New India Glass Works (Cal) Pvt. Ltd. Vs Collector of C. Ex.

Siba Prasad Rajkhowa, J.@mdashPursuant to the order of this Court passed on 2-5-1989 in F.M.A.T. No. 1077 of 1989, the petitioner Company submitted replies before Assistant Collector of Central Excise, Dum Dum Division No. 2, St. Georges Gate Road, Calcutta 22, hereinafter referred to as respondent No. 2 to all the show-cause notices issued by the Superintendent of Central Excise, Dum Dum Division Range VI (Respondent No. 3) under Memo No. C. No. CE (13)/9/NIC/R-Y/DD/89/415 dt. 26th June 1989 upon the writ petitioner. By the said show-cause/demand notices the respondent No. 3 directed the writ petitioner to deposit Central Excise Duty on account of credit charges in respect of the credit sales of the petitioner company for the periods as shown in the aforementioned notices.

2. It has been alleged in the show-cause notices that the petitioner company, holder of Central Excise Licence in Form L-4 No. 8/Glass/61(1) engaged in manufacturer of excisable goods, glass bottles, phials falling under chapter heading sub-heading No. 7007.90 of the Schedule to the Central Excise Tariff Act, 1985 had been availing of the benefit of small-scale exemption under the Govt. of India''s Notification No. 175/86 dt. 1-3-1986 as mentioned and was found to have charged and collected the amounts as credit charges, transport charges and packing charges in addition to the amount calculated as cum duty value in the bills/gate passes during the period from October 1987 to September 1988. It appeared on scrutiny of the records maintained by the petitioner company that their major sale was credit sale and hence the extra realisation as credit charges was nothing but an additional consideration flowing indirectly from the buyer to the assessee.

3. It further appeared on scrutiny of the invoices etc. submitted along with the R.T. 12 returns for the relevant period by the said company that they charged transportation cost from their customers and claimed abatement of the same for the purpose of Central Excise Duty. Scrutiny of some cases of assignments revealed that the transport charges in respect of the same had no relation with the cost of actual transportation charges or equalised freight. As such this transportation charges were to be treated as additional consideration to the price for the purpose of valuation as envisaged in Section 4 of the Central Excises and Salt Act, 1944 read with Rule 5 of Central Excise (Valuation) Rules, 1975.

4. It was alleged that the petitioner company had the packing as special secondary durable and returnable in their bills/gate passes. But no concrete proof regarding durability and returnability of their packings could be produced by the petitioner company for the mateiial period. Moreover it was observed from the records that in almost all cases goods had been cleared in packed condition which was their normal trade practice. Hence the packings in their case are nothing but essential packings and no special secondary packings as claimed by the petitioner company for safe delivery of their goods which are fragile in nature. Hence the charges realised in respect of such packings should form part of the assessable value of the goods.

5. Thus it has been charged in the show-cause notices that the petitioner company was found to have collected additional amounts in the forms of credit charges, transportation charges and secondary packing charges from their customers which should be added to the assessable value u/s 4(1)(a) of the Central Excises and Salt Act, 1944 read with Rule 5 of the Central Excise (Valuation) Rules, 1975.

6. As regards credit charges, the petitioner company contended in their reply to their show-cause notices that there was no warrant for the findings that credit charges definitely enriched the value of the goods and promoted the sale and marketability of the goods. Such charges are realised by the petitioner as a measure of compensation for delayed payment of its bills and have nothing to do with the value of the goods at the time of delivery from the place of removal. Whenever payments are made at the time of delivery or before it, they did not charge credit charges from their customers. They submitted that the ''Credit Charges'' is just the other name for interest on deferred payments and so they claimed deduction of credit charges from the assessable value.

7. On the point of transportation, the petitioner company contended that their products are sold by them at the factory gate and handed over to the transporter for onward journey to the destination of the buyer who acts as their agents. The company have no sales organisation at a place or places outside the factory gate from where their goods are sold to the customers. Their sales are effected at the factory gate only and so nothing remains for assessment on account of transport charges.

8. As regards packing charges the company denied and disputed each and every allegation made in the show-cause notice with respect to packing charges but refrained from making any submission on this issue in view of injunction issued by this Court.

9. The learned Assistant Collector of Central Excise (respondent No. 2) by his order (Original) No. 60/(70)(30) 83 DDD/88 dt. 11-6-1989 adjudicated upon 2 points namely credit charges and transportation charges. He left the point of packing charges out of consideration in view of injunction issued from this Court. He ordered that the demands sustained in so far as it relates to the credit charges projected in the subject show-cause-cum-demand notice and ordered that transportation charges are admissible for deduction subject to verification by the assessing officer.

10. The petitioner company have assailed before us the finding of the respondent No. 2 as regards the credit charges. The learned counsel appearing on behalf of the company has relied heavily upon a decision of the Supreme Court in Union of India (UOI) and Others Vs. Bombay Tyre International Ltd. and Others, . We have heard the learned counsels on both the sides and we have been led through various documents and issues incorporated in the paper book. It is a fact that the petitioner company delivered their manufactured goods at their factory gate and they have no other sales organisation outside the factory gate. Normally they accept the price of the goods at the time of sale and deliver at the factory gate but in most of the cases it is found that the transaction is made on credit and the bills are paid subsequent to the delivery of the goods sold. Clause 4 of the terms and conditions mentioned in the quotation of the company shows that if the buyer makes the payment in advance before delivery then no credit charges is realised. However, if the payment is not made within the stipulated period then the credit charges are realised. It appears to us that this credit charges is another name for interest to be realised in future on delayed or deferred payment. It does not give us an idea that this credit charges is realised in violation of normal trade practices. If it is really an interest then it will not enrich the value and marketability of the goods sold on credit at the factory gate and in that view of the matter it may not be assessed to excise duty. It has been urged by the learned counsel for the petitioner that the credit charges for the period under reference came to about 1.85% per month which in no way is in excess to the prevailing trade practices. But on this point, the respondent No. 2 has observed in the impugned order that "it is very much evident from the bills and the quotations submitted by the said company at the time of personal hearing that the normal price has been arbitrarily reduced by showing imaginative credit charges. Hence such cost is rightly to be included in the assessable value". In our opinion there were no sufficient materials before the Assistant Collector to come to such a finding. As such we hold the view that he should make further scrutiny of all the relevant papers and documents of the company to arrive at a correct decision.

11. Hence it is ordered that the respondent No. 2 will make a thorough scrutiny of the relevant papers and documents of the company to see whether the credit charges realised by the petitioner company is equivalent to the rate of interest which a company may lawfully realise from their customers on deferred payments and to see whether the value of the goods shown excluding transport and special packing charges had been reasonably fixed.

12. With the above direction, the appeal is disposed of without any order as to costs.

All parties concerned are to act on a signed copy of the operative part of this judgment on the usual undertaking.