Full Judgment
1.2 During the course of examination of the records maintained by the appellants, the preventive party observed that the appellants had realised a sum of Rs. 4/- per crate of 24 bottles of 200 ml.
capacity as 'rental charges' for containers from the buyers over and above the value of the aerated waters. It was also observed that the appellants had realised the 'rental charges' in respect of flavoured aerated waters only supplied in flint bottles and they did not charge such rental charges in respect of other varieties of aerated waters.
1.3 Statements of Shri N. K. Gupta, Manager of the appellants were recorded under Section 14 of the Act on 3.5.1987 and 29.5.1987. He admitted the collection of the rental charges but contended that the amount so collected was not includible in the assessable value of aerated waters for the reason that the rental charges of Rs. 4/-pcr crate was in lieu of the use of the empty bottles and the wooden crates (shells) and that the bottles and shells were durable in nature and were returnable to them. He also pointed out that since the appellants incurred substantial amount as investment in buying the bottles and the shells they have to necessarily recover the interest on the investment in the form of rentals.
1.4 The department, however, issued a show cause notice dated 31.12.1987 calling upon them to explain as to why Central Excise duty amounting to Rs. 87,919.00 not paid by them on account of misstatement and suppression of facts of collection of the rental charges be not recovered from them under Rule 9(2) read with Section 11A of the Act. They were also called upon to explain as to why penalty should not be imposed upon them under the provisions of Rule 173Q of the Central Excise Rules, 1944 for contravention of the provisions of the said Rules. The department alleged on the basis of including the said rental charges that the aforesaid amount of duty liability arises w.e.Y. 22.5.1986 when the exemption limit of Rs. 15 lacs was crossed with the issue of gate pass No. 443 dated 22.5.1986.
1.5. After due adjudication, on the various picas raised by the appellants in connection with the non-inclusion of the said rental charges and of time bar, the adjudicating authority has confirmed the demand of Rs. 87,919.00 and also imposed a penalty of Rs. 20.000/- under Rule 173Q read with Rule 9(2) of the said Rules.
(1) Whether the rental charges of Rs. 4/- collected by the appellants from its customers on shells and empty bottles of particular variety of aerated waters are liable to be included in arriving at the assessable value of the goods.
(1) On the question of inclusion of the rental charges, the learned advocate, Shri V. Sridharan, appearing for the appellants has urged that this issue is no longer res Integra. It has now been settled by a decision of the Supreme Court and a number of decisions of the Tribunal which are as follows: In order to appreciate the ratios of the aforesaid decisions particularly of the Hon'ble Supreme Court in the case of Indian Oxygen [1988 (18) ECR 378 (SC)], mentioned supra, the facts of that case in brief are that "M/s. Indian Oxygen Ltd. (IOL), Visakhapatnam, manufacturers of dissolved acetylene gas and compressed oxygen gas were supplying these gases in cylinders at their factory gate. For taking delivery of these gases, some consumers/customers used to bring their own cylinders and take the delivery, while others used to have the delivery in the cylinders supplied by the IOL. For the purpose of such supply of cylinders certain rentals were charged by the IOL and also to ensure that these cylinders were returned properly, certain amount of deposit used to be taken from the customers. On those deposits notional interest @ 18% per annum was calculated. These two amounts, namely the rental charges on the cylinders and the notional interest earned on the deposit on cylinders were the subject matter of dispute between the department and IOL. Controversy was whether these two amounts were includible in the value under Section 4 of the Act. The department contended that they form part of the assessable value." The Supreme Court on the question of rental charges has observed as follows: 5. It is well-settled that the levy under the Act, is on the manufacture. Under Section 4(1)(a) of the Act, excise duty 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 normal price (hereof, 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. Here the sale is of the gases.
The levy is on the manufacture of gases and the excisable goods are these gases.Union of India and Ors. v. Bombay Tyre International Ltd. as well as the ramifications thereof in Asstt.
Collector of Central Excise v. Madras Rubber Factory . In the light of the aforesaid principles it has to be borne in mind to at the supply of pas cylinders is ancillary to the supply of gases but it is strictly not incidental thereto because there are classes of persons who can take delivery of these gases without supply of cylinders by the respondent and in those cases an question of charging rental nor interest on those deposits for cylinders, would arise. It is true that the gas being a commodity of peculiar nature, had to be delivered in cylinders but these cylinders might be supplied either by the supplier as an ancillary activity or brought by the consumer or purchasers at their own risk and cost. For purchasers taking it their own cylinders supplied bv them, there was no charge for them. This is not an activity for the manufacture of gases. This is ancillary to it but not incidental. Any income either in the shape of interest on deposits, notional or real, may be earned on the deposit for the safe return of cylinders, or any rental would be though ancillary but would not be the price for the manufacture. These might be profits or gains, if any, of any ancillary or allied venture. If that is the true position, then on the principle under Section.
4(1)(a) of the Act, the Tribunal was right in excluding these two amounts while computing the value of the excisable goods.
2.2 Learned DR for the Revenue, on the other hand, reiterates the findings of the adjudicating authority. The reasoning of the adjudicating authority for including the rental charges in the assessable value are as follows: It is observed that container rental charges do not form part of cost of packing of containers in this case are durable and returnable what is being charged from the customer is not the cost of the bottles or the cost of returnable containers but the hire charges, which do not necessarily represent or at least have not been proved to represent the cost of replacement of the bottles or of crates. Hence these charges are to be distinguished from the cost of durable and returnable containers which alone are entitled for exclusion from the assessable value. They are in the nature of consideration for sale of goods or amounts to upkeep, maintenance and repair etc. of these containers. These charges are therefore liable to be included in the assessable value of aerated waters, sold in flinted glass bottles.
3. We have carefully considered the pleas advanced on both sides.
Whatever may be the merit in the reasoning of the Collector, we observe that the ratio of the decision of the Apex Court is very categorical.
They have held that supply of cylinders, in the case of excisable manufactured commodity of gases, is an activity ancillary only to the manufacture of gases. It is not directly related or incidental to the activity of manufacture. It is immaterial whether on such ancillary activity the manufacturers make a gain or loss. Therefore, the rental charges and the deposits obtained in respect of durable and returnable containers would not form part of the assessable value of the excisable goods. We notice that there is one difference in state of facts available in the case of IOL, mentioned supra, and that is available in this case. It is stated that the gases were being obtained from the factory of M/s. IOL by the customers in their own cylinders as well whereas in the present case there is no indication that the customers of the appellant company were getting the aerated waters in their own bottles and shells. But this difference in state of facts in the two cases does not make in our view any material difference on the basis of the reasoning adopted by the Hon'ble Supreme Court. We, therefore, hold that the rental charges collected by the appellants are not to be included in the assessable value of the aerated waters. Accordingly, the demand of Rs. 87,919.00 and imposition of penalty would not be sustainable and we hold accordingly.
4. As regards the second issue, in view of our finding on the aforesaid issue, it is not necessary to go into the details of the pleas advanced on both sides because it is merely of an academic interest.
Nevertheless, however we are of the view that the appellants are on strong ground that this very issue had come up before the Assistant Collector on an earlier occasion and he vide his order-in-original No.119182 dt. 14.3.1982 did not include the whole of amount of Rs. UO charged by the appellants as rental charges for 24 bottles per crate.
His decision in that case for enhancement of the value was essentially on the basis that since the market price of the aerated waters had generally gone up, there was no reason why the declared price of aerated waters by the appellants be not increased. The Assistant Collector, therefore, on that reasoning had increased the price of aerated waters manufactured by the appellants by general enhancement of Re. 1/-per crate irrespective of the amount of rental charges collected by the appellants. It cannot, therefore, be said that the department was not aware of the practice adopted by the appellants for collecting the rental charges. Hence the plea of time bar, in facts and circumstances is also in favour of the appellants.
5. In view of our aforesaid findings, the appeal is allowed with consequential relief to the appellants, if any.