1995 (10) TMI 90 - AT - Central Excise

Tribunal rules on excise duty for packing costs, clarifies assessment principles

The tribunal ruled in favor of including the cost of outer packing in the assessable value for excise duty assessment, emphasizing that packing necessary ... Inclusion of cost of secondary/outer packing in assessable value - packing necessary to put goods in condition in which they are generally sold in the wholesale market - durable and returnable packing excluded from value - deduction of excise duty payable on packing material from assessable value - proviso to Section 11A(1) - fraud, collusion or wilful suppression as condition for extended limitationInclusion of cost of secondary/outer packing in assessable value - packing necessary to put goods in condition in which they are generally sold in the wholesale market - durable and returnable packing excluded from value - Cost of larger corrugated outer packing (secondary packing) is includible in the assessable value of the goods for the periods in question. - HELD THAT: - The Tribunal applied the test adopted by the Supreme Court in MRF Ltd. and earlier decisions: whether the packing is that in which the goods are ordinarily sold in wholesale trade at the factory gate and is therefore necessary to put the article in the condition in which it is generally sold. Having considered the assessee's factual material, the Tribunal found that the bulk of sales (other than a small percentage to local dealers who take delivery in medium cartons) are made in the larger corrugated cartons and that such outer packing is used to put the goods in the condition in which they are ordinarily sold to wholesale buyers. The earlier Supreme Court decision in the assessee's own case concerning wooden crates was held to be fact-specific and not determinative where corrugated cartons are the prevalent secondary packing. On these facts the cost of the outer corrugated packing must be included in the assessable value. [Paras 3, 4, 5]Outer corrugated packing is 'necessary' within the MRF test and its cost is includible in the assessable value.Deduction of excise duty payable on packing material from assessable value - sub-clause (2) of clause (d) of sub-section (4) of Section 4 - exclusion of amount of duty payable - While including the cost of outer packing in assessable value, the amount of excise duty payable on the packing material must be deducted; the Collector failed to make this deduction. - HELD THAT: - The Tribunal noted that sub-clause (2) of clause (d) of sub-section (4) of Section 4 excludes from value any amount of excise duty payable on the goods. The question is whether duty is payable on the packing material; if so, its amount must be deducted in computing assessable value irrespective of whether the assessee has actually collected that duty. The Collector did not make this deduction when including the cost of outer packing and was held to be in error. The assessment is therefore to be modified to allow the statutory deduction. [Paras 6]Deduct the excise duty payable on the outer packing material when arriving at assessable value; the Collector's computation without such deduction is erroneous.Proviso to Section 11A(1) - fraud, collusion or wilful suppression as condition for extended limitation - The proviso to Section 11A(1) (extending limitation to five years for fraud, collusion or wilful suppression) was not attracted; the Collector erred in invoking it in appeal No. 2796/93-A. - HELD THAT: - The Collector found deliberate omission by the assessee in declaring the nature/type of packing. The Tribunal examined the price lists, gate passes and invoices and observed that the price list disclosed prices for cartons and specifically included a remarks column addressing secondary packing and packing charges. Only a small proportion of sales were to local buyers taking delivery in smaller cartons; the price list indicated that some goods were sold in secondary (outer) packing. Even if the presentation of prices could be seen as clever, there was no wilful suppression or mis-statement of material facts that would justify invocation of the proviso. The department had been aware of the assessee's past excise history and the alleged concealment was not established. [Paras 7, 8, 9]Proviso to Section 11A(1) not attracted; extended limitation based on fraud, collusion or wilful suppression cannot be invoked and the impugned order in appeal No. 2796/93-A is set aside.Final Conclusion: The appeals were disposed of as follows: appeal No. 2796/93-A allowed (order set aside for want of attractment of proviso to Section 11A(1)); in appeal Nos. 2361/92-A and 2362/92-A the inclusion of outer packing cost in assessable value is upheld but the assessments are modified to permit deduction of the excise duty payable on the packing; other aspects of those orders are confirmed. Issues:1. Inclusion of cost of outer packing in assessable value.2. Method of computation of value and deduction of excise duty.3. Application of Section 11A of the Act regarding recovery of duties.Issue 1: Inclusion of cost of outer packing in assessable value:The case involved a manufacturer of batteries and torches challenging the assessment of excise duty on the value including the cost of outer packing. The manufacturer argued that the cost of corrugated cartons should not be included based on previous court decisions. The tribunal analyzed the test from previous cases, emphasizing that the cost of packing necessary for selling goods in the wholesale market should be included. The tribunal found that the outer packing was necessary for the wholesale trade and should be included in the assessable value.Issue 2: Method of computation of value and deduction of excise duty:The tribunal addressed the method of computation of value and the deduction of excise duty. The manufacturer contended that the excise duty payable on the outer packing material should have been deducted from the assessable value. The tribunal agreed with this contention, stating that the excise duty payable on the goods should be deducted from the value, which the Collector failed to do. The tribunal emphasized that the question is whether excise duty is payable on the goods, regardless of whether it was collected from customers.Issue 3: Application of Section 11A of the Act regarding recovery of duties:In one of the appeals, the tribunal considered the application of Section 11A of the Act concerning the recovery of duties not levied or paid. The Collector alleged that the manufacturer omitted details about packing in price lists and records, invoking the proviso under Section 11A(1) due to wilful suppression of facts. The tribunal disagreed, finding no defect in the documents and holding that the proviso was wrongly invoked. The appeals were disposed of by setting aside one order, modifying another to deduct excise duty on outer packing, and confirming other aspects of the orders in question.This judgment clarifies the principles governing the inclusion of packing costs in the assessable value for excise duty assessment and highlights the importance of correctly computing the value and deducting applicable excise duty amounts.