2024 (2) TMI 251 - AT - Central Excise

Corrugated boxes received free from buyers must be included in assessable value under Section 4

CESTAT Ahmedabad ruled that corrugated boxes received free from buyers for packaging glassware must be included in assessable value under Section 4 of ... Valuation - Corrugated Boxes received free of cost by Appellant from buyers for packaging glassware will be included in the calculation of Assessable Value under Section 4 of the Central Excise Act, 1944 or not - CENVAT Credit on scrap of capital goods - rule 3(5A) of Cenvat Credit Rules 2004 - HELD THAT:- In the present case, the cost of corrugated boxes supplied by the buyers to the appellant is includible in the transaction value of the glassware manufactured and supplied by the appellant as per the provision of Section 4 of the Central Excise Act 1944 and the rules made thereunder. Reliance placed on this tribunal’s order in M/S. KAIRA CAN COMPANY LTD VERSUS C.C.E & S. T- AHMEDABAD-III [2019 (12) TMI 114 - CESTAT AHMEDABAD] where it was held that in the present case apart from the transaction value the packing material supplied Free of Cost by the customer was also used by the appellant. The value of such packing material was not included. When any Excisable product is manufactured and cleared the value of such goods shall be the total value of goods in the form it is cleared from the factory of the Assessee. It is immaterial that whether a part of the material contained in the final product to borne the cost. Demand raised on the Appellant for the scrap of Capital Goods - HELD THAT:- As the show cause notice was badly issued by the Department without proper investigation into whether the Appellant has availed Cenvat Credit in respect to the scrap which was apparently cleared without payment of duty on such capital goods scrap. In the absence of any such investigation and the Department unable to adduce any evidence the allegation made in the Show cause notice is bad. In this position the submission of the appellant must be taken correct as there is no material produced by the revenue that states otherwise. Therefore, it is clear that the Appellant have cleared the scrap which is neither generated from cenvatable capital goods or cenvatable input nor from manufacturing. Therefore, the same is clearly not liable for any duty - The identical issue was raised in the appellant’s own case only for a different period wherein this tribunal has taken a consistent view that such scrap other than manufacturing and non-cenvatable is not liable to duty. Appeal allowed in part. ISSUES PRESENTED AND CONSIDERED 1. Whether the cost/value of corrugated boxes supplied free of cost by buyers and used for primary packaging of manufactured glassware is includible in Assessable Value under Section 4 of the Central Excise Act, 1944. 2. Whether duty is leviable under Rule 3(5A) of the Cenvat Credit Rules, 2004 on scrap of capital goods (or scrap arising from packing material) where the assessee has not availed Cenvat credit on those capital goods. ISSUE-WISE DETAILED ANALYSIS - Issue 1: Inclusion of value of free packaging (corrugated boxes) in Assessable Value under Section 4 Legal framework: Section 4 of the Central Excise Act, 1944 governs valuation where duty is chargeable with reference to value; transaction value is the assessable value where goods are sold and prescribed conditions are met. The Central Excise Valuation Rules, 2000 (notably Rule 6) provide for inclusion of value of packing material supplied free of cost by the buyer. Precedent treatment: The Court considered jurisprudence including the Supreme Court's treatment equating statutory 'transaction value' and the judicially evolved concept of 'normal price,' but noted that the Supreme Court in the leading authority did not consider Rule 6 of the Valuation Rules. Tribunal precedents distinguishing facts where packing material was used only for transport (not marketing) were also considered. Interpretation and reasoning: The Tribunal examined the factual character of the corrugated boxes and found them to constitute primary packaging integral to the final form of the goods cleared from factory, not merely transport aids. Where packing supplied by the buyer is actually used in the form in which goods are cleared, its money value flows 'directly or indirectly from the buyer' and is a part of the total value of goods. The Tribunal rejected reliance on decisions where packing was limited to transportation (e.g., empty gas cylinders) as distinguishable. The Tribunal read Section 4 together with Rule 6 to conclude that the cost of packing supplied free by the buyer must be included in transaction/assessable value when it forms part of the goods as cleared. Ratio versus obiter: Ratio - where packaging supplied free by the buyer constitutes primary packaging forming part of the final product as cleared, its value is includible in assessable value under Section 4 and the Valuation Rules. Obiter - observations distinguishing earlier cases on differing facts (transport vs primary packaging) and commentary on the Supreme Court's non-consideration of Rule 6 are ancillary but supportive. Conclusion: The cost/value of corrugated boxes supplied free by buyers and used as primary packaging for glassware is includible in Assessable Value under Section 4 read with the Central Excise Valuation Rules, 2000; the demand on this ground is sustainable. ISSUE-WISE DETAILED ANALYSIS - Issue 2: Liability to pay duty on scrap of capital goods under Rule 3(5A) where no Cenvat credit was availed Legal framework: Rule 3(5A) of the Cenvat Credit Rules, 2004 addresses liability in respect of output or scrap where credit has been availed; excise duty on scrap may arise where cenvatable inputs/capital goods are involved and credit has been taken. Precedent treatment: The Tribunal referred to its own consistent precedents holding that scrap not arising from manufacturing or not linked to cenvatable inputs/capital goods (and where no Cenvat credit was availed) is not liable to duty; identical prior decisions in the appellant's own cases were applied. Interpretation and reasoning: The show cause notice alleged duty on scrap generated from used packing material, but the record showed no availing of Cenvat credit on the capital goods or inputs concerned. The Department failed to investigate or produce evidence that credit was availed or that the scrap was manufacturing/cenvatable scrap. In absence of any material to the contrary, the appellant's assertion that the scrap did not originate from cenvatable capital goods or manufacturing processes was accepted. The Tribunal emphasized that liability under Rule 3(5A) presupposes existence/availment of Cenvat credit or that the scrap is of cenvatable origin; where these preconditions are absent, the demand is bad for lack of evidentiary basis. Ratio versus obiter: Ratio - where no Cenvat credit has been availed and scrap is not generated from cenvatable inputs/capital goods or manufacturing, duty under Rule 3(5A) is not leviable; absence of departmental investigation/evidence invalidates the demand. Obiter - remarks on procedural deficiencies in issuance of the show cause notice insofar as they underscore the evidentiary failure. Conclusion: The demand for duty on scrap under Rule 3(5A) is unsustainable in the absence of evidence of availed Cenvat credit or that the scrap arose from cenvatable capital goods or manufacturing; the show cause notice is bad on the facts and the demand is liable to be set aside. CROSS-REFERENCE The Tribunal's conclusions on the two issues are severable: inclusion of free-of-cost primary packaging in assessable value (sustained) does not automatically entail liability under Rule 3(5A) for scrap where no Cenvat credit was availed (disallowed). The decision relies on factual distinction between packaging that forms part of the cleared goods and scrap that does not originate from cenvatable inputs/capital goods or manufacturing processes.