Pearl Drinks Ltd. Vs. Commissioner of Central Excise, - Court Judgment

Excerpt:
1. the appeal is directed against order-in-original no. 28/2001, dated 14-3-2001 passed by the commissioner of central excise, delhi imposing duty liability of rs. 10,68,457. the relevant period is from 1-4-95 to 31-10-95.2. the appellant is a manufacturer of aerated water falling under heading numbers 22.01 and 22.02 of chapter 2 of the schedule to the central excise tariff act, 1985.3. there was no sale of aerated water to any wholesale buyer at the factory gate of the appellant. they cleared their manufactured product, aerated water, in glass bottles with the help of a conveyer belt after making payment of duty to their only one duty paid godown situate adjacent to the factory. such duty paid stocks were sent to the customers in lorries. the driver-cum-salesman deliver the goods in market directly to the customers/dealers at a higher price and issues cash memos. unsold goods and empties are brought back by him to the said duty paid go down.4. the appellant while declaring their wholesale price/assessable value claimed certain deductions in addition to deductions of excise duty and sales tax. such deductions claimed were under the head transportation, handling and other services including trade discount. in the show cause notice issued to the appellant deductions claimed under eight heads were sought to be denied. after taking into consideration the contentions raised by the appellant herein and also the finding in an adjudication order passed in the case of the appellant by the principal collector of central excise, delhi in respect of demands proposed under show cause notice dated 10-11-87, the adjudicating authority passed the present order which is under challenge. in this order, deductions claimed to the extent of rs. 13,42,924 on account of loss of beverages in duty paid godown and loss in transit from godown to the customers and discount claimed on account of free supply of bottles of aerated water amounting to rs. 27,50,072 were held as not admissible deduction.therefore, in this appeal we are concerned with only the abovemen-tioned two issues.5. it is contended on behalf of the appellant that refusal to allow deduction of rs. 13,42,924 towards loss of beverage in duty paid godown and in transit to and fro to customer is arbitrary and against the provisions of law. according to the appellant the loss of beverages in the facts and circumstances of the present case is incidental to transportation of aerated water to the point of delivery of goods to the customer. it is therefore incidental to the cost of the transportation of the goods at the point of delivery of goods to the customers. learned counsel for the appellant would contend that this cost is an admissible deduction as in the case of 'transit insurance' allowed by the supreme court in the case of bombay tyres international ltd. [1983 (14) e.l.t. 1896]. on the other hand. learned departmental representative contended that no deduction could be claimed for the loss of beverages happened during handling in the godown and also during transport. according to him the appellant's case has to be decided in the light of the decision of the supreme court in cce, meerut v. surya roshni ltd. [2000 (122) e.l.t. 3]. learned dr further submitted that at any rate the loss of beverages during handling in the godown cannot be treated as part of transportation cost.6. in the above case deduction was sought on account of equalized freight based on the elements of transportation charges, insurance charges, octroi and taxes. it was then found that the deduction on account of insurance charges was actually on account of "transit losses/breakages replenished to customers". while denying this claim the supreme court observed as follows : "in the case of transportation what is includible is the cost of taking out insurance to cover the goods transported; in other words, to cover oneself against a possible loss by paying a premium to an insurance company. the payment made by the respondent to its customers for breakages and losses cannot tantamount to insurance. nor can, by any means, such compensation be treated as a part of the cost of transportation; it is a clear case of making up to the customer by means of a credit note the monies that it has lost on account of breakages or losses in transit".in the present case, the claim is not in respect of insurance premium paid to cover the manufacturer against such possible loss which is includible in the transportation cost. therefore, the appellant is not entitled to include in its cost of transportation the loss of beverages sustained during transportation. on the same principle the loss due to breakage or otherwise happened while handling the goods in the duty paid godown cannot be claimed as deduction.7. the next issue to be considered is one relating to the claim for deduction towards discount. it is contended by the appellant that the discount given is in the nature of quantity discount and, therefore, is an allowable deduction. appellant contends that when the customer purchases one crate of 24 bottles of 250 mls. i.e. 6 litres of aerated water, he gets a free supply of one bottle of new flavour/size of aerated water. in other words, instead of paying the price of one crate of old aerated water and of a bottle of new flavour/size, he pays the price of only one crate of old aerated water. this, according to the appellant, is a discount in the form of quantity or kind which is an acceptable form of trade. learned departmental representative submits that the bottle that is being given free is different either in flavour or in size from the goods sold to the dealers. relying on the decision of the tribunal in glaxo (1) ltd. v. cce, kanpur [1995 (76) e.l.t.451], learned dr submits that since the bottle of new flavour/size is not excess quantity of the goods supplied to the customers, it cannot be considered as trade discount. according to him it is in the nature of advertisement of new flavour/size. expenses incurred on promotion of sale and advertisement are not deductible from the assessable value as has been held by the supreme court in union of india and ors. v. bombay tyre international ltd. [1983 (14) e.l.t. 1896 and 1984 (17) e.l.t.329]. we find merit in the contention raised by the learned dr. supply of free bottles of new flavour/size is to be treated as advertising or sales promotion undertaken by the appellant. such expenses which enrich the value of the goods and enhances its marketability in trade are not admissible deductions. we therefore find no merit in the challenge against the decision not to grant deduction to the extent of rs. 27,50,072/- claimed under heading 'discount'.8. there is a further contention raised by the appellant that the department has admitted that the deduction of rs. 8,17,87,986/- are admissible as against appellants claim for abatement to the tune of rs. 7,95,89,563 and as the aggregate amount of deductions claimed is less than the amount of deductions treated as admissible deduction by the department, there is no case for demanding the differential duty. we find no merit in this contention also. there is no question of the department admitting deduction to the extent of rs. 8,17,87,986. what has been held is that the claim to the extent of rs. 1,37,97,580 are not admissible. their claim for deduction was to the extent of rs. 31.27 and rs. 28.08 per crate in respect of the two categories and not at the rate of rs. 36.14 per crate. therefore, when the department allowed deductions at the rate of rs. 3.39 per crate, it has to be reduced from rs. 31.27 and rs. 28.08 per crate and not from rs. 36.14 per crate. we therefore find no merit in this contention.

Judgment:
1. The appeal is directed against Order-in-Original No. 28/2001, dated 14-3-2001 passed by the Commissioner of Central Excise, Delhi imposing duty liability of Rs. 10,68,457. The relevant period is from 1-4-95 to 31-10-95.

2. The appellant is a manufacturer of aerated water falling under Heading Numbers 22.01 and 22.02 of Chapter 2 of the Schedule to the Central Excise Tariff Act, 1985.

3. There was no sale of aerated water to any wholesale buyer at the factory gate of the appellant. They cleared their manufactured product, aerated water, in glass bottles with the help of a conveyer belt after making payment of duty to their only one duty paid godown situate adjacent to the factory. Such duty paid stocks were sent to the customers in lorries. The driver-cum-salesman deliver the goods in market directly to the customers/dealers at a higher price and issues cash memos. Unsold goods and empties are brought back by him to the said duty paid go down.

4. The appellant while declaring their wholesale price/assessable value claimed certain deductions in addition to deductions of excise duty and sales tax. Such deductions claimed were under the head transportation, handling and other services including trade discount. In the show cause notice issued to the appellant deductions claimed under eight heads were sought to be denied. After taking into consideration the contentions raised by the appellant herein and also the finding in an adjudication order passed in the case of the appellant by the Principal Collector of Central Excise, Delhi in respect of demands proposed under show cause notice dated 10-11-87, the adjudicating authority passed the present order which is under challenge. In this order, deductions claimed to the extent of Rs. 13,42,924 on account of loss of beverages in duty paid godown and loss in transit from godown to the customers and discount claimed on account of free supply of bottles of aerated water amounting to Rs. 27,50,072 were held as not admissible deduction.

Therefore, in this appeal we are concerned with only the abovemen-tioned two issues.

5. It is contended on behalf of the appellant that refusal to allow deduction of Rs. 13,42,924 towards loss of beverage in duty paid godown and in transit to and fro to customer is arbitrary and against the provisions of law. According to the appellant the loss of beverages in the facts and circumstances of the present case is incidental to transportation of aerated water to the point of delivery of goods to the customer. It is therefore incidental to the cost of the transportation of the goods at the point of delivery of goods to the customers. Learned Counsel for the appellant would contend that this cost is an admissible deduction as in the case of 'transit insurance' allowed by the Supreme Court in the case of Bombay Tyres International Ltd. [1983 (14) E.L.T. 1896]. On the other hand. Learned Departmental Representative contended that no deduction could be claimed for the loss of beverages happened during handling in the godown and also during transport. According to him the appellant's case has to be decided in the light of the decision of the Supreme Court in CCE, Meerut v. Surya Roshni Ltd. [2000 (122) E.L.T. 3]. Learned DR further submitted that at any rate the loss of beverages during handling in the godown cannot be treated as part of transportation cost.

6. In the above case deduction was sought on account of equalized freight based on the elements of transportation charges, insurance charges, octroi and taxes. It was then found that the deduction on account of insurance charges was actually on account of "transit losses/breakages replenished to customers". While denying this claim the Supreme Court observed as follows : "In the case of transportation what is includible is the cost of taking out insurance to cover the goods transported; in other words, to cover oneself against a possible loss by paying a premium to an insurance company. The payment made by the respondent to its customers for breakages and losses cannot tantamount to insurance.

Nor can, by any means, such compensation be treated as a part of the cost of transportation; it is a clear case of making up to the customer by means of a credit note the monies that it has lost on account of breakages or losses in transit".

In the present case, the claim is not in respect of insurance premium paid to cover the manufacturer against such possible loss which is includible in the transportation cost. Therefore, the appellant is not entitled to include in its cost of transportation the loss of beverages sustained during transportation. On the same principle the loss due to breakage or otherwise happened while handling the goods in the duty paid godown cannot be claimed as deduction.

7. The next issue to be considered is one relating to the claim for deduction towards discount. It is contended by the appellant that the discount given is in the nature of quantity discount and, therefore, is an allowable deduction. Appellant contends that when the customer purchases one crate of 24 bottles of 250 mls. i.e. 6 litres of aerated water, he gets a free supply of one bottle of new flavour/size of aerated water. In other words, instead of paying the price of one crate of old aerated water and of a bottle of new flavour/size, he pays the price of only one crate of old aerated water. This, according to the appellant, is a discount in the form of quantity or kind which is an acceptable form of trade. Learned Departmental Representative submits that the bottle that is being given free is different either in flavour or in size from the goods sold to the dealers. Relying on the decision of the Tribunal in Glaxo (1) Ltd. v. CCE, Kanpur [1995 (76) E.L.T.451], learned DR submits that since the bottle of new flavour/size is not excess quantity of the goods supplied to the customers, it cannot be considered as trade discount. According to him it is in the nature of advertisement of new flavour/size. Expenses incurred on promotion of sale and advertisement are not deductible from the assessable value as has been held by the Supreme Court in Union of India and Ors. v. Bombay Tyre International Ltd. [1983 (14) E.L.T. 1896 and 1984 (17) E.L.T.329]. We find merit in the contention raised by the learned DR. Supply of free bottles of new flavour/size is to be treated as advertising or sales promotion undertaken by the appellant. Such expenses which enrich the value of the goods and enhances its marketability in trade are not admissible deductions. We therefore find no merit in the challenge against the decision not to grant deduction to the extent of Rs. 27,50,072/- claimed under heading 'Discount'.

8. There is a further contention raised by the appellant that the Department has admitted that the deduction of Rs. 8,17,87,986/- are admissible as against appellants claim for abatement to the tune of Rs. 7,95,89,563 and as the aggregate amount of deductions claimed is less than the amount of deductions treated as admissible deduction by the Department, there is no case for demanding the differential duty. We find no merit in this contention also. There is no question of the Department admitting deduction to the extent of Rs. 8,17,87,986. What has been held is that the claim to the extent of Rs. 1,37,97,580 are not admissible. Their claim for deduction was to the extent of Rs. 31.27 and Rs. 28.08 per crate in respect of the two categories and not at the rate of Rs. 36.14 per crate. Therefore, when the Department allowed deductions at the rate of Rs. 3.39 per crate, it has to be reduced from Rs. 31.27 and Rs. 28.08 per crate and not from Rs. 36.14 per crate. We therefore find no merit in this contention.