Value of Product manufactured in separate factory and supplied by customer

PJ/Case Laws/2011-12/1440

Value of Product manufactured in separate factory and supplied by customer – Whether includible in assessable value

Case: ESSEL PROPACK LTD V/s COMMISSIONER OF CENTRAL EXCISE, MUMBAI-III

Citation: 2011 (274) E.L.T. 3 (S.C.)

Issue:- Value of Plastic caps for tubes manufactured in separate factory and supplied by customer – Whether includible in assessable value of tubes as per Section 4 of Central Excise Act, 1944?

Brief Facts:- Appellant manufactured plastic tubes in its factory and supplied the same to M/s. Colgate Palmolive (I) Ltd. Show cause notice was issued on the ground that the value of plastic caps fitted to plastic tubes were not included in the assessable value of plastic tubes manufactured and cleared from the factory of the appellant.

The Commissioner passed order confirming the demand of excise duty and imposing under Rule 173-Q of the Central Excise Rules, 1944 and also directing the appellant to pay interest at the rate of 20% under Section 11-AB of the Act for delayed payment of interest.

Aggrieved by the same, appellant filed appeal before the Tribunal. The Tribunal confirmed the demand of duty and modified the penalty and interest imposed by the Commissioner. The Tribunal relied upon the judgment of the Supreme Court in the case Union of India v/s J.G. Glass Industries Ltd. [1998 (97) E.L.T.5 (S.C.)] wherein it was held that printing carried out on the plain glass bottles done in another factory would not amount t ‘manufacture’ under Section 2 (f) of the Act, but if manufacture of bottle and printing thereon is carried out in the same factory, then the ultimate product which happens to be excisable item at the factory gate, is printed bottle. Applying the said decision, Tribunal held that where the plastic caps are fitted to the tubes before removal from the appellant’s factory, duty is to be paid on the total value of the tubes including the value of the plastic caps.

Aggrieved by the same appellant has filed appeal before the Supreme Court.

Appellant’s Contention:- Appellant contended that the plastics caps, which are fitted to the tubes manufactured and removed from the appellant’s factory, are not actually manufactured by the appellant. The plastic caps were supplied by the Colgate and were fitted to the plastic tubes in the factory of the appellant. Appellant relied upon the case Metal Box Of India Ltd., v. Collector of Central Excise, Calcutta [1983 (13) E.L.T. 956 (C.E.G.A.T.)]. In this case the Tribunal had held that where the plastic capes for collapsible tubes had been manufactured in a separate factory then such caps have to be treated separately while charging the weight based portion of duty of excise on aluminum as envisaged in Item 27 of the Central Excise Tariff. Appellant submitted that although an appeal was preferred against the aforesaid decision of the Tribunal to this court, the appeal was dismissed on 20 Nov, 1989 in Collector v. Metal Box Of India [1990 (45) E.L.T. A33 (S.C.)].

Appellant also submitted that in Col. Tubes (P) Ltd. v. Collector [1994 (72) E.L.T. 342 (Tribunal)], the assessee therein which was manufacturing aluminum collapsible tubes, was clearing its product from its factory along with plastics caps manufactured elsewhere and the Tribunal had held that the cost of plastic cap (a bought item) and labour charges for fixing it on the tubes will not include in the assessable value of the aluminum tubes under Section 4 of the Act. Appellant submitted that the Collector, Central Excise preferred an appeal to the Supreme Court, but the appeal was dismissed following its decision in the case of Collector v. Metal Box of India Ltd.

Further, it was submitted that considering these Authorities in the very case of the appellant, for a subsequent period, the Tribunal has now taken a view that the plastic caps, not being an integral part of a toothpaste tube, cannot be included in the assessable value of the tubes.

Further the appellant submitted that the Tribunal distinguished their case from the case in J.G. Glass Industries by saying that in the case of J.G. Glass Industries, printing on the plain glass bottles was an integral part to the bottles whereas in the appellant’s case plastic caps was not an integral part to the aluminum tubes but was only an accessory.

Respondent’s Contention:- Revenue submitted that it is not clear from the submissions of the appellant or from the facts found by the Tribunal that the plastic caps were not manufactured in the factory of the appellant or were supplied by the customer (Colgate) of the appellant. Therefore, it is difficult for the Court to decide that whether the plastic caps were not manufactured in the factory of the appellant and supplied by the Colgate and being non-integral part to the tubes manufactured by the appellant, cannot be included in the assessable value of the tubes.

Reasoning of Judgment:- The Supreme Court found that the consistent view of the Tribunal as well as of the Court is that if the caps are manufactured in a separate factory i.e. not in the factory in which aluminum tubes are manufactured and these caps cannot form an integral part of the tubes then the value of caps are not included in the assessable value of tubes, manufactured and cleared from the factory. This view of the Tribunal and Court is based upon the case Metal Box of India Ltd., Calcutta and Col. Tubes (P) Ltd. Thus, if the caps are not manufactured in appellant’s factory but is supplied by their customers, the value of the caps will not form part of assessable value of tubes manufactured by appellant.

The Supreme Court perused the reply of the appellant to show cause notice wherein it is stated that they manufacture tubes on orders received from the customers and whenever the customers order, they fix the caps on the tubes and in such case value of plastic caps will be included but if the caps ware supplied by the customer free of cost then they clear the tubes along with caps without including the value of caps. The Commissioner has not given clear findings of the facts that whether for the tubes that were cleared by the appellant during the relevant periods in respect of which show cause notice were issued, the caps were supplied by the customer free of cost and the same were fitted to the tubes by the appellant and such caps were fitted to the tubes manufactured in the appellant’s factory. It was directed that the Commissioner will have to record clear findings as to whether for the tubes cleared during the three relevant periods, the caps were supplied by the customer of the appellant free of cost and accordingly pass a fresh order. Orders of the Tribunal and Original Authority set aside.

Decision:- Appeal allowed by way of remand.

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PJ/Case Laws/2011-12/1440

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