TMI Blog2005 (4) TMI 58X X X X Extracts X X X X X X X X Extracts X X X X ..... period under any of the seven items is set aside. To sum up, we hold, that, deduction for expenses incurred on account of special packing, turnover tax, octroi and bought-out items was admissible for the period 9/88 to 3/91, subject to the assessee submitting proof of incurring actual expenses in respect of the above items before the Commissioner (Appeals). That, the department was right in disallowing deduction for expenses on account of freight, insurance and handling charges for the period 9/88 to 3/91. We also do not see any reason to interfere with the impugned order of the Tribunal remanding the matter to the Commissioner (Appeals) to decide afresh the question of "related person" during the period 4/91 to 3/93, in view of the changed circumstances indicated hereinabove. The appeals filed by the department are partly allowed - 3792-3803 of 2000 - - - Dated:- 1-4-2005 - S.N. Variava, Dr. A.R. Lakshmanan and S.H. Kapadia, JJ. [Judgment per : S.H. Kapadia, J.]. - If the selling price of M/s. Nemaru "a related person" as defined in Section 4(4)(c) of the Central Excise Act, 1944 (for short "the 1944 Act") was considered as the basis of the assessable value in term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w cause notices covering the period 9/88 to 7/91 but also in respect of the clearances made by the assessee during the period 1/88 to 8/88 already covered under order dated 29-8-1988. 6.Aggrieved by the de novo order dated 29-9-1991, the assessee filed an appeal before the Collector (Appeals), who vide his order dated 29-5-1992 remanded the case back to the Assistant Collector inter alia on the ground of lack of discussion on the point of disallowance of trade-discount and cost of accessories from the assessable value (hereafter referred to as the "second de novo adjudication"). 7.By order dated 11-1-1994, the Assistant Collector re-decided the issue against the assessee holding that M/s. Nemaru, Hubli was the "related person" and the price of the bottle should be fixed taking into consideration the price at which M/s. Nemaru sold the product at Hubli; that since the basis of the sale price was the price charged by M/s. Nemaru, the assessee was not entitled to deduction for freight, insurance, octroi, selling and handling charges as these expenses contributed to the selling price of M/s. Nemaru. It was further held that the office of M/s. Nemaru was in the compound of the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 4(4)(c), the Tribunal recorded the concession made on behalf of the assessee that the assessee and M/s. Nemaru were related person up to 3/91. 10.On the question of deduction, the Tribunal held that the assessee was entitled to deduction for the special packing. In this connection, the Tribunal found that the assessee was engaged in the manufacture of hair-dye, which was sold in bottles of 6 grams each, which bottles in turn were packed in individual cartons of 12 units. According to the Tribunal, these individual cartons constituted packing necessary for the marketability of the product at the factory gate. According to the Tribunal, the individual cartons were placed in the bigger cartons by M/s. Nemaru within its premises and not in the factory premises of the assessee. The Tribunal found that even the cost of the bigger cartons was borne by M/s. Nemaru and not by the assessee and, therefore, the Tribunal held that the cost of the bigger cartons (special packing) was not includible in the assessable value in the hands of the assessee. Lastly, the Tribunal found that the cost of special packing was not recovered by the assessee from M/s. Nemaru and, therefore, it was not incl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oval of the assessee to the premises of M/s. Nemaru. 17.Learned Counsel submitted that in view of the recent judgments of this Court, the assessee was entitled to deduction for turnover tax and octroi subject to the assessee's producing proof of payment of taxes during the relevant period. 18.Learned Counsel for the department next contended that the assessee was not entitled to deduction on bought-out items. In this connection, it was urged that under the literature supplied to the customer, dosage of hair-dye of prescribed measure had been mentioned and, therefore, the measuring-cup was not only meant to facilitate the user in pouring out the stipulated quantity of the dye but it was an essential part of the product as the customer was required to use the prescribed dosage of the product. It was urged that without the measuring cup, the customer was not in a position to apply the prescribed dosage of hair-dye and, therefore, the cost of the measuring cup was includible in the assessable value. The same argument was also applied to hand-gloves. That, in any event, the assessee had failed to produce evidence regarding purchase of hand-gloves and measuring cups during the afores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... event, in respect of special packing, the assessee was entitled to deduction as the said packing was done by M/s. Nemaru after clearance of the product from the factory gate of the assessee in individual cartons. That, the cost of the special packing was borne by M/s. Nemaru. That, this special packing was done in the premises of M/s. Nemaru. In the circumstances, learned Counsel submitted that the cost of the special packing was not includible in the assessable value. 23.As regards, the bought-out items, it was submitted that the measuring cups and hand-gloves were accessories and were not essential parts of the product. A user of the hair-dye could use the product even without the measuring cup and the hand-gloves and in the circumstances, the cost of these bought-out items was also not includible in the assessable value. 24.Lastly, on behalf of the assessee, it was urged that on 2-1-1991, the assessee had entered into a new contract with M/s. Nemaru; that after 2-1-1991, the organizational set-ups of both the entities had undergone a change and in the circumstances, M/s. Nemaru had ceased to be a related person under Section 4(4)(c) of the Act. Learned Counsel submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of removal, to dealers (not being related persons) or where such goods are not sold to such dealers, to dealers (being related persons) who sell such goods in retail; (b) where the normal price of such goods is not ascertainable for the reason that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof determined in such manner as may be prescribed. 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. The provisions of this section shall not apply in respect of any excisable goods for which a tariff value has been fixed under sub-section (2) of Section 3. For the purposes of this section, - (a) "assessee" means the person who is liable to pay the duty of excise under this Act and includes his agent; (b) "place of removal" means - (i) a factory or any other place or premises of production or manufacture of the exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e raw material or component parts used in the production or manufacture of such goods) from the duty of excise under such Act is for the time being in force, the duty of excise computed with reference to the rate specified in such Act in respect of such goods as reduced so as to give full and complete effect to such exemption; and in any other case, the duty of excise(ii) computed with reference to the rate specified in such Act in respect of such goods. (e) "wholesale trade" means sales to dealers, industrial consumers, Government, local authorities and other buyers, who or which purchase their requirements otherwise than in retail." 27.Parliament amended the Central Excise Act, 1944 by Act XXII of 1973. Clause (a) of Section 4(1) spoke of the "value" being the "normal price", that is to say, the price at which such goods were ordinarily sold to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer was not a related person and price was the sole consideration for the sale. In cases of intermediate products, where the normal price was not ascertainable for the reason that such goods were not sold or for any other reas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Bombay Tyre International Ltd. reported in AIR 1984 SC 420, paras 50 and 51. Under the Excise Act, price was co-related to the value and not only to the manufacturing cost. When the assessable value was determined with reference to place "Y" in the above illustration, it did not represent the "normal price" at the factory gate because the price at place "Y" was higher than the "normal price" on account of transportation cost. Hence deduction. The object of such deduction was to bring down the price at place "Y" to derive the "normal price" at place "X", as the legislature intended to fix the assessable value on the basis of the price for delivery at the factory gate. Ultimately, the excisable article became the object of assessment when it was sold for a price in the wholesale trade at the factory gate. 29.In the matter of interpretation of tax laws, deductions are admissible in terms of the section and not on the basis of general concepts. Hence, deduction for transport was confined to Section 4(2). Similarly, under Section 4(4)(d)(ii), the expression "value" was defined so as not to include excise duty, sales tax and other taxes. Similarly, Section 4(4)(d)(i) made an expres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e that the article becomes the object of assessment when it was sold by the manufacturer, as held in the case of Bombay Tyre (supra), remained unchanged even under the three provisos to Section 4(1)(a). The "value" under Section 4 depended on price, place and person. The word "assessment" had to be read in the context of Section 4. The article becomes the object of assessment only when it was sold. The only change brought above by the three provisos was that under given circumstances the price which would not be the "normal price" or the "value", was deemed to be the normal price for the purposes of assessment under Section 4. For example, under the proviso (ii) to Section 4(1)(a), the statutory price was deemed to be the normal price for purposes of assessment. Similarly, in the case of proviso (iii), the price charged by the related person was deemed to be the normal price. The reason was obvious. The implication of the manufacturer, the assessee and the buyer being related to each other was that the price charged to the related person was presumed to be understated and to dissuade such sales, the legislature had introduced the said proviso as anti-evasion measure. Hence, to give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is included, is the packing in which the goods are wrapped, contained or wound when the goods are delivered at the time of removal. In other words, it is the packing in which it is ordinarily sold in the course of wholesale trade to the wholesale buyer. The degree of packing in which the excisable article is contained will vary from one class of articles to another. From the particulars detailed before us by the assessees, it is apparent that the cost of primary packing, that is to say, the packing in which the article is contained and in which it is made marketable for the ordinary consumer, for example a tube of toothpaste or a bottle of tablets in a cardboard carton, or biscuits in a paper wrapper or in a tin container, must be regarded as falling within Section 4(4)(d)(i). That is indeed conceded by learned counsel for the assessee. It is the cost of secondary packing which has raised serious dispute. Secondary packing is of different grades. There is the secondary packing which consists of larger cartons in which a standard number of primary cartons (in the sense mentioned earlier) are packed. The large cartons may be packed into even larger cartons for facilitating the easie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rice at the factory gate, the costs which are includible up to that stage alone were includible. Cost is the function of time and place under Section 4(4)(d). Therefore, costs beyond that stage was not includible in the assessable value as it was not capable of being deducted from the price beyond the factory gate. If the price at the factory gate was the basis for the purposes of assessable value, deduction had to be confined to that price alone. Hence, secondary packing costs was not includible. Therefore, as stated above, levy could not extend beyond the manufactured article itself. 37.Lastly, in the present case, Section 4(2) was not applicable as a finding of fact stood recorded that price was known at the factory gate. This matter came under the third proviso to Section 4(1)(a) and not under Section 4(2) of the Act. 38.For the aforestated reasons, we hold that the department was right in disallowing deduction for expenses in respect of freight, insurance and handling charges from the assessable value for the period 9/88 to 3/91. 39.Now coming to the question of deduction claimed by the assessee on account of payment of octroi and turnover tax, we are in agreement wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion is not for what purpose the"14. packing is done. The test is whether the packing is done in order to put the goods in a marketable condition. Another way of testing would be to see whether the goods are capable of reaching the market without the type of packing concerned. Each case would have to be decided on its own facts. It must also be remembered that Section 4(4)(d)(i) specifies that the cost of packing is includible when the packing is not of a durable nature and returnable to the buyer. Thus, the burden to show that the costs of packing is not includible is always on the assessee. Also under Section 4(a) the value is to be the normal price at which such goods are ordinarily sold in the course of wholesale trade for delivery at time and place of removal. Thus, at this stage, it would be convenient to refer to the case of A.K. Roy Anr. v. Voltas Limited reported in 1977 (1) E.L.T. J177 wherein the concept of wholesale market has been explained in the following terms :- 8. We do not think that for a wholesale market to exist, it is necessary that there should be a market in the physical sense of the term where articles of a like kind or quality are or could be sold or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nued. Applying the test of essentiality, we find that the hand-gloves and measuring cups were not essential for delivery of the product in question in wholesale at the factory gate of the assessee. As held by the Tribunal in its impugned judgment herein, hand-gloves were used as protective cover by the users. That, the said product was capable of being used without the hand-gloves. That, the measuring cup was not essential for the simple reason that the liquid was capable of being applied without the measuring cup. In the circumstances found by the Tribunal on evidence, we hold that the cost of the said bought-out items was not includible in the assessable value during the period 9/88 to 3/91. However, we need to clarify, that, although in principle the deduction for these two items was admissible, on the facts of this case, the assessee was required to produce evidence indicating the price at which the assessee had bought these items during the entire period 9/88 to 3/91. The assessee was also required to prove the supply of these items with the product. Accordingly, we remit the matter to the Commissioner (Appeals) to decide the quantification of deduction in respect of these two ..... X X X X Extracts X X X X X X X X Extracts X X X X
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