Valuation of Goods - inclusion of transport, insurance & handling charges of paper reels

PJ/Case Laws/2011-12/1360

Case: COMMISSIONER OF C. EX., PANCHKULA versus BALLARPUR INDUSTRIES LTD

Citation: 2011 (271) E.L.T. 268 (Tri. - Del.)

Issue:- Valuation of paper reels cleared from factory on payment of duty to cutting centres for cutting into sheets which further cleared to depot for sale – whether cost of transportation to cutting centres and insurance charges & handling charges includible in value of paper reels?

Brief Facts:- Respondent are engaged in manufacture of paper and paperboard of different varieties chargeable to Central Excise duty under Chapter 48 of the Central Excise Tariff. They clear cut paper sheets as well as paper in reels. They sell the same at the factory gate as well as through depots. Besides this, some quantity of paper reels are cleared on payment of duty to cutting centres for cutting on job work basis and from there, the cut paper sheets are transferred to depot from where the same are sold.

The dispute in this case is about the value of paper reels cleared to cutting centres, which after cutting into sheets were sold from depot. The period of dispute in these appeals is from 1-7-98 to 31-3-03. Department alleged that in respect of reels so cleared to cutting centres an from their to depots, the charges for freight and insurance from cutting to Depot and handling at the cutting centre had not been included in the assessable value.

The Original Authority confirmed the demand of duty with interest and imposed penalties. The ground taken was that the said transportation and insurance charges were required to be included as per the judgment of Supreme Court in Prabhat Zarda Factory Limited v/s CCE [2002 (146) ELT 497 (SC)].

In appeal, the Commissioner (Appeals) set aside the orders of the Original Adjudicating Authority relying upon the judgment of the Tribunal in the appellant's own case vide Final Order No. 607/2002-A, dated 3-12-2002 wherein it has been held that the condition in which the goods are cleared from the factory at the material time is the basis for determination of value under Section 4 of the Central Excise Act, 1944 and not the condition in which the goods are finally sold to the customers from the job worker cutters/depots after carrying out the further operations. The Commissioner (Appeals), therefore, held that the handling charges incurred at the cutting centres are not to be included in the assessable value.

Against these orders, appeals have been filed by Revenue.

Appellant’s Contention:- Revenue's contention is that the paper in reels had been cleared to cutting centres for conversation into sheets and from there the same had been sent to the depot from where the cut paper in sheets had been sold, that in terms of judgment of Supreme Court in the case of Prabhat Zarda Factory Limited v. CCE the expenses incurred up to the depot are to be included in the assessable value, and that the impugned order of the Commissioner (Appeal) is contrary to the law laid down in the case of Prabhat Zarda Factory Limited v. CCE by the Supreme Court.

Respondent’s Contention:- Assessee pleaded that what had been cleared from the factory was paper reels and the same after being cut into sheets at the cutting centres had been sold from the depot, that duty had been paid on the paper reels at the time of their clearance from the factory on the price of the paper reels prevailing at that time at the depot, that the freight, handling charges etc. are already included in the selling price of the paper reels, that this very issue in the respondent's own case had been decided by the Tribunal vide final order No. 607/2002-A, dated 3-12-2002, that Government's SLP to the Supreme Court, against this judgment of the Tribunal has been dismissed by the Supreme Court vide order dated 16-7-2010, That since what had been cleared from the factory was the paper reels and the duty had been paid on the paper reels at the price of paper reels prevailing at the depot at the time of removal, there is no question of addition of the expenses of freight, insurance and handling incurred in sending the cut paper from the cutting centres to depot and that in view of this, there is no infirmity in the impugned order.

Reasoning of Judgment:- The Tribunal noted that assessee were clearing their goods in various routes.

The Tribunal relied upon the judgment in case of Union of India v. J.G. Glass Industries Ltd [1998 (97) E.L.T. 5 (S.C.)] wherein the dispute was as to whether printing/decoration of Glass bottles amounts to manufacture and also whether the printing/decoration charges would be includible in the assessable value of the glass bottles, if the printing and decoration is done in the same factory in which the glass bottles are manufactured.

The Supreme Court in that case while holding that printing or decoration on plain glass bottles would not amount to manufacture, in Para 23 held that when the printing/decoration is done in the same factory in which the plain bottles are manufactured, the duty would be payable on the value of the printed/decorated bottles including the printing/decoration charges. The Apex Court also held that if only the plain glass bottles are cleared from the factory and printing/decoration is done outside, duty would be chargeable only on value of the plain glass bottles and printing/decoration charges would not be includible.

It was noted that the ratio of this judgment of the Apex Court was that when the duty on any goods is on ad valorem basis, the value of the goods adopted has to be the value of the goods in the form in which the same had been cleared at the time of removal.

In the present case what had been cleared from the factory was the paper reels, the Revenue is comparing the value of the paper reels with the selling price of the cut paper at the depot which is not correct. Since, the price of paper reels at the depot at the time of removal was available and the duty had been paid only on that price, there is no short payment of duty.

The judgment of the Supreme Court in the case of Prabhat Zarda Factory Limited v. CCE is not applicable to the facts of this case. The Tribunal took note of the order passed in assessee’s own case by the Tribunal dated 03.12.2002 and that he appeal of deparment against the same was dismissed by the Tribunal. Accordingly, it was held that there is no infirmity in order of Commissioner (Appeal).

Decision:- Appeals disallowed.

Comment:- This is very important decision wherein it is held that the price is to be paid on the goods in which condition they are removed from the factory. If any processing is done at depot before selling the goods at depot then price available at depot will not be made applicable to factory price. This is due to the fact that the goods are not sold in the same condition at depot. Hence the valuation is to be done on comparable goods method.

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PJ/Case Laws/2011-12/1360

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