2005 (2) TMI 284 - AT - Central Excise

Tribunal rules coating charges not part of assessable value for pipes

PSL LTD. Versus COMMISSIONER OF CENTRAL EXCISE, DAMAN

PSL LTD. Versus COMMISSIONER OF CENTRAL EXCISE, DAMAN - 2005 (185) E.L.T. 59 (Tri. - Mumbai) Issues Involved:1. Valuation of pipes and inclusion of coating charges.2. Inclusion of transportation charges and profit on transportation in the assessable value.3. Invocation of larger period under proviso to Section 11A for extended demand.4. Liability for penalty and interest.Issue-wise Detailed Analysis:1. Valuation of Pipes and Inclusion of Coating Charges:The appellants, engaged in manufacturing spiral welded steel pipes, argued that coating (cement/coal tar/PE) applied at a separate unit does not constitute manufacturing. The Commissioner initially found that coating amounts to manufacture, leading to duty demands on the coating value. However, the Tribunal noted that a previous show cause notice regarding whether coating amounts to manufacture had been dropped by the Commissioner. Consequently, the Tribunal held that since coating does not amount to manufacture, the value of coating should not be included in the assessable value of the pipes.2. Inclusion of Transportation Charges and Profit on Transportation in the Assessable Value:The appellants collected transportation charges on an average basis, which sometimes resulted in excess amounts over actual transportation costs. The Commissioner considered these excess amounts as additional consideration, thus includible in the assessable value under Section 4(1)(b) of the Central Excise Act, 1944, and Rule 6 of the Valuation Rules, 2000. The Tribunal, however, found that the contracts were for the sale of coated pipes, and the transportation charges pertained to these coated pipes, not the bare pipes. The Tribunal cited the Supreme Court decision in CCE v. Acer India Ltd., emphasizing that excise duty is levied only on excisable goods. Since the coated pipes were not considered manufactured goods, transportation charges could not be added to the value of bare pipes. The Tribunal also noted that the appellants had suffered a net loss on transportation charges, further invalidating the demand for duty on excess transportation charges.3. Invocation of Larger Period Under Proviso to Section 11A for Extended Demand:The Commissioner invoked the extended period under Section 11A, citing that the appellants were aware of the duty liability on additional transport charges. The Tribunal disagreed, stating that the mere understanding of an officer regarding duty on coating value does not constitute deliberate evasion. The Tribunal found no evidence that the appellants knowingly avoided duty payment, thus the invocation of the extended period was unjustified.4. Liability for Penalty and Interest:Given the Tribunal's findings that no duty demands were sustainable, there was no basis for penalties and interest. The Tribunal emphasized that the appellants' actions were based on their interpretation of the law, and there was no deliberate attempt to evade duty.Conclusion:The Tribunal set aside the Commissioner's order, allowing the appeals. The Tribunal concluded that coating does not amount to manufacture, transportation charges for coated pipes are not includible in the value of bare pipes, and there was no justification for invoking the extended period or imposing penalties and interest. The appellants were advised to apply for a refund of the wrongly debited amount.