Judgment:
1. A common issue is involved in these 10 anneals and one cross objection. They were, therefore, clubbed together, heard together and hence this common order. For the sake of clarity we shall refer to M/s.
Shree Durga Glass (P) Ltd. as "the appellants" and the Collector of Central Excise, Bhubaneswar as "the department".
2. The common issue involved in these 11 matters relates to determination of assessable value of the glassware manufactured by the appellants The appellants manufactured glass tumblers and glass chimneys in numerous sizes and designs. During 1979-83, they sold a part of their production ex-tactory and stock transferred the rest to their depots situated at Calcutta, Delhi, Bombay, Ernakulam, Madras, Vijayawada, Bangalore and Hyderabad. The stock so transferred was sold from these depots. In the price lists, which they filed for approval of the Assistant Collector, the appellants declared their ex-factory sale prices. On verification of their sale invoices, the department found that the ex-depot sale prices were much higher (by 35% to 117%) than the declared ex-factory prices. The department further found that some 80% to 90% of their production of some varieties was sold at higher prices ex-depot while only 10% to 20% of those varieties were sold exfactory at lower prices. The phenomena of more goods being sold at higher prices surprised the lower authorities and they concluded (hat the appellants had intentionally created a few ex-factory sales with the motive of "making undue enrichment/fortuitious gain" at the cost of excise revenue. On adjudication, the Assistant Collector held that the ex-depot price at which the majority of the goods were sold was the price "ordinarily" charged by the appellants and, therefore, that price should constitute the normal price for assessment of even the quantity sold ex-factory. For this purpose, the Assistant Collector took the sale price at the nearest depot and gave abatement of cost of transport charges therefrom, in appeal, the Collector (Appeals) agreed with the Assistant Collector's conclusion that the ex-factory prices were not bona fide. At the same time, he did not consider it just to tax ex-factory sales on the basis of the higher depot sale prices. The Collector (Appeals) ordered that the principle of actuality should be followed--factory sales should be assessed at the ex-factory prices and the depot sales at the depot prices less cost of transport.
3. Relying on the Supreme Court judgment in the case of A.K. Roy v.Vollas Limited 1977 ELT J 177 [1975 Cen-Cus 104C, ECR C 412 (SC)] the appellants plead before us that quantum of goods sold at the factory was not material and that the factory sale value, whenever avilable at the factory gate, should be the assessable value in respect of all the goods cleared from the factory, whether on direct sale from the factory gate or on stock transfer to the depots.
4. The department's plea in their appeals is that insertion of the word "ordinarily" in the new Section 4(1)(a) has made all the difference and, therefore, the ratio of the Voltas case judgment of the Supreme Court, which was under the old Section 4, no longer holds good. The department's prayer is that "ordinarily" meant majority sales and, therefore, wherever majority of the sales of a particular variety took place from the depots, the price ex-depot less cost of transport, should constitute the normal price for assessment of all the goods cleared.
5. The first question we have looked into is whether the lower authorities were correct in doubting the bona fide character of ex-factory sale prices of the appellants. Going over the sale pattern of the appellants, we find that their sales fell into the following groups: (1) Certain varieties of their goods were sold exclusively at the factory gate.
(3) Some varieties were generally sold at the factory gate, about 10% to 20% of the quantity being sold from the depots.
(4) Rest of the varieties were largely sold from the depots and only about 10% to 20% from the factory gate.
There is no dispute about the assessment of the varieties involved in the first 3 groups. The dispute before us is confined only to the 4th group. The lower authorities have taken the 4th group in isolation and generalised on that basis that the appellants had deliberately rigged up a few sales at the factory gate to take advantage of the lower ex-factory values. In our view, the lower authorities were not correct in ignoring the overall sale pattern of the appellants and in basing their conclusions on only one group of sales. The appellants explained to us that certain designs and sizes produced by them had a market only in certain areas. This explained larger or exclusive sales of these varieties either from the factory or from certain depots. Further, glassware was a commodity in which breakages were quite common in handling and transport. Their factory was located in the interior of Orissa State. The distant customers did not want to take the risk of breakages in getting their goods direct from the factory. They preferred to buy from the depot nearest to them. The depot, in addition, could supply the varieties in small lots as per the customer's requirement. Finally, another consideration which weighed with the customers was that if they purchased the goods from the depot located within the State, they saved on the central sales tax. It is for these commercial reasons that no uniform pattern was observed in the sales of their various varieties. But if an overall view was taken, about 25% to 30% of their total sales were made ex-factory while the rest 70% to 75% were made from their various depots. We find force in the appellants' explanation. While looking at 10% to 20% ex-factory sales in the 4th group, one should not forget that there were other varieties also which were either largely or exclusively sold ex-factory. We do not find anything mala fide in the sale pattern of the 4th group.
6. All the same, the fact was there that as between the ex-factory prices and the ex-depot prices there was a very large difference.
Secondly, there was no pattern whatever discernible in the prices from the various depots. While prices at Bangalore, Bombay and Delhi, which were distant depots, were higher by 35% to 63%, those at nearer depots like Hyderabad and Vijayawada were much higher, by 100% to 117%. The appellants explained that the price comparison made by the lower authorities gave a distorted picture because the said authorities compared ex-factory prices, net of packing charges and excise duty, with gross ex-depot prices which included trade discount, freight, breakage and other incidental expenses. The Assistant Collector had, in his order mentioned one particular variety being sold ex-depot @ Rs. 123.50 while the same variety was sold ex-factory at Rs. 88/-. The appellants explained their point with the following table relating to this particular variety:PARTICULARS (Amount in Rs.) DESCRIPTION OF GOODS 8 oz. Narrow A2. Packing charges per gross 10.00 -----------3. Total assessable value claimed 98.00 -----------5. Special Excise duty at the rate of 5% 0.98 of Basic -----------6. Total price at Factory gate 118.58 -----------8. Trade discount given to buyers at the 9.98 rate of 8% -----------9. Net price received 113.62 -----------11. Freight per gross 12.32 ---------- (a) Interest on receivables at the rate of 2% 2.47 (b) Breakage in transit and storage at the rate of 2% 2.47 (c) Establishment charges at the rate of 2% 2.47 -----------14. Total Rs. 138.31 Therefore Loss (col. 14--9) (--) Rs. 24.69 i.e. 17.85% Assessable value approved by Assistant Collector is Rs. 102.07 basing gross sale price at Rs. 123.50 and allowing central excise duty only.
Thus instead of getting an undue enrichment or gain from depot sales, as calculated by the lower authorities, they actually made a loss, claimed the appellants.
7. The appellants placed before us calculation sheets in respect of their other depots also, except Calcutta depot. They stated that their sales from Calcutta depot were negligible. These charts showed that the appellants made some additional profits from depot sales only at Vijayawada and Bangalore. At other places, they generally suffered losses, once all the expenses incurred after the factory gate stage were taken into account. The appellants explained that they had to keep prices of the same variety different at different depots in order to meet the local competition in a particular area. The additional profit which they made at Vijayawada and Bangalore only off-set their losses incurred elsewhere. It is quite apparent to us that the lower authorities fell in error by comparing two unequal prices, one net ex-factory price and the other gross depot price. So far as the data placed before us by the appellants is concerned, it was not countered by the department. The calculations in the one particular instance reproduced by us in paragraph 6 above would show that the incidental depot expenses loaded by the appellants are not far-fetched. Indeed, quite a few of the depot expenses have been held to be deductible from the depot sale price by the Supreme Court in their judgment in the case of MRF LIMITED . We are sure that if the lower authorities had compared the net ex-factory price with the net ex-depot price, their conclusions would have been different. The commercial consideration which made the appellants sell the same variety at a higher price at one depot and at a lower price at another depot, in order to meet the local competition in that area, is also quite understandable. They had to off-set their losses incurred at one depot by charging a higher price at another depot where the traffic could bear it. There is nothing mala fide in it. If an overall picture of all the depots is kept in view, we do not find that the appellants stood to gain at the cost of excise revenue.
8. The department relies on the word "ordinarily" added in the new Section 4(l)(a). But in the context in which it is used, "ordinarily" does not necessarily mean majority of the sales. What it means is that the price should not be an exceptional one. More important than the arithmetical percentages is the issue of substance; whether the ex-factory price was a genuine price at which the goods were really available to any intending buyer. There could be cases where a manufacturer may show a few stray and rigged up sales at the factory gate at a low price while in reality the situation may be that almost all buyers would have to go to his depot or Branch Office and buy the goods from there at a much higher price In such a situation, it cannot be said that the goods were ordinarily available at the ex-factory price. The percentage of ex-factory sales as compared to the depot sales is not entirely irrelevant. But, at the same time, the percentages alone cannot be the decisive factor. All the relevant facts and circumstances of the case would have to be looked into to see whether a genuine ex-factory sale price existed. In the present case, as already stated by us, the appellants were selling certain varieties of their goods entirely or almost entirely at the factory gate. They were selling a major part of certain other varieties also at the factory gate. As to which of their varieties would be sold at the factory, and in what proportion, was determined by the commercial factors of supply and demand. They have given sound commercial reasons which would have weighed with their customers in deciding whether to buy ex-factory or ex-depot. On an overall basis, the appellants sold about 25% to 30% of their production at the factory gate. This is quite a substantial quantity. Just because the ex-factory sales in one particular group of varieties were lower cannot make their ex-factory sales a rigged up affair. In the circumstances of their case, we hold that where ex-factory prices were available at which sales actually took place, the said ex-factory prices should be taken as the normal price under Section 4(1)(a) and all removals of glassware of that variety, whether for direct sale or for consignment transfer to depots, should be assessed at that normal price under Section 4(1)(a).
9. In the impugned show cause notice, a point regarding packing charges had also been made. But we find from the order-in-original that the appellants accepted the position before the Assistant Collector that packing charges, wherever recovered from the customer, were includible in the assessable value. Before us also, the appellants stated that since the packing used by them was the primary packing for their delicate glassware, they would accept inclusion of the packing charges in the assessable value. In the circumstances, we hold that the packing charges were includible in the assessable value.
11. In the result, we dismiss all the 5 appeals of the department, and allow all the 5 appeals of the appellants with the rider, however, that packing charges would be includible in the assessable value.
Consequential relief shall be given to the appellants. The one cross objection filed by the department seeks no additional relief. The prayer therein was to dismiss the appeal of the appellants. The cross objection docs not survive and is, therefore, dismissed.