TaxTMI 
TaxTMI 
2005 (4) TMI 58
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.... 2.M/s. Akay Cosmetics Pvt. Ltd., Hubli (hereinafter referred to for the sake of brevity as "the assessee") was the manufacturer of instant hair colour under the brand name "Bigen", falling under Chapter sub-heading 3305.90. The assessee filed its price list No. 1/88-89 effective from 1-1-1988 in respect of the said product seeking approval of the assessable value @ Rs. 4.38 per bottle of 6 grams. Since the product was sold and marketed by M/s. Nemaru Coiffure (for short "M/s. Nemaru") @ Rs. 18.78 per bottle of 6 grams at Hubli, the Assistant Collector approved the price-list by fixing the assessable value @ Rs. 7 per bottle of 6 grams for the period 1/88 to 8/88, vide order dated 29-8-1988. Against the said approval, the assessee had appealed before the Collector of Central Excise (Appeals), who remanded the case back to the Assistant Collector for determining the assessable value and to ascertain the wholesale price of M/s. Nemaru at Hubli (hereinafter referred to for the sake of brevity as "de novo adjudication"). 3.Accordingly, in the de novo adjudication, the Assistant Collector issued show cause notice dated 21-3-1989 asking the assessee to show cause as to why the assess....
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....of measuring cups; and lastly, that there was no evidence to show that these measuring cups were sold along with the product as accessories. Accordingly, vide order dated 11-1-1994, the Assistant Collector confirmed the assessable value at Rs. 7.80 per bottle of 6 grams from 1/88 to 7/91 and claimed the differential duty of Rs. 5,60,166.63. 8.Being aggrieved by the decision dated 11-1-1994, the matter was carried in appeal by the assessee to the Commissioner (Appeals), who by his order dated 30-8-1996 came to the conclusion that the assessee was not entitled to deduction for the cost of special packing as such cost was incurred by M/s. Nemaru. By the said decision, it was further held that the assessee had failed to produce evidence indicating payment of additional tax and turnover tax and, therefore, the assessee was not entitled to deduction. Further, it was held that without the measuring cup, the product could not be used and, therefore, the value of the measuring cup supplied with the carton was not deductible from the assessable value. By the said decision, the Commissioner (Appeals) disallowed deduction on account of freight, insurance, octroi, selling and handling charge....
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....deduction. 14.Lastly, the Tribunal found, on examination of facts, that, on and after 1-4-1991, M/s. Nemaru had undergone organizational changes; that, the assessee had filed its price-list with reference to a new agreement dated 2-1-1991 with M/s. Nemaru and consequently, the Tribunal remanded the matter back to the Commissioner (Appeals) to re-examine the demand for differential duty for the period from 4/91 to 3/93. This remand became necessary as the assessee submitted that M/s. Nemaru was no longer a related person in terms of Section 4(4)(c) in view of the above changes. 15.Aggrieved by the decision of the Tribunal dated 6-1-2000, the department has come to this Court by filing these civil appeals under Section 35L(b) of the 1944 Act. 16.Shri K. Swamy, learned Counsel for the department submitted that the assessee was not entitled to deduction for special packing, freight, insurance, handling charges, octroi, turnover tax and cost of bought-out items during the period 1/88 to 3/91. In this connection, it was urged that hair-dye bottles of 6 grams were sold by M/s. Nemaru @ Rs. 18.78 per bottle. That, admittedly, during the aforestated period, M/s. Nemaru was a relate....
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....f the new pattern of pricing on and after 1-4-1991. In the circumstances, it was submitted that the Tribunal should not have remitted the matter. 20.Learned Counsel next contended that the Tribunal had erred in allowing deduction in respect of freight, insurance and handling charges. In this connection, it was urged that the actual amount spent on the above heads, even if admissible, was not proved. That, the Tribunal erred in allowing deduction without proof of actual expenditure. 21.Learned Counsel next submitted that the Tribunal had erred in setting aside the demand for differential duty under Section 11A for the period 1/88 to 8/88 on the ground that there was no show cause notice given to the assessee for that period. That, the Tribunal had erred in holding that the assessee was entitled to the show cause notice. That, the Tribunal had taken hyper technical view in setting aside the demand. 22.Shri Anoop Chaudhary, learned senior Counsel appearing on behalf of the assessee submitted that during the period 1/88 to 3/91, M/s. Nemaru admittedly was a related person to the assessee; that during this period, M/s. Nemaru was almost the sole buyer of the said product; that ....
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....hen stood) : Valuation of excisable goods for purposes"4. of charging of duty of excise. — (1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value shall, subject to the other provisions of this section, be deemed to be - (a) the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale : Provided that - (i) where, in accordance with the normal practice of the wholesale trade in such goods, such goods are sold by the assessee at different prices to different classes of buyers (not being related persons) each such price shall, subject to the existence of the other circumstances specified in clause (a), be deemed to be the normal price of such goods in relation to each such class of buyers; (ii) where such goods are sold by the assessee in the course o....
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....c) "related person" means a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other and includes a holding company, a subsidiary company, a relative and a distributor of the assessee, and any sub-distributor of such distributor. Explanation. — In this clause "holding company", "subsidiary company" and "relative" have the same meanings as in the Companies Act, 1956 (1 of 1956); (d) "value" in relation to any excisable goods, - (i) where the goods are delivered at the time of removal in a packed condition, includes the cost of such packing except the cost of the packing which is of a durable nature and is returnable by the buyer to the assessee. Explanation. — In this sub-clause "packing" means the wrapper, container, bobbin, pirn, spool, reel or warp beam or any other thing in which or on which the excisable goods are wrapped, contained or wound; (ii) does not include the amount of the duty of excise, sales tax and other taxe....
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.... the reason that such goods were not sold or for any other reason, like captive consumption, Section 4(1)(b) provided that the nearest ascertainable equivalent shall be the "value" of the excisable product for the purpose of charging excise duty. Under Section 4(4)(b), the phrase "place of removal" was defined not merely as "the factory or any other place or premises of production or manufacture" from where such goods are removed but it also covered "a warehouse" from where such goods are removed. However, three circumstances were mentioned in the three provisos to Section 4(1)(a) under which "value" could vary. Proviso (i) recognized that in the normal practice the same class of goods could be sold by the assessee at different prices to different classes of buyers; in that event each such price was deemed to be the "normal price" of such goods in relation to such buyers. Proviso (ii) provided that where the goods were sold in wholesale at a price statutorily fixed then such price was deemed to be the "normal price". Under the third proviso, where the goods were sold through a "related person" as defined under Section 4(4)(c), the normal price was the price at which the goods were ....
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....x and other taxes. Similarly, Section 4(4)(d)(i) made an express provision for including the "cost of packing" in the determination of "value" for the purposes of excise duty provided it was for goods ordinarily sold in the course of wholesale trade. 30.As stated above, it has been contended on behalf of the assessee that when the basis of the assessable value was the price of the related person, namely, M/s. Nemaru in this case, the department had erred in denying to the assessee the deduction for expenses incurred by the assessee towards freight, insurance and handling charges. It was urged that if the price at which M/s. Nemaru effected sales in the course of wholesale trade was the basis for determination of the assessable value under Section 4(1)(a) read with the proviso (iii) then the assessee was entitled to deduction for the said three items, particularly when the goods are delivered from the premises of M/s. Nemaru and not from the factory gate of the assessee. It was urged that the department cannot fix the assessable value on the basis of the price charged by the related person and at the same time refuse deductions on the basis of the pricing at the factory gate of t....
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....oduced the said proviso as anti-evasion measure. Hence, to give deductions to the assessee, as claimed, would defeat the very object of the third proviso. Under all the three provisos, the manufacturer remained the assessee, the "object" of the assessment remained the same and neither the identity of the manufacturer nor the identity of the excisable goods underwent any change. Even the place of removal remained unchanged. Under the third proviso, the basis of assessable value alone changed when the price of the related person was adopted as the basis of the valuation. Therefore, proviso (iii) did not break the nexus between price and value under Section 4(1)(a) of the Act. 34.Now coming to the question of deduction, we may point out that for the purposes of assessment, price and value are co-related under Section 4. As stated above, "price" was taken as a factor in determination of "value" under Section 4. However, "deduction", though a part of assessment, had to be strictly construed. The reason was obvious. No deduction could be allowed if it was extended beyond the levy. In this connection, we may useful quote Paragraph 53 of the judgment of this Court in the case of Bombay ....
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....s in which a standard number of primary cartons (in the sense mentioned earlier) are packed. The large cartons may be packed into even larger cartons for facilitating the easier transport of the goods by the wholesale dealer. Is all the packing, no matter to what degree, in which the wholesale dealer takes delivery of the goods to be considered for including the cost thereof in the "value"? Or does the law require a line to be drawn somewhere? We must remember that while packing is necessary to make the excisable article marketable, the statutory provision calls for strict construction because the levy is sought to be extended beyond the manufactured article itself. It seems to us that the degree of secondary packing which is necessary for putting the excisable article in the condition in which it is generally sold in the wholesale market at the factory gate is the degree of packing whose cost can be included in the "value" of the article for the purpose of the excise levy. To that extent, the cost of secondary packing cannot be deducted from the wholesale cash price of the excisable article at the factory gate." 35.As stated above, the word "deduction" in terms of Section 4(4)(....
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....lue for the period 9/88 to 3/91. 39.Now coming to the question of deduction claimed by the assessee on account of payment of octroi and turnover tax, we are in agreement with the view expressed by the Tribunal in the impugned judgment that the expenses for these items were deductible from the assessable value under Section 4(4)(d)(ii). 40.In the case of Union of India & Others v. Bombay Tyres International Pvt. Ltd. reported in 1984 (17) E.L.T. 329, this Court has taken the view that sales tax, turnover tax, surcharge on sales tax and other local taxes are deductible from the sale price in order to arrive at the assessable value. 41.In the case of Commissioner of Customs & Excise, Bangalore v. M/s. Sujata Textile Mills Ltd. reported in 2005 (181) E.L.T. 379, this Court [speaking through one of us, Variava, J.] has held that under Section 4(4)(d)(ii), the value will not include duty of excise, sales tax and other local taxes payable on the goods. However, it was clarified by this Court that in the matter of deduction, the department while granting deduction can ask for proof indicating actual payment of tax. 42.Accordingly, we hold that the assessee was entitled to deduc....
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....for a wholesale market to exist, it is necessary that there should be a market in the physical sense of the term where articles of a like kind or quality are or could be sold or that the articles should be sold to so-called independent buyers. 9. Even if it is assumed that the latter part of s. 4(a) proceeds on the assumption that the former part will apply only if there is a wholesale market at the place of manufacture for articles of a like kind and quality, the question is what exactly is the concept of wholesale market in the context. A wholesale market does not always mean that there should be an actual place where articles are sold and bought on a wholesale basis. These words can also mean that potentiality of the articles being sold on a wholesale basis. So, even if there was no market in the physical sense of the term at or near the place of manufacture where the articles of a like kind and quality are or could be sold, that would in any way affect the existence of market in the proper sense of the term provided the articles themselves could be sold wholesale to traders, even though the articles are sold to them on the basis of agreements which confer certain commercial ....