2005 (12) TMI 91 - SC - Central Excise

Supreme Court: Sockets' Cost Included in Assessable Value; Service Charges Valid

The Supreme Court held that the cost of sockets should be included in the assessable value of m.s./g.i. pipes under the Central Excise Act, as they were ... Whether the department was right in including the cost of sockets and the value of service charges in the assessable value of m.s./g.i. pipes? Held that:- The sockets were fitted on the said m.s./g.i. pipes before their clearance. It has been concurrently found by the Commissioner as well as by the Tribunal that the sockets were fitted on the threaded portion of the pipes. It has been found that the said sockets enabled the functioning of the pipes. It is found that the sockets were essential for functioning of the pipes. They were required for joining the pipes to each other. In the circumstances, the functional test stood fully satisfied in this case and consequently, the cost of the said sockets was includible in the assessable value of the said m.s./g.i. pipes. On behalf of the appellant, it has been contended that the test of essentiality is not the correct test. We do not find any merit in this argument. On the question of service charges incurred by the appellant, it is find that the said charges were includible in the assessable value because they were not in the nature of trade discount. The sockets in question were bought out items, as held by the Commissioner. The cost of the sockets was includible in the assessable value and, therefore, the appellant was entitled to take Modvat credit on the duty paid on the sockets, subject to the appellant's producing duty paid documents to the department within eight weeks from the date of receipt of the judgment. Appeal dismissed. 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.Analysis:The appellant claimed deduction towards service charges and cost of sockets from the assessable value of m.s./g.i. pipes. The department contended that sockets were essential parts of the pipes, enabling their functioning, and service charges were not deductible as they were paid for procuring orders/payments. The appellant argued that sockets were duty paid items, not components of pipes, and service charges were not connected to manufacturing. The Supreme Court emphasized that duty under Section 4 is levied on the normal price charged by the assessee, not on conceptual value, citing precedents like Union of India v. Bombay Tyre International Ltd. The Court found that the department was correct in including the cost of sockets in the assessable value as the pipes were cleared with fitted sockets and customers were charged accordingly.Regarding service charges, the Court held that they were includible in the assessable value as they were not trade discounts but payments for services rendered. The judgment referred to Coromandel Fertilisers Ltd. case to support this position. The Court also noted that the sockets were bought out items, and the appellant could claim Modvat credit on duty paid on sockets by producing relevant documents within eight weeks. Ultimately, the civil appeal was dismissed with no order as to costs.In conclusion, the judgment clarified the valuation principles under the Central Excise Act, emphasizing the normal price for levy of excise duty. It upheld the inclusion of socket costs in the assessable value, considering their essentiality and functional contribution to the pipes. Similarly, service charges were deemed includible as they were not trade discounts. The appellant's entitlement to Modvat credit on duty paid for sockets was recognized, subject to document submission within the specified timeframe.