Whether ground rent received for delay in taking delivery of goods sold is includible in the assessable value of product?

PJ/Case Law/2013-14/1994

Case:-COMMISSIONER OF CENTRAL EXCISE, KANPUT VERSUS SAIL BHAILAI STEEL PLANT

Citation:-2013(296) E.L.T. 400 (Tri.-Del.)

Brief Facts:-The respondent has a unit of Steel Authority of India Limited, a integrated steel plant, is engaged in the manufacture of various iron and steel products, chargeable to Central Excise duty While the prime manufactured products of the respondent viz., angle, rails, rounds, etc., are sold through its branch sale offices situated at various places in India, other products like semis, defective/rejected iron and steel products and cuttings of iron and steel products are directly sold from respondent's plant as to buyers selected by tendering process. One of the conditions of the tenders for sale of defective/rejected material, issued by the material Sales Department is that on receipt of the sale order the buyer shall deposit the amount as per details indicated in the sale order by demand draft, the payment shall be made with 28 days from the date of sale order or within the time as stipulated in the sale order and that if the date of payment is extended on request of the buyers, buyer shall be liable to pay a 'ground rent' at the specified rates. If the payment is made between 29th day to 35th days from the date of sale order, the ' rent' payable shall be 0.5% of the sale value, if the payment is made between day to 42nd days from the date of sale order, the 'ground rent' payable shall 1.25% of the sale value, if the payment is made between 43rd day to 49th days from the date of sale order, the 'ground rent' payable shall be 2.25% of the sale value and if the payment is made between 50th day to 56th day from the date of sale order, the 'ground rent' payable shall be 3.5% of the sale value on price. The Department was of the view that the 'ground rent' being recovered by the respondent for period of delay in the making of payment is includible in the assessable value, as this amount is being collected in connection with the sale of goods. On this basis a show cause notice dated 1-1-2004, was issued for demand of differential duty amounting to Rs. 14.13 lakhs in respect of sales of defective/rejected iron and steel products during period from Dec.'98 to June 2003 along with interest under Section 11AB and also for imposition of penalty on the respondent under Section 11AC of Central Excise Act. The show cause notice was adjudicated by Additional Commissioner vide order-in-original dated 17-3-2005 by which the duty demand as mentioned above, was confirmed along with interest and besides this, penalty of equal amount was imposed on them under Section 11AC. However on appeal being filed by the respondent against this order to Commissioner (Appeals), the Commissioner (Appeals) vide order-in-appeal dated 18-7- 2005 set aside the Additional Commissioner's order and allowed the appeal, on the ground that while the original Adjudicating Authority has treated the amount being charged as 'ground rent', as storage charges and on this basis includible in the assessable value, while a reading of Clause 11 of the tender indicates that amounts being collected are the charges of delayed payment and there is nothing to suggest that these are storage charges and that in terms of Apex Court's judgment in the case of Union of India v. Bombay Tyres reported in 1984 (17) E.L.T. 329 (S.C.), the amount paid on account of delayed payment is not includible assessable value.
Against this order of the Commissioner (Appeals), this appeal has been filed by the Revenue. In respect of revenue's appeal, the respondent has filed cross-objections.

Appellant Contentions:-Ld. Departmental Representative, assailed the impugned order by reiterating the grounds of appeal and pleaded that the amount being charged as 'ground rent' is nothing but storage charges for the period of delay in lifting of goods sold, that storage charges incurred by the respondent prior to clearance of goods are includible in the assessable value, that in term of Apex Court judgment in the case of Bombay Tyres International Ltd. reported in 1983 (14) E.L.T. 1896 (S.C.) the sales organizations expense upto the delivery of goods, interest on inventory and marketing/selling organization expense are includible in the assessable value and that the amount being charged as 'ground rent' is the expense incurred on storage of goods prior to completion of sales and hence the same is includible in the assessable value and as such the order of the Commissioner (Appeals) is not correct.

Respondent Contentions:-The learned Counsel for the respondent defended the impugned order by reiterating the findings of the Commissioner (Appeals) and pleaded that the amount recovered as 'ground rent' is nothing but charges for delay in payment and as such the same are not includible in the assessable value.

Reasoning of Judgment:-We have considered the submission from both the sides and perused the records. The Para 6 of the show cause notice itself refers to Para 11(b) of the "terms and conditions for sale of material by tender from the stores department" and on the perusal of the same, it is clear that the amount being charged as 'ground rent' is for delay in making the payment by the buyers for the goods sold to them. This delay is counted from the date of sale order. The customer is expected to make the payment for the goods purchased by him within the period of 28 days from the date of sale order and if there is delay in making payment beyond 28 days, amounts at the rates varying from 0.5% of the sale price to 3.25% of the sale price are payable depending upon the period of delay. We do not find any basis for the Department's plea that the 'ground rent' is the storage charges for the period of delay in lifting of the goods by the customers. Thus the 'ground rent' is nothing but interest on receivables which is not includible in the assessable value, in view of Apex Court's judgment in the case of Union of India v. MRF Ltd. reported in 1995 (77) E.L.T. 433 (S.C.).
In view of this we do not find any merit in this appeal by the Revenue. The same is dismissed. The cross-objection also stands disposed of.

Decision:-Appeal dismissed.

Comment:- The essence of this case is that the ground rent is nothing but interest on receivables which is not includible in the assessable value, in view of Apex Court's judgment in the case of Union of India v. MRF Ltd. reported in 1995 (77) E.L.T. 433 (S.C.).

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PJ/Case Law/2013-14/1994

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