S.S. Sekhon, Member (T)
1. This appeal and stay was taken up for final decision with the consent of both sides, after waiver of pre-deposit.
2. This appeal is filed by M/s. Apollo Tyres Ltd., manufacturers of tyres cleared from July, 2000 to 21-1-2001. The tyres were cleared by them to their depot from where the said tyres were sold to dealers by affecting the said sales from the depots and amount at uniform rate of Rs. 60/- per Tractor rear tyre, Rs. 30/- per Truck tyre, Rs. 15/- per LCV tyre and Rs. 10/- per other tyres was collected from the buyers and credited into account termed as "Equalised Freight Account - 7140". The lower authority after recording the facts as follows -
"7. It is seen from the records that the appellants started charging a uniform amount as freight from customers towards transport of goods from the depots to the premises of customers, effective from 1-7-2000 as per the circular dated 14-7-2000 issued from the marketing division of the appellants at Gurgaon. This circular inter alia disclosed the rate per unit to be charged from their customers as freight with effect from 1-7-2000 and that such freight collection should be credited to "Equalised Freight Account" code No. 7140. Admittedly, all depots are collecting this extra amount as equalised freight from all customers and they remitted the same to the Head office. It is also on record that this freight has not been declared as part of the transaction value to the department. They have the Net Dealer Price (NDP) bifurcated into the 'product value' and 'freight' and the product value only is declared as transaction value to the department. This system of charging equalized freight from dealers was stated from July 2000 only and prior to that there was no such practice. From this it is apparently evident that after the changes in the Central Excise Law on Valuation with respect to transaction value brought into effect from 1-7-2000 the appellants have resorted to the new practice. It is therefore required to examine in detail the admissibility of exclusion of this uniform freight from the transaction value for the purpose of levy of excise duty.
The revised Section 4 reads :
4 (1) : where under this Act, the duty of excise is chargeable on any excisable goods with reference to their value, then, on each removal of the goods, such value shall -
(a) In a case where the goods are sold by the assesses, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, be the transaction value.
(b) In any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed.
As per Rule 5 of the above rules, "where any excisable goods are sold in the circumstance specified in Clause (a) of Sub-section (1) of Section 4 of the Act except the circumstance in which the excisable goods are sold for delivery at a place other than the place of removal, then the value of such excisable goods shall be deemed to be transaction value, excluding the actual cost of transportation from the place of removal up to the place of delivery of such excisable goods provided, the cost of transportation is charged to the buyer in addition to the price for the goods and shown separately in the invoice for such excisable goods.
As per Rule 7 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, where the excisable goods are not sold by the assessee at the time and place of removal but are transferred to a depot premises of a consignment agent or any other place or premises (hereinafter referred to as "such other place") from where the excisable goods are to be sold after their clearance from the place of removal and where the assessee and the buyer of the said goods are not related and the price is the sole consideration for the sale, the value shall be the normal transaction value of such goods sold from such other place at or about the same time and where such goods are not sold at or about the same time, at the time nearest to the time or removal of goods under assessment.
8. In the instant case, both the department and appellants have admitted that their goods are not sold at factory gate but are sold only from their depots after receipt on stock transfer from the factory."
"11. As already observed the provision of Rule 7 would be correctly applicable in the instant case. As per Rule 7 where the price is the sole consideration for the sale, the value shall be the normal transaction value of such goods sold from the depots. The normal transaction value has been defined in Rule 2(b) of Central Excise Valuation Rules, 2000 as -
"normal transaction value" means the transaction value at which the greatest quantity of goods are sold".
"Transaction value" has been defined in Section 4(3)(d) of the Central Excise Act, 1944 which reads as -
"the price actually paid or payable for the goods when sold and includes in addition to the amount charged as price, any amount the buyer is liable to pay to or on behalf of the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including but not limited to, any amount charged for, or to make provision for advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranting, commission or any other matter, but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods."
Again the transaction value defined in Section 4 as above would indicate that there is specific mention of any amount the buyer is liable to pay to the assessee including but not limited to, any amount charged for, or to make provision for advertising or publicity, marketing and selling organization expenses, storage, outward handling servicing.... But does not include the amount of duty of excise, sales tax and other taxes if any actually paid or actually payable on such goods. Thus, the only deductions admissible from the amount charged in the invoices are the amount of duty of excise, sales tax and other taxes if any actually paid/payable on such goods. I would therefore follow that where the assessee in addition to the amount charged as price for his goods, recovers any other amount by reason of sale or in connection with the sale, then such amount shall also form part of the transaction value for valuation and assessment purposes. If the assessee splits up his pricing system and charges a price for the goods and separately charges for 'uniform freight', the freight so charged also will form part of the assessable value as the same if charge in connection with production and sale of the goods recovered from the buyer. In the instant case it is pertinent to note that as per the circular dated 17-7-2000 issued by their marketing department, they have implemented the new policy of split ting their Net Depot Price as price and freight with effect from 1-7-2000. It is also not disputed that the amount at prescribed for each variety of tyres was being actually collected by the Depots and credited to the head 'Equalised Freight'. Thus, it is evident from their own records that when the new provisions of Section 4 on transaction value was brought into effect from 1-7-2000, the appellants have resorted to this new method of splitting the NDP as price and freight and not including the freight element in the assessable value for payment of excise duty. As already observed the definition of transaction value makes it clear that all the elements of cost which the assessee incurred till the sale/marketing as well as whichever elements which enrich the value of the goods before their marketing will be includible in the assessable value i.e. transaction value. In other words, any amount which is paid or payable by the buyer to or on behalf of the assessee on account of the function of sale of goods then such amount cannot be claimed to be not part of transaction value. Since the "uniform freight" charged and collected by the appellants qualifies as "any amount the buyer is liable to pay the assessee", there is no scope to exclude the 'uniform freight' which the buyer is liable to pay in the instant cases. It is not disputed that the uniform freight is being charged and collected by the appellants. It would therefore follow that even as per Rule 7 of Central Excise Valuation Rules, 2000, the normal transaction value applicable in the instant case should be inclusive of the uniform freight shown separately and collected by the depots of the appellants.
12. As regards the case laws on Goodlas Nerolac Paints Ltd. [1993 (65) E.L.T. 186 (Bom.)] and Kesoram Rayon [2001 (43) RLT 339 (CEGAT, Kol.)], it is seen that the same are with respect to the Section 4 in force prior to 1-7-2000. It is pertinent to note that there is drastic deviation after the introduction of the new Section 4 on transaction value, in the scope of inclusion of freight charges in the assessable value. As per the provisions of Section 4 and as interpreted by the case laws referred above, there was specific provision in Section 4(2) for deduction of freight charges from depot to the buyer's premises and even the additional consideration realized in excess of the expenses actually incurred was held (by CEGAT) not to be added to the assessable value. As may be seen from the Rule 7 of Central Excise Valuation Rules, 2000 read with the definition of the transaction value under Section 4, the admissible deductions have been specifically spelt out. Admittedly, Rule 7 is also silent on the admissibility or otherwise the deduction of freight charges unlike the wordings in Rule 5 ibid. The provisions of Rule 5 as regards the freight cannot be claimed to be applicable to Rule 7 either for addition or deduction to arrive at the correct assessable value/transaction value. It is thus to be concluded that the case laws cited have no direct application to the issue on hand especially after introduction of the new Section 4 and Transaction Value with effect from 1-7-2000. Accordingly the notice issued for demand is to be confirmed. The inclusion of uniform freight collected by the appellant in the assessable value is to be held as legal and proper in accordance with the provisions of law and correct appreciation of the facts of the case."
Hence, this appeal.
3. After hearing both sides and considering the material on record, it is found :-
(a) There is no provision w.e.f. 1-7-2000 in the substituted Section 4 of the Central Excise Act analogous to Section 4(2) of the Act prior to its substitution, which read :
"(2) Where, in relation to any excisable goods the price thereof for delivery at the place of removal is not known and the value thereof is determined with reference to the price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery shall be excluded from such price."
This provision, enabled the deduction/abatements of cost of transport from cumulative price in the pre-substituted Section 4 scheme to determine the value for purpose of levy of duty.
(b) Board's instructions issued vide MF (DR) No. 354/81/2000-TRU, dated 30-6-2000 [2000 (119) E.L.T. T22] regarding the new substituted Section 4 and the Valuation Rules, 2000 applicable w.e.f. 1-7-2000, provide vide Paras 18 and 19 thereof as follows, as regards treatment to be effected to Transport Cost :
"18. If the assessee and the buyer are not related persons and the price is also the sole consideration for sale but only the delivery of goods is made by the assessee at a place other than the factory/warehouse, then the assessable value shall be the "transaction value" without the addition of the cost of transportation from the factory/warehouse upto the place of delivery. However, exclusion of cost of transportation is allowed only if the assessee has shown them separately in the invoice and the exclusion is permissible only for the actual cost so charged from his buyers. If the assessee has a system of pricing and sale at uniform prices inclusive of equated freight for delivery at factory gate or elsewhere, no deductions for freight element will be permissible.
19. If the goods are not sold at the factory gate or at the warehouse but they are transferred by the assessee to his depots or consignment agents or any other place for sale, the assessable value in such case for the goods cleared from factory/warehouse shall be the normal transaction value of such goods at the depot, etc. at or about the same time on which the goods as being valued are removed from the factory or warehouse. It may be pertinent to take note of the definition of "normal transaction value" as given in the valuation rules. What it basically means is the transaction value at which the greatest aggregate quantity of goods from the depots etc., are sold at or about the time of removal of the goods being from the factory/warehouse. If, however, the identical goods are not sold by the assessee from depot/consignment agent's place on such goods were sold or would be sold shall be taken into account. In either case, if there are series of sales at or about the same time, the normal transaction value for sale to independent buyers will have to be determined and taken as basis for valuation of goods at the time of removal from factory/warehouse. It follows from the Valuation Rules that in such categories of cases also if the price charges is with reference to delivery at a place other than the depot, etc., then the actual cost of transportation will not be taken to be a part of the transaction value and exclusion of such cost allowed on similar lines as discussed earlier, when sales are effected from factory gate/warehouse.
These binding instructions have been ignored in this case by the lower authority. As per these instructions, if "Cost of Transport is shown separately" as in this case, the same has to be allowed. The loading of the Cost of Transport as in this case, therefore, is not permissible as per these instructions.
(c) A full Bench of the Supreme Court in the case of Bombay Tyres International [(1983 (14) E.L.T. 1896] had laid down the basis for valuation of the goods, when charged to duty on ad valorem rates in paragraph 49 in the following terms :-
"49. We shall now examine the claim. It is apparent that for purposes of determining the "value", broadly speaking both the old Section 4(a) and the new Section 4(1)(a) speak of the price for sale in the course of wholesale trade of an article for delivery at the time and place of removal, namely, the factory gate. Where the price contemplated under the old Section 4(a) or under the new Section 4(1)(a) is not ascertainable, the price is determined under the old Section 4(b) or the new Section 4(1)(b). Now, the price of an article is related to its value (using this term in a general sense), and into that value how poured several component, including those which have enriched its value and given to the article is marketability in the trade. 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 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-sales service and marketing and selling organisation expenses including advertisement expenses cannot 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."
Therefore, all costs, up to the date of sale, which apparently would be date of delivery are liable to be included in the value of the product to be assessed to duty. In the case of Govt. of India v. Madras Rubber Factory Ltd. [1995 (77) E.L.T. 433 (S.C.)] the Apex Court again in Para 24, held :-
"24. A reading of the Order makes it clear that the extra five per cent charge, which was allowed, represented the cost of additional packing desired by the buyer. The further observation to the effect, "and moreover in such case the wholesale dealers take delivery of the goods manufactured by the respondent from the duty-paid warehouse situated outside the factory premises" does not mean that any portion of five per cent extra charge represented the expenses incurred on maintaining and running the depots outside the place of removal. The order appears to have turned more on the ground of absence of denial of assessee's averments by the Revenue. In any event, it is not possible to read the said Order as laying down a proposition contrary to the considered and specific holding in the decision in Bombay Tyre International.
It is also not reasonable to read any inconsistency between both the orders, inasmuch as the Bench which made the order in Duphar Interfran Limited is the very same Bench which delivered the judgment in Bombay Tyre International. The learned Judges could not have certainly laid down a contrary proposition in Duphar Interfran Limited to the one specifically laid down in Bombay Tyre International. In this behalf, it is relevant to note that Sub-section (2) of Section 4 which envisages a situation where the goods are not sold at the place of removal but are sold at a place other than the place of removal, provides for deduction of the cost of transportation from the place of removal to the place of delivery. It would be reasonable to presume that the only deduction permissible in such a situation is the one expressly provided by the sub-section and no other. So far as insurance charges on the freight transported from the place of removal to the selling points allowed in Bombay Tyre International are concerned, then were allowed evidently because they form an adjunct of the transportation charges and are incidental thereto. We are also of the opinion that the holding in Bombay Tyre International that deductions other than those specifically mentioned in Section 4 can yet be conceived of may not be available to the assessee herein in view of the express enunciation of law in the very decision on the issue now in question. We may add here that where the freight is averaged and the average freight is included in the wholesale cash price so that the wholesale cash price at any place or places outside the factory gate is the same as the wholesale cash price has to be deducted in order to arrive at the real wholesale cash price at the factory gate and no excise duty can be charged on such averaged freight, as clarified in Bombay Tyre International.
Thus, averaged freight or Transport charges were not considered by Apex Court to constitute a component of value for the purposes of levy of Central Excise Duty on ad valorem rated goods. They were to be granted abatements, not because of Section 4(2) of the pre-substituted Section 4, but could not be included in the cost for value of the product, when incurred after the sale of the goods.
(d) The Revenue's finding and pleadings that the definition of 'Transaction Value' does not mention transport costs as a permissible abatement and thus, would have to be included on a reading of the definition is attractive, but ignores the stipulations of the Apex Court as regards the named and unnamed costs incurred, especially the cut-off point, for reckoning such costs i.e., up to the time and place of removal. No 'POST REMOVAL COST' could be reckoned and or added for purpose of determining 'value' as per the Apex Court's decision in the case of Bombay Tyres International [1983 (14) E.L.T. 1896] and Madras Rubber Factory [1995 (77) E.L.T. 433 (S.C.)] even after the introduction of the definition of Transaction Value as that would not be in conformity with 'value' under Central Excise Act. In the present case, 'Average Transport' charges are being recovered after billing the sale price of the tyres at the Depot. These transport charges are in the nature of 'POST REMOVAL CHARGES/COSTS', they cannot be taken to be permissible addons for determination of value under Central Excise Act.
(e) As regards the following finding arrived at by the Commissioner (Appeals),
"11...........I would therefore follow that where the assessee in addition to the amount charged as price for his goods, recovers any other amount by reason of sale or in connection with the sale, then such amount shall also form part of the transaction value for valuation and assessment purposes. If the assessee splits up his pricing system and charges a price for the goods and separately charges for 'uniform freight', the freight so charged also will form part of the assessable value as the same if charge in connection with production and sale of the goods recovered from the buyer......"
This finding of the lower authority, in the order impugned, that 'any amounts recovered' and that these amounts are for sale/ marketing of the goods and are thus to be included as per definition of Transaction Value cannot be upheld in view of our finding and the Apex Court's decisions as to the stage up to which the costs giving into 'Value' could be added. They are not amounts recovered to effect sales, but are amounts recovered, after sale of tyres in this case. It is now well-settled by the Apex Court in the case of Prabhat Zarda Factory Ltd. v. CCE reported in 2002 (146) E.L.T. 497 (S.C), wherein it was held that when sales are made from the depot, the freight and insurance charges up to depot should be included. However, freight and insurance charges for delivery to the customers from the depot ought to be deducted, and were not includible in the assessable value. In the case of Escorts JCB Ltd. v. CCE [2002 (146) E.L.T. 31 (S.C.)], while dealing with the question of valuation of goods, and in particular freight and insurance during transit, the Apex Court held that where the assessee had handed over the goods to the buyer's representative, and after elaborately examining the issue in the light of law relating to sale of goods and law of insurance held that the lower authorities in that case had erred in their findings that ownership of the goods in the property continued to remain in the manufacturer till the goods were delivered to the buyers and that such a conclusions was held to be unsustainable. In this view of the matter, when in this case, the issue is only of addition of equalised freight recovered from the buyers, after sales are effected from the depots, and not deduction of transport cost from the factories to the depots, and there is not evidence or a charge that such recoveries were transferring the cost of the goods, otherwise to such transport charges, we cannot then uphold the inclusion thereof for the purposes of determining the value under Rule 7 of the Valuation Rules i.e Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, which are held by all concerned to be applicable in the facts of this case.
(f) The issue as regards differential amounts between the equalised freight charged from everyone and that actually incurred cannot be included in the assessable value since the Apex Court has held that duty of excise is on manufacture and not on profits made by a dealer on transportation as held in Baroda Electric Meters Ltd. [1997 (94) E.L.T. 13 (S.C)].
4. In view of our findings, appeal is allowed, after setting aside the orders of the lower authorities.