INDIAN OXYGEN LTD.versusCOLLECTOR OF CENTRAL EXCISE.

                                                                            A
                   INDIAN OXYGEN LTD.
                            v.
              COLLECTOR OF CENTRAL EXCISE.

                            JULY 28, 1988
                                                                            B
 [SABYASACHI MUKHARJI AND S. RANGANATHAN, JJ.)

      Central Excises and Salt Act, 1944.: Section 4--Valuation of
excisable goods-When ex-factory price is ascertainable, assessment to
be made on that basis only-if ex-factory price is not ascertainable and
assessment to be made ex-depots/service centres, deductions may be
claimed towards charges for transportation, delivery and collection, and
                                                                            c
charges for loading within the premises, on the basis of actual evidence.

      The appellant has been manufacturing compressed oxygen and
dissolved acetylene~ falling under tariff item No. l4H of the First
Schedule to the Act. These items were sold to Government undertakings       D
at the rates determined by DGS&D. In respect of other buyers the
appellant charges prices on slab basis which is related to quantitative
discount. These prices were found to be much more than the prices
indicated in the approved price list. The appellant did not furnish
quantities of the products sold from its depots/service centres. Apart
from the declared price, the appellant charged delivery and collection      E
charges, cylinder deposit and rentals.

      The appellant explained 'that the difference in prices was due .to
special delivery and collection charges incurred for transporting the
goods from the place of manufacture to the depot from where it was
sold. The appellant's claim for abatements of account of freight and        F
handling charges was not accepted as no evidence was ::iroduced for the
same. In respect of the price lists submitted by the appellant for
approval, show cause notices were issued. Tbe appellant replied that in
the past, under similar circumstances the claim for abatement had been
upheld by the-Department and therefore, there was no reason to deviate
from the previous practice. The Assistant Collector rejected the plea       G
and approved the price list after disallowing the abatement on account
of freight and handling charges. The appellant preferred an appeal
before the Collector of Central Excise (Appeals) which was dismissed.
Thereafter both the appellant and the Assistant Collector filed separate
appeals before the Customs Excise and Gold (Control) Appellate
Tribunal.                                                                   H


                                   687
                                                                                 ;
    688         SUPREME COURT REPORTS              . [1988] Supp. 1 S.C.R.
A
          The Tribunal emphasised that the ex-factory prices were ascer-
   tainable and there was no scope of deduction from that price. However-
   it directed that if ex-factory prices were not ascertainable and the goods
   were to be assessed ex-depot, then it would be for the appellant to claim
   on the basis of actual evidence, and remanded the case to the Assistant
B Collector to retix the assessable value accordingly. These appeals under
 . section 35L(b) of the Act are against the Tribunal's decision.

          Disposing of these appeals,

          HELD: 1. The cost of transportation from factory to the depot
    cannot normally be included in computation of the value under Section
c   4(l)(a) read with section 4(4)(d)(i) of the Act. Where the wholesale price
    is ascertainable at the factory gate, the qnestion of transportation
    charges becomes entirely irrelevant. The cost of transportation from
    the factory gate to the place of delivery and transit expenses were not to
    be added to the wholesale price at factory gate for purpose of duty
D   under the Act. It is clear from section 4 that the delivery and collection
    charges have nothing to do with the manufacture as they are for deli-
    very of the tilled cylinders and collection of the empty cylinders. These
    charges have to be excluded from the assessable value. Insofar as the .
    loading charges incurred for loading the goods within the factory are
    concerned, they 2re to be included in the assessable value, irrespective
    of who has paid for the same, bot the loading expenses incurred outside
                                                                                 I
E
    the factory gate are excludihle. Duty of excise is a tax on the              \
    mannfactnre. not a tax on the profits made hy a dealer on transpor-
    tation. [690F-H; 691AI

          2. In the instant case, there is a clear finding that the ex-factory   t
F   price was ascertainable. If once that is the position that should be the
    basis upon which the value is to be determined, the other expenses,
    costs or charges must be excluded. [6938]

            Vnion of1ndia & Ors. etc. etc. v. Bombay Tyre International Ltd.
    .etc. etc., I1984 I I SCR 347 referred to.
G
          [This Court observed that the Tribunal's order stood modified
    accordingly and directed the Assistant Collector to re-tix the asssessable
    value as indicated in this judgment.I [693CI

       CIVIL APPELLATE JURISDICTION: Civil Appeals Nos.
H 2801-06 of 1987.
       INDIAN OXYGEN v. COLLECTOR OF C.E. IMUKHARJI, J.I           689

      From the Judgment and Order dated 8. 7 .1987 of the Customs
                                                                          A
Excise and Gold (Control) Appellate Tribunal, New Delhi in Appeal
Nos. E 1533, 1521, 1528-30 & 1531of1986 and Order No. 498 to 503 of
1987.

     Soli J. Sorabji, V.J. Francis, N.M. Popli, Mrs. Nisha Bagchi and
S. Ganesh for the Appellant.                                              B

      Mrs. Indu Malhotra and P. Parmeshwaran for the Respondent.

     The Judgment of the Court was delivered by

      SABY ASACHI MUKHARJI, J. These are appeals under Section
35L(b) of the Central Excises & Salt Act, 1944 (hereinafter called 'the   c
Act').
       The appellant manufactures compressed Oxygen and dissolved
acetylene falling under tariff item No. 14H of the First Schedule of the
Act as it stood at the relevant time. The appellant had received show- D
cause notice in respect of the period from 1.1.1984 to 31.1.1984 and
also five other show-cause notices for different periods, in respect of
the price lists submitted by the appellant seeking approval of the price
list of gases in question. It was found by the Tribunal that the appellant
manufactures and sells oxygen and D.A. Gases. These are sold from
the factory of the appellant at Visakhapatanam and from their depot/
service centres at Vijayawada, Rajamundry, Vadlapudi, Jeypore and E
Damanjodi. They sell their product to Government undertakings as
per the rates determined by DGS & D, New Delhi. In respect of other
buyers the appellant sell their product at various.prices on slab basis. It
is stated that the slab basis is related to what the manufacturers call a
quantitative discount. According to the Tribunal, the revenue had
undertaken verification of the prices charged by the manufacturers at F
their depots and service centres. These were found to ·be much more
than the prices indicated in the approved price list. It also observed
that the manufacturers did not furnish to the department quantities of
their product which were sold from their depots/service centres and
that the appellant charged from their buyers, apart from the declared G
price list, the following:                                        ·

       (i) Delivery and.collection charges (where applicable);

      (ii) Cylinder deposit; and
                                                                          H
      (iii) Rentals.
                                                                                J
    690         SUPREME COURT REPORTS               [1988] Supp. 1 S.C.R.

A        The department's case was that these being additional charges,
    should form part of the assessable value.

          It was urged on behalf of the revenue that the price list submitted
    by the manufacturers in respect of clearances from their Vijayawada
    depot the appellant claimed abatements on account of freight and
B   handling chrges in respect of which they did not produce any evidence.
    It was, therefore, held by the Department that no such deduction was
    admissible. It, however, appeared to the Tribunal that the manufac-
    turers have admitted that separate prices were indicated fo'r the same
    goods in respect of Visakhapatnam factory which is the place of
    manufacture and Vijayawada, a place about 400 Km. away which is
    only a depot. It was explained that the difference in the prices was in
c   consideration of special delivery and collection charges which were
    admittedly incurred for transporting the goods from Visakhapatnam to
    Vijayawada.

         The Tribunal noted that the appellant had not come forward to
D offer concrete evidence of actual freight charges etc. It, however,
  emphasised that the price at the factory gate is ascertainable. Assess-
  ment should, therefore, be made in terms of that price. Hence, there
  was no scope of deduction from that price. It, therefore, directed that
  if the ex-factory prices were not ascertainable and the goods were to be
  assessed ex-depot, then it would be for the manufacturer to claim on
E the basis of actual evidence. It remanded the case to the Asstt. Col-
  lector to refix the assessable-value as directed. It is necessary to
  reiterate the principle upon which the assessable-value will have to be
  determined in this case. The cost of transportation from factory at
  Visakhapatnam and the depot at Vijayawada cannot be included nor-
  mally in computation of the value. The value has to be computed
F under Section 4(l)(a) read with Section 4(4)(d)(i) of the Act, Where
  the wholesale price is ascertainable at the factory gate, the question of
  transportation charges becomes entirely irrelevant. The cost of trans-
  portation from the factory gate to the place of delivery and transit
  expenses were not to be added to the wholesale price at factory gate
  for purposes of duty under the Act. In this case the price of the goods
G at the factory gate Visakhapatnam is known. It is clear from Section 4
  that the delivery and collection charges have nothing to do with the
  manufacture as they are for delivery of the filled cylinders and collec-
  tion of the empty cylinders. These charges have to be excluded from
  the assessable-value. Insofar as the loading charges incurred for load-
  ing the goods within the factory are concerned, they are to be included
H in the assessable-value, irrespective of who has paid for the same but
                                                     •

        INDIAN OXYGEN v. COLLECTOR OF C.E. [MUKHARJI, J.)              691

the loading exepnses incurred outside the factory gate are excludible.        A
Duty of excise is a tax on the manufacture, not a tax on the profits
made by a dealer on transportation.

      It is necessary to reiterate that value for assessable goods must be
determined in terms of section 4 of the Act. The said section 4(1)
provides that where the duty of excise is chargeable on any excisable         B
goods with reference to value, such value shall, subject to the other
provisions of this section be deemed to be the normal price therefore,
that is to say, the price at which such goods are ordinarily sold by the
assessee to a buyer in the course of wholesale trade for delivery at the
time and place or removal, where the buyer is not a related person and
the price is the sole consideration for the sale. "Place of removal"
under section 4( 4}(b) has been defined to mean a factory or any other
                                                                              c
place or premises of production or manufacture of the excisable goods
or a warehouse or any other place or premises wherein the excisable
goods have been permitted to be deposited without payment of duty,
from which such goods are removed. The scope of determination of
value has been explained and reiterated by this Court in Union of India       D
and others etc. etc. v. Bombay Tyre International Ltd. etc. etc., [1984] 1
S. C.R. 347. Following the principle of the said case the Tribunal noted
in the judgment under appeal that the price ex-factory is ascertainable.
If once that is the position as the Tribunal rightly pointed out, the issue
of deduction of rate from the prices ex-depots does not survive for the
decision. But if the ex-factory prices were not ascertainable and the         E
goods were to be assessable ex-depot, then it would be for the
manufacturer to claim on the basis of actual evidence the deductions
that should be admissible from the price list as per the provisions of the
Act.

      Counsel for the respondent, Ms. Indu Malhotra who argued this           F
case with considerable ability before us drew our attention to the
following observations in the Bombay Tyre International (supra) at
pages 376 and 377 of the report:

            "Accordingly, we hold that pursuant to the old s. 4( a) the
            value of an excisable article for the purpose of the excise       G
            levy should be taken to be the price at which the excisable
            article is sold by the assessee to a buyer at arm's length in
            the course of wholesale trade at the lime and place of re-
            moval. Where, however, the excisable article is not sold by
            the assessee in wholesale trade but, for example, is con-
            sumed by the assessee in his o~n industry the case is one         H
     692       - SUPREME COURT REPORTS              [1988] Supp. 1 S.C.R.

               -where under the old s. 4(a) the value must be determined
A               as, the price at which the excisable article or an article of
                the like· kind. and quality is capable of being sold in
                wholesale trade at the time and place of removal.

                      Where the excisable article or an article of the like
n               kind and quality is not sold in wholesale trade at the place
                of removal, that is, at the factory gate, but is sold in the
                wholesale trade. at a place outside the factory gate, the
                value shou)d be determirted as the price at which the excis-
                able article' is sold in the wholesale trade at such place,
                after deducting therefrom the cost of transportation of the
                excisable article from the factory gate to such place".
c
          She also drew our attention to the observations of the Court at
     pages 391 and.392 of the Report:

               "Therefore, the expenses incurred on account of the
D              several factors which have contributed to its value upto the
               date of sale, which apparently would be the date of deli-
               very, are liable to be included. Consequently where the
               sale is effected at the factory gate, expenses incurred by the
               assessee up to the date of delivery on account of storage
               charges, outward handling charges, interest on inventories
E              (stocks carried by the manufacturer after clearance),
               charges for other services after delivery to the buyer,
               namely after-sales service and marketing and selling or-
               ganisation expenses including advertisement expenses can-
               -not be deducted. It will be noted that advertisement
               expenses, marketing and selling organisation expenses and
F              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 incurre_d by the assessee upto
               the date of delivery under the aforesaid heads cannot, on
G              the same grounds, be deducted. But the assessee will be
               entitled to a deduction on account of the cost of transporta-
               tion of the excisable article from the factory gate to the
               place m places where it is sold. The cost of transportation
               will include the cost of insurance on the freight for trans-
               portation of the goods from the factory gate to the place or
'H             places of delivery."
       INDIAN OXYGEN v. COLLECTOR OF C.E. [MUKHARJI, J.J              693

       She contended that in the instant case, in view of the conduct of     A
the dealer, there was doubt as to what was the real ex-factory price. If
there was a finding that there was no real ex-factory price, then the
aforesaid observations would have required serious examination. But
in this case, the case has not proceeded on that basis. On the contrary,
there is a clear finding that there was a ex-factory price which is ascer-
                                                                             B
tainable. If once that is the position that should be the basis upon
which the value is to be determined, the other expenses, costs or
charges must be excluded.

     Inasmuch as that is the correct position in law, we direct that the
Assistant Collector will re-fix the assessable value as indicated in this
judgment. The Tribunal's judgment is modified accordingly. These             c
appeals are disposed of. There will be no order as to costs.

G.N.                                                Appeals disposed of.




                       '
              '.