1. The appellants are engaged in the manufacture of adhesives which are liable to Central Excise duty. The adhesive so manufactured is sold at factory gate as well as from the depots. The appellants manufacture the goods in their own brand name as well as in the brand name of M/s. Vam Organic Chemicals Limited (VOCL) and M/s. Indian Emulsions Pvt.
Limited.
2. The issue raised in this appeal is the valuation of the adhesive for the purpose of levying Central Excise duty on ad valorem basis. Under a show cause notice dated 29-3-2001 proceedings were initiated by the Commissioner of Central Excise, Meerut for recovery of Central Excise duty alleged to be short levied on the clearances of the adhesive for the period April, 1996 to January, 2001. The ground for re-opening the assessment was that the value on which duty was originally paid excluded certain elements like discounts which were not eligible for exclusion. Under the adjudication order dated 21-11-2001 impugned in this appeal, the Commissioner upheld the allegation regarding under-valuation raised in the show cause notice and demanded a short paid duty of over Rs. 84 lakhs. An amount equal to the duty found to be evaded was imposed as penalty also. The duty remand has been made by invoking the proviso to Section 11A(1) of the Central Excise Act on the ground that the short payment is the result of suppression of facts by the appellants. It is to be noted that the proviso allowed re-opening of assessment and recovery of short levied duties for an extended period covering 5 years from the date of show cause notice, in cases involving fraud, suppression of facts, etc. The penalty equivalent to the duty has been imposed by taking resort to Section 11AC which provided for penalty equivalent to the duty evaded in cases involving proviso to Section 11A. The impugned order has made a further demand of interest at appropriate rates on the amount of duty held to be evaded under Section 11AB. The present appeal challenges the order both on merits and on the ground of limitation.
3. The alleged short levy of duty is on account of non-exclusion of certain discounts, etc., in the assessable value. Each of these items is taken up for consideration itemwise below :- The dispute in respect of cash discount is that the appellants had al lowed a cash discount from the ex-factory price to those customers who made payment for the goods promptly. This discount was given to parties who made payment within a week of the sale. The discount was not available to parties who did not make prompt payment within this period. All the same, the cash discounted price was adopted as the assessable value for assessment of all the goods removed by the appellant. In other words, goods sold without allowing cash discount were also assessed to duty at the value applicable to goods sold to buyers who made prompt payment. The appellant's contention on this ground is that since assessable value in terms of Section 4 of the Central Excise Act is the normal value at the time of removal of the goods, the cash discounted price at the time of removal is the relevant price for the purpose of assessable value and not the higher sale price which was for delayed payment, up to 60 days interest free payment in the appellants case.
The learned Counsel for the appellants has relied on several decisions including the decision of the Bombay High Court in the case of Jenson and Nicholson (I) Ltd. v. UOI - 1984 (17) E.L.T. 4 and the decision in the case of Goodlass Nerolac Paints Ltd. v. UOI - 1993 (65) E.L.T. 186 (Bom.) which was affirmed by the Apex Court reported as 1994 (73) E.L.T. A58 (S.C.). As against this, the impugned order has denied the deduction of the cash discount from the ex-factory price on the ground that the ex-factory price, in fact, did not involve interest for 60 days credit period and therefore, the nor mal price is the full ex-factory sale price. The appellants have submitted that this finding of the Commissioner is not factually correct inasmuch as the impugned order itself had noted at page 12 that the appellant's costing for the goods included "interest of 60 days credit".
(ii) It is not in dispute that the appellants gave a cash discount customers who paid promptly. Thus, the price at the time of removal or close to the time of removal was the cash discounted price.
Section 4 of Central Excise Act stipulates assessment of the goods at the normal price at the time of removal. Normal price at the time of removal is the basis for assessment of all goods removed by an assessee. If the price was for a time later than the time of removal, due adjustment in the price is required to be made to make it the price at the time of removal and assessable value fixed at that value. Therefore, the original assessments made at the cash discounted prices constituted the legally correct assessable values.
This is the law laid-down in the judgments relied upon by the appellants. A contrary view taken in the impugned order has no legal basis.
The demand under this head is on the ground that the appellants had paid an interest of about Rs. 31 lakhs to M/s. Vam Organic Chemicals Ltd., and this amount is to be treated as additional consideration and should form part of the assessable value of the goods. The appellants contend that this finding has no legal basis. It has been pointed out that the payment in question was payment of interest for delay in the payment for raw materials procured from M/s. Vam Organic Chemicals Ltd. The appellants states that this interest payment has no connection to the sale price of the adhesives sold to M/s. Vam Organic Chemicals Ltd., that sale being at a contracted price which has no condition for price escalation. As against this, revenue has submitted that interest payment on raw material purchase was a cost incidental to manufacture and should therefore form part of the assessable value. The contention of the revenue has no merit in the facts and circumstances of the case. Undisputedly, sale of adhesive to M/s Vam Organic Chemicals Ltd. was at a contracted price. That price constitutes assessable value under Section 4 of the Central Excise Act. In a case of sale by a manufacturer, sale price constitutes assessable value. It is not open to the Central Excise authorities to go behind the sale price and to see whether all the elements of cost of production are included in that price. A sale may be at a profit or loss. Profit and loss are irrelevant as long as the sale price is the normal price. In the present case, the sale price was a negotiated price and the appellant had to content himself with that sale price, irrespective of his cost of production. No material has been brought on record to show that the contracted sale price was fixed low on account of interest burden or other considerations. In these circumstances, the finding that the interest element on the procurement of raw materials should be added to the sale price to arrive at the correct assessable value is not sustainable. The duty demand raised for this reason has to fail.
This objection relates to sale of goods to M/s. Vam Organic Chemicals Ltd. While the appellants were manufacturing and supplying adhesive to M/s. Vam Organic Chemicals Ltd., the appellants were also procuring raw material from M/s. Vam Organic Chemicals Ltd, The objection taken in the impugned order is that even though there was considerable delay in making payments for the raw materials purchased from M/s. Vam Organic Chemicals Ltd. (over 180 days), no interest was being paid by the appellant to M/s. Vam Organic Chemicals Ltd. The revenue authorities have considered this to be a favourable treatment and has demanded duty as applicable to the interest element. This finding is sought to be supported by the fact that sale invoices of M/s. Vam Organic Chemicals contained the stipulation that overdue payments shall attract interest at 22%. As against this, the appellants' contention is that purchase of raw material from M/s. Vam Organic and sale of adhesive to them are entirely different transactions, and on purely commercial terms.
With regard to non-payment of interest on delayed payments, the appellants' defence before the Commissioner and in the present appeal is that even though the invoices of M/s. Vam Organic Chemicals Ltd. stipulated liability to interest in case of over due payments, as a matter of fact, interest was not being levied from customers. They have also produced material to show that the non-charging of interest from them was not a favour extended to them but there were several customers of M/s. Vam Organic Chemicals who were making late payments but no interest was charged from them.
They have also pointed out that the sale price for the adhesive to M/s. Vam Organic Chemicals Ltd. was a negotiated price and the same was in no way lowered or reduced in consideration of non-charging of interest on the payments for raw material. Flowing from this contention is the appellants' submission that unless the sale price of the adhesive (goods under assessment) has a nexus with the interest payment, no allegation of assessable value being low can be made. They have relied on the judgment of the Apex Court in the case of VST Industries Ltd. v. CCE - 1998 (97) E.L.T. 395 (S.C.) and the circular dated 22-6-98 of the Board in support of their contention.
The appellants have also pointed out that non-payment of interest on delayed payments for raw material was in the knowledge of the department since May, 1997 and therefore, the charge of suppression of facts cannot also find a place.
(ii) From the records of the case, it is clear that purchase of raw material from M/s. Vam Organic Chemicals Ltd., and sale of adhesive to M/s. Vam Organic Chemicals Ltd., by the appellant are separate and mutually exclusive transactions. The terms of both are independent of each other. The appellant has stated that it was not the case that M/s. Vam Organic Chemicals had shown favour to the appellant alone in respect of non-charging of interest but that they were not charging from other buyers also. Evidence does not also show that appellants' sale price for adhesive to M/s. Vam Organic was a lower price in consideration of non-charging of interest for overdue payments for raw material. In the absence of such a nexus, the finding that excise duty must be charged on the notional interest on account of delay in payment for raw material cannot be sustained. This legal position remains settled by the judgment in VST Industries Limited case.
In respect of adhesive sold to M/s. Vam Organic, the buyer asked the appellant to pack certain currency coins along with the adhesive.
These coins were embossed with the name of M/s. Vam Organic Chemicals Ltd. and were supplied to the appellant by M/s. Vam Organic. The appellants placed these coins in the containers while packing the adhesive in them. The impugned order has held that the value of these coins supplied by M/s. Vam Organic should be added to the price of the adhesive and the amount obtained by such addition should be treated as the assessable value. The appellant contend that there is no basis for such an addition. They have maintained that the coin has nothing to do with the manufacture and sale of adhesive and that it was merely packed at the request of the buyer.
They have also submitted that the finding in the impugned order is contrary to the decision of the Apex Court in the case of Philips India Ltd. v. CCE - 1997 (91) E.L.T. 540 (S.C.). As against this the revenue's contention is that keeping of coins is a sales promotion measure by the buyer of the goods and cost of sales promotion should form part of the assessable value. During the hearing of the case, learned SDR referred the decision of the Apex Court in the case of Glaxo (I) Limited v. CCE, Kanpur - 1995 (76) E.L.T. 451 wherein it was held that the cost of gift article added to the goods under manufacture is not entitle to deduction while fixing the assessable value of the goods. The learned SDR also pointed out that it is settled law that cost incurred up to the departure of the goods from the factory are required to form part of the assessable value. He relied on the decision of the Supreme Court in the case of M/s.
Sidhartha Tubes Limited v. CCE - 2000 (115) E.L.T. 32 in support of this contention. On this issue, learned Counsel for the appellant also pointed out in rejoinder that the revenues contention is contrary to the specific provision in Rule 5 of Valuation Rules that only additional consideration flowing to the manufacturer is to be added. The learned Counsel pointed out that the coin supplied by M/s. Vam Organic Chemicals Ltd. was not an additional consideration for the appellant inasmuch as the coin was returned along with the adhesive and the coins did not remain with the appellants.
(iii) The coins in question have no relation to the manufacture of adhesive or the cost involved in the manufacture of the adhesive. It also does not form a consideration for the adhesive. It neither adds to or takes away from the appellants' sale consideration for the adhesive. The sole consideration for the sale of adhesive is the agreed price. That price is unaffected by the presence/absence of the coins. In these circumstances, we find no justification for adding the cost of freely supplied coin to the assessable value of the adhesive. The case law cited by the ld. SDR is not directly to the point at issue. The issue remains settled in favour of the assessee by the decision of the Apex Court in Philips India Ltd. It is undisputedly an expenditure incurred by the buyer for the sale promotion of the goods bought by him. Such expenditure has no relevance to the value of goods manufactured and sold by a manufacturer.
The appellants practice of packing some currency coins along with the adhesives has manufactured in their own name and sold along with the coins has given room for this dispute. The revenue has contended that this being a sales promotion scheme, no deduction is permissible, while the appellants have contended that this is a case of cash discount. They have pointed out that by keeping currency coins in the goods, the appellants were returning part of the sale price and therefore, such coins are qualified to be treated as a cash discount and allowed deduction. They have relied on the decision of this Tribunal in the case of Electrical Products Corporation v. Collector of Central Excise - 1989 (43) E.L.T. 70 [confirmed by the Apex Court reported in 1991 E.L.T. (54) A492], CCE, Meerut v. Stallion Shox Limited - 1996 (85) E.L.T. 139 (T) and CCE v. Talbros Automotive Components - 1997 (90) E.L.T. 210 in support of their contention. The appellants have also submitted that the demand is time barred as the appellants had informed the department on 10-6-98 that the value of the coins is reduced by them from the sale price for computation of assessable value. As against this, the learned SDR has contended that it is settled law that all sales promotion costs incurred by the manufacturer do form part of the cost of production and therefore, they are to form part of the assessable value of the goods. It is the contention of the learned SDR that the coin was an additional item and therefore, did not merit any deduction. He also pointed out that the coin is not in the nature of discount to the wholesale buyer inasmuch as the wholesale dealers could not avail themselves of the discount since coin remained packed with the retail packet until the consumption of the goods by the retail buyer.
(ii) This is literally a cash discount inasmuch as hard cash is returned along with the goods. The buyer of the goods gets back part of the price through the cash coins packed along with the adhesive.
Cash discount can be allowed in many ways. Normally, it is given as a discount in the invoice and the price is suitably reduced to the extent of cash discount. The difference in the present case is that the full value of the goods is charged in the invoice and goods are returned along with the cash packed in adhesive container. This difference cannot take away from the fact of cash discount. What is material regarding a discount is whether the discount is real and is infact given and not the method of giving. Marketing gimmicks adopted by a manufacturer may vary but wherever a discount is really given, the same would be eligible for reduction from the sale price for the purpose of fixing the assessable value. That a discount is a business promotion measure also makes no difference. What else are discounts any way? That the wholesaler cannot retrieve the cash also does not detract from the fact that the manufacturer's net realization for the sale of the goods is less by the cash kept along with the goods. Therefore, the denial of deduction was not justified. The demand is also time-barred as the fact of reduction of the value of the coins for working out assessable value had been specifically brought to the notice of the jurisdictional Superintendent under letter dated June 6, 1998.
4. In the light of what has been stated above, we are of the opinion that the findings in the impugned order regarding the inclusion of the above said items in the assessable value are not sustainable.
Consequently, duty demand, interest claim and penalty imposed cannot be sustained. The appeal succeeds and appeal is allowed with consequential relief if any, to the appellants.