2005 (12) TMI 6 - SC - Central Excise

Court upholds inclusion of sockets & service charges in assessable value of pipes under Central Excise Act.

The court upheld the department's decision to include the cost of sockets and service charges in the assessable value of m.s./g.i. pipes under the Central ... (i) value of bought out parts which contributes in the functioning is includible (ii) Cenvat/Modvat is allowed on bought out parts (iii)service charges incurred on procurement is not trade discount Issues:1. Inclusion of cost of sockets and service charges in the assessable value of m.s./g.i. pipes under the Central Excise Act, 1944.Detailed Analysis:1. The appellant claimed deduction towards service charges and cost of sockets from the assessable value of m.s./g.i. pipes. The department argued that sockets were essential parts of the pipes for functioning and service charges were not deductible. The appellant contended that sockets were duty paid items, not manufactured by them, and not components of the pipes. They also argued that service charges were not connected to the manufacture of pipes and were akin to inspection or storage charges, hence not includible in the assessable value.2. The court emphasized that the valuation under Section 4 of the Act is based on the wholesale cash price charged by the appellant. It was noted that duty is leviable on the normal price charged by the assessee. The department was justified in including the cost of sockets in the assessable value as the pipes were cleared with sockets fitted and customers were charged for the same.3. Referring to the Hindustan Polymers case, the court held that if a manufacturer charges for an item essential for placing the goods in the market, the cost of such item must be included in the assessable value. In this case, the sockets were essential for the functioning of the pipes and were required for joining them, satisfying the functional test of essentiality.4. The court rejected the argument that service charges were trade discounts, clarifying that such charges paid for services rendered were includible in the assessable value. The judgment in the Coromandel Fertilisers case supported this position. The appellant was directed to produce duty paid documents for Modvat credit on the duty paid for the sockets within eight weeks.5. Ultimately, the court found no merit in the appeal and dismissed it without any order as to costs, upholding the department's decision to include the cost of sockets and service charges in the assessable value of m.s./g.i. pipes under the Central Excise Act, 1944.