a tin cap, could not be considered as metal containers. Cap itself is not a container. It cannot contain the liquid. Liquid is contained in the glass bottle which is not a metal container.
46. 1(c) Service charges and rental charges for empty bottles and wooden crates.
The appellants had submitted that Rs. 2.50 was charged per crate towards rentals/servicing charges from the dealers when the goods were crated for transport of Maza mango bottles to their premises, for using them till they were returned. The cost of these crates had not been included in the declared prices. It is not clear that when even the cost of crates was not included, how rental/servicing charges in respect of such crates, were included in the declared prices.
47. The appellants themselves have stated that the rental/servicing charges were extraneous element and unconnected with the assessment of excisable article in question. In view of this it needs consideration that how this element was included in the declared prices. It needs to be remembered that only what is included could be excluded.
48. The appellants have made a reference to Tribunal's decision in their own case - Vijayawada Bottling Company Ltd. v. Collector, Central Excise, 1993 (63) E.L.T. 526 (Tribunal) with regard to servicing charges and rental charges for empty bottles and wooden crates.
49. The Tribunal in that case had observed that service charges were includible in the assessable value. The Tribunal observed that service charges realised from customers for unloading, brand-wise sorting, broken bottles sorting and cleaning of bottles prior to sending them to automatic washing plant were the activities preparatory to and part of manufacture of the product.
50. This decision does not support the case of the appellants.
51. About rental charges for empty aerated water bottles and wooden crates which are durable and returnable containers, it was held in that case that they were excludible from assessable value subject to verification of actual costs.
52. The actual rental charges were said to have already been allowed in the case before us.
53. In the case - Aqueous Victuals Pot. Ltd. v. Collector, Central Excise, 1988 (38) E.L.T 42 (Tribunal), the assessee had recovered rental charges from dealers at the rate of Re. 1/- per crate and has claimed deduction of rental charges collected separately as permissible deduction under Section 4(4)(d)(ii), as the containers viz. bottles were of durable nature and returnable.
54. In the case before us in the price lists no specific deduction on this account had been claimed. No evidence as to what charge on this account was collected separately and that it was included in the assessable value had been produced. We repeat that what is not included in the value could not be deducted from the value.
55. 2(a) Interest in respect of certain sums borrowed from Banks.
The appellants have pleaded that the interest paid on amount utilised for the purchase of glass bottles and wooden crates does not qualify for inclusion in the assessable value. They have mentioned that the glass bottles and the wooden crates are packing of durable and returnable nature and that their cost had been excluded from the value determined under Section 4 of the Act. If that is so then how any sum more than the cost of such packing (which is already excluded), could be further excluded from the assessable value.
56. It is seen from the price lists that the cost of these packing had not been declared, and it has not been included in the prices at which the goods were ordinarily sold in the course of wholesale trade. No deduction from the prices could be on notional basis. As observed by the Hon'ble Supreme Court in the case of Bombay Tyres International (para 38) "whether any further deductions can be claimed beyond those already mentioned in the statute will depend on the nature of those claims in the case of a particular assessee."
57. Sums borrowed from the Banks are in the nature of working capital and the purpose was the collection of capital for manufacturing activities. Without bottles, aerated water could not be sold. Without crates glass bottles could not be transported even upto the factory gate. Loan from the Banks for such activities could not be considered for any other than the manufacturing activity. They were not for any ancillary or incidental activity, not connected with the activity of manufacture, but for the ancillary or incidential "activity of manufacture" in the manner as referred to by the Honourable Supreme Court in the case of Collector of Central Excise v. Indian Oxygen Ltd., 1988 (36) E.L.T. 730 (S.C.).
58. The facts in the case of Collector of Central Excise v. Shree Bhawani Cotton Mills and Industries Ltd. 1989 (43) E.L.T. 762 (Tribunal) were entirely different. The goods were classifiable under Item No. 68 of the erstwhile Tariff. The assessee was availing of the exemption under Notification No. 120/75-C.E., dated 30-4-1975. The ad valorem Central Excise duty was determined on the basis of invoice value. The bank interest payable to the Bank in the account of the customer, was charged in the invoice.
59. In the case before us the charges towards bottles and crates were raised and paid separately. While there is no evidence for raising bank loans specifically for purchase of bottles/crates, in any case when even charges for bottles/crates were raised separately, how deduction towards interest for such loans could be claimed from the assessable values.
60. In the case of Raymond Woollen Mills Ltd. v. Union of India 1992 (57) E.L.T. 396 (Bom.), the matter related to interest and bank charges on drafts.
61. In the case of Assam Valley Plywood Private Ltd. v. Collector of Central Excise 1989 (41) E.L.T. 661 (Tribunal), the matter related to bank interest paid on credit sales.
62. The facts in the case before us are different. Hence, there is no question of any deduction of interest on the sums borrowed from Banks while arriving at the assessable value.
63. 2(b) Administrative Expenses :-
Admittedly, the various items of administrative expenses were of general nature. They built up the manufacturing apparatus and formed part of the manufacturing facilities. Without incurring these expenses the manufacturing activities could come to a standstill. Manufacturing is not an isolated phenomena and it had to be backed up by organising, administrative and managerial activities towards fulfilment of the objectives for which manufacturing activities have been undertaken. It is why the Hon'ble Supreme Court in the case of Bombay Tyres International had observed in para 49 that :-
"the expenses incurred on account of the serveral 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."
64. The appellants have submitted that the administrative expenses whose exclusion has been claimed by them had nothing to do with the manufacture of excisable products. It has, however, not been clarified by them as how without these administrative arrangements the excisable goods could be produced and could be put for sale at the factory gate.
65. (3) Trade Discount:- The appellants have submitted that they were giving free coupons to their dealers which could be exchanged with its products at the rate of one crate per coupon. Admittedly, there was no mention of these coupons in the invoices. No discount as such was given at the time of the clearance. Full price was charged of the goods cleared.
66. There is no details of the scheme. There is no evidence about the contingency depending upon, the scheme was available. It was not possible to determine the quantum of discount in advance as it was not based on any tangible or identifiable criteria.
67. A Trade Discount is a deduction from the declared price of goods allowed to the buyer by the manufacturer. Every discount, however, is not a trade discount for the purposes of Section 4 of the Act.
68. A quantitative discount is available on the purchase of a specified quantity within a stipulated time. In this case, there is no specification about the quantity to be purchased for making the buyer eligible for the free coupons.
69. Further, it is also not clear as from where the free coupons were to be exchanged. There is no evidence of the actual exchange of the so-called free coupons.
70. As held by the Tribunal in the case - Orient General Industries Ltd. v. Collector, Central Excise, New Delhi, 1985 (21) E.L.T. 326 (Tribunal) 'special incentive bonus' is contingent in nature and is not a trade discount but a gift or reward dependent upon the basis of the purchased turnover or performance and hence includible in the assessable value. The rebate or bonus discount granted by the assessee did not directly or indirectly go to reduce the pre-deter-mined or pre-paid sale price and, therefore, could not be taken to be a reduction of the actual sale price agreed or paid for the goods purchased.
71. In this connection, it is seen that no evidence about the type of discount has been produced at any stage of the proceedings. There is no evidence about any agreement, terms of sales or even of established practice.
72. Thus, there is no basis for allowing such discount.
73. In the case of Standard Electric Appliances v. Superintendent of Central Excise, 1979 (4) E.L.T. (J 53) it had been clarified by the Madras High Court that if from the purchaser the manufacturer had collected the price not at the concessional rate but at the full rate then the department can demand difference in duty.
74. The burden of proof in this regard will be on the manufacturer as it is only within his knowledge as how the price was charged from his buyers.
75. Thus, in the absence of any evidence on this account no such deduction claimed could be given.
76. In the various decisions cited across the bar, the emphasis when any deduction is legally permissible is on the actuals and the evidence to substantiate the claim.
77. In the case - Collector, Central Excise, Indore v. Premier Oxygen and Acetylene Company Pvt. Ltd., 1985 (22) E.L.T. 61 (CEGAT), the oxygen gas was delivered in cylinders and it was not shown that the charges towards retention and holding of the cylinders were directly relatable to or were influencing the price at the point of delivery of the gas. Admittedly, no such charges were collected if the cylinders were returned within the free period.
78. In the case - AIMS Oxygen Pvt. Ltd., Baroda v. Collector, Central Excise, Baroda, 1985 (36) E.L.T. 151 (Tribunal), it has been held that "expenses actually incurred by the appellants on permissible deductions alone would be ex-cludible and any excess recoveries from customers would be considered as part of the appellant's price realisation (Para 8).
79. Section 4 of the Act lays down that the assessable value should be the normal price at which the goods are ordinarily sold by the assessee in the course of wholesale trade. Thus, the normal prices charged will have to form the basis for arriving at the assessable value. Supply in bottles/crates is the normal activity for supply of the aerated water. Their cost had already been separated from their normal price. In the circumstances, the question of any deduction from the normal price does not arise.
80. Even if any specific charges are eligible for deduction per se, deduction has to be of a specific charge and of a specific amount. It is for the manufacturer to claim such deduction at the time of seeking approval of prices as per law, and to produce evidence in support of his claim.
81. In the case before us, we find that the appellants while advancing their case for a number of deductions from their sale prices, have not substantiated their claim by documents or statements. There was reported to be no formal agreement with their buyers for any deduction, charge or discount. The claims are general in nature and no proof of actual expenditure on different counts had been adduced. Some of the claims initially advanced were withdrawn subsequently. For the claims left for consideration it was admitted that they were not covered by the Supreme Court decision in the case of Bombay Tyres International. The Departmental Representative had submitted that wherever legally permissible, actuals have been allowed to the appellants.
82. Taking all these considerations into account, we find no merit in the appeals and all the three appeals are hereby rejected.