2002 (9) TMI 126 - HC - Central Excise

Court: Ex-factory price key for excise duty. Charges beyond excluded. Show Cause Notices invalid. Petitioners succeed.

MAHINDRA & MAHINDRA LTD. Versus UNION OF INDIA

The court held that the ex-factory price was the basis for determining the assessable value for excise duty purposes. Additional charges such as ... Valuation (Central Excise) Issues Involved:1. Legality and validity of two Show Cause Notices issued by the Superintendent of Central Excise.2. Determination of the assessable value for excise duty purposes.3. Inclusion of sales depot prices, after-sales service charges, dealer's margin, marketing and selling expenses, and excess freight in the assessable value.4. Classification of sales depots as related persons.5. Availability of alternative remedies.Detailed Analysis:1. Legality and Validity of Show Cause Notices:The petition challenged the legality and validity of two Show Cause Notices issued under Section 11A of the Central Excises and Salt Act, 1944. The first notice dated 12th July 1985, covered the period from 1982 to 1985 but did not quantify the duty demanded. It alleged that the petitioners sold duty-paid stocks from their depots at higher prices and did not include certain charges in the assessable value. The second notice dated 4th February 1986, covered the period from 1st August 1985 to 31st October 1985 and demanded Rs. 20,00,754.40, containing similar grounds as the first notice.2. Determination of Assessable Value:The main question was whether the Department was justified in demanding excise duty based on higher prices at which tractors were sold from depots. Under the statutory provisions existing at the time, the assessable value was the normal price at which goods were sold at the place of removal, defined as the factory or warehouse. The petitioners argued that the ex-factory price was ascertainable and should form the basis of the assessable value. The court agreed, noting that 20% of the tractors were sold at the factory gate, making the ex-factory price ascertainable.3. Inclusion of Additional Charges in Assessable Value:The Show Cause Notices alleged that the petitioners did not include after-sales service charges, dealer's margin, marketing and selling expenses, and excess freight in the assessable value. The court referred to the Supreme Court judgment in Indian Oxygen Ltd. v. Collector of C.E., which held that transportation costs and other post-manufacturing expenses are irrelevant for determining the assessable value when the ex-factory price is available. The court concluded that since the ex-factory price was ascertainable, these additional charges could not be included in the assessable value.4. Classification of Sales Depots as Related Persons:The Department contended that the sales depots were related persons and their prices should be considered for assessable value. The petitioners argued that the depots were part of their organization and not separate entities. The court agreed with the petitioners, stating that the depots were not buyers but part of the petitioners' organization, and thus could not be considered related persons under Section 4(1)(a) of the Act.5. Availability of Alternative Remedies:The respondents argued that the petitioners had an alternative remedy to challenge the notices before the CEGAT. The court noted that this option was previously declined by the respondents when offered by the Division Bench admitting the petition. Thus, the respondents could not raise this submission at this stage.Conclusion:The court held that under the law as it stood prior to the 1996 amendments, the ex-factory price was the basis for determining the assessable value. The additions over the factory gate price while selling through depots were irrelevant for excise duty purposes. The two Show Cause Notices were deemed bad in law and were quashed. The petition was allowed with no order as to costs.