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PJ/CASE LAW/2015-16/2768

Whether machine hire charges includible in assessable value of goods?

Case:-JAI BEVERAGES PVT. LTD. VERSUSCOMMISSIONER OF CENTRAL EXCISE, J & K
 
Citation:-2015 (321) E.L.T. 523 (Tri. - Del.)

Brief Facts:-  There are four appeals and two cross-objections arising out of three orders-in-appeal as detailed hereunder :
(i) Excise Appeal No. 939/2006 filed by Jai Beverages Pvt. Ltd. and Excise Appeal No. 1852/2006 filed by Commissioner of Central Excise, Jammu, both arising out of orders-in-appeal 60/2006, dated 8-2-2006 and Excise Cross Objection No. 128/2006.
(ii) Excise Appeal No. 2778/2006 filed by Commissioner of Central Excise, Jammu, arising out of order-in-appeal 166/2006 dated 28-4-2006 and Excise Cross Objection No. 188/2006.
(iii) Excise Appeal No. 565/2007 filed by Commissioner of Central Excise, Jammu, arising out of order-in-appeal 326/2006 dated 31-10-2006.
 
In the above appeals, the Revenue is challenging that portion of the orders-in-appeal which have favourably considered the respondents’ pleas relating to deduction of machine user charges incurred by them from calculating assessable value for the purpose of levy of excise duty. In the appeal filed by Jai Beverages Pvt. Ltd./appellant, is challenging that portion of the Commissioner (Appeals) order which has denied deduction of transportation expenses incurred by them, while arriving at assessable value for the purpose of excise duty.
 
Reasoning of Judgment:-  As regards machine user charges, we find that the issue is squarely covered by this Tribunal’s decision in Dhillon Cool Drinks and Beverages v. CCE, Jalandhar, reported in 2004 (64) RLT 237 (Tribunal) = 2005 (182) E.L.T. 57 (Tribunal). Para 4 of the said judgment reads as follows:
 
“4.We have considered rival submissions. We find that it is possible to dispose of all these appeals only on the issue of, whether the deductions claimed in respect of Machine Hire Charges and Repair and Maintenance Charges of PMX machine are permissible. Reasoning adopted by the Commissioner for disallowing the above two deductions is that, PMX machine is an extension of the manufacturing activity as the machine performs certain processes like carbonation etc. on the syrups in the Bag-in-Box and thus converts the syrup into consumable form i.e. aerated water, although he has categorically held that the duty on Bag-in-Boxes has been fixed to be discharged at the time of clearance of the same by the manufacturer, we find that the issue in dispute is no longer res integra as it has been settled by Tribunal in the case of Pepsico India Holdings (P) Ltd. v. CCE, Mumbai, 2004 (163) E.L.T. 478 (T.-Del.), wherein it has been held that lease charges on dispensing machine is not includible in the assessable value of syrup since the sale of syrup and leasing of dispensing machine are two different activities and what is included is any additional amount charged as price by reason of or in connection with the sale of the goods under assessment and no amount charged in connection with or by reason of sale of other goods or provision of other services. In that case, the Tribunal held that the rental on the dispensing machine leased out does not form part of the assessable value of the syrup. Following the ratio of the above decision, which is in turn based upon the Apex Court decision in Collector of Central Excise v. Indian Oxygen Ltd., 1988 (36) E.L.T. 730 (S.C.), which is directly applicable to the facts of the present case, we hold that the appellants are entitled to deduction of repair and maintenance charges for PMX machine and rental charges for the same from the assessable value.”
 
Para 11 of the Tribunal’s decision in Pepsico India Holdings Pvt. Ltd. v. CCE, Mumbai [2004 (163) E.L.T. 478 (Tri. - Del.)], relied upon in the foregoing paragraph reads as under :
 
“4.We find no authority for the inclusion of the lease charges on the dispensing machine in the assessable value of syrup. Sale of syrup and leasing of dispensing machine are two separate activities. Considerations for them are also separate. There is no warrant in law for the inclusion of the consideration for different activity in the assessable value of excisable goods, definition of ‘transactions value’ in the new section notwithstanding. It is clear from a perusal of that definition that what is included is any additional amount charged as price, by reason of or in connection with the sale of the goods under assessment and no amounts charged in connection with or by reason of sale of other goods or provision of other services. Therefore, there was no justification for inclusion of lease charge also.”
 
Following the ratio of the above decisions, we do not find any justification for denying the benefit of deduction on account of machine user charges incurred by the respondent/assessee.
 
As regards the issue relating to transportation charges, the appellant/assessee is challenging that portion of the order-in-appeal under which deductions claimed by them in respect of transportation charges were denied to them on the ground that the appellant had failed to prove that amount charged as freight was equalized freight based on accepted principle of accounting. The learned Commissioner had held that, a manufacturer must produce the relevant documents which could prove that the freight was charged on equalized basis based on accepted principle of accounting. It further observed that, the appellants had failed to produce requisite evidence on the basis of which they could have claimed that the expenses borne towards transportation represented the equalized freight. It has further been held that, the view taken by the adjudicating authority was correct, while disallowing the deduction claimed by the appellant on account of transportation/freight charges. The learned counsel for the appellant has, however, stated that, the relevant documents and invoices had been produced before the concerned adjudicating authority, even though the same have not been considered while passing the order. He further places reliance on the following decisions:
 
(i) Escorts JCB Ltd.v. CCE, Delhi,reported in 2002 (53) RLT 1 (S.C.) = 2002 (146) E.L.T. 31 (S.C.); in which it was held, more particularly, in para 11, as under :
 
“The assessee also referred to a decision reported in 2002 (49) RLT 506 - Associated Strips Ltd. & Anr. v. CCE, New Delhi. It is a decision of CEGAT. Considering several decisions of different Courts and the terms of the contract between the parties, it was held that sale of goods had taken place at the factory gate and therefore the place of removal was not the premises of the buyer. In view of the provisions of Section 23 and Section 39 of the Sale of Goods Act, 1930, it was found that goods to be treated as delivered to buyer and property and possession of the goods passed on to buyer when the goods were handed over to transporter. In such a case element of freight and transit insurance were not to be included in the normal value of the goods. We approve of the view taken by the CEGAT.”
 
(ii) Motorola India Pvt. Ltd. v. CCE, Bangalore,reported in 2007 (209) E.L.T. 86 (T), in which it was held in para 4 as under :
 
“We do not agree with the lower authorities’ view that the judgments are distinguishable. Merely because the details have not been mentioned in the Excise Invoices that by itself will not be a ground for the Revenue to add the freight charges in the assessable value. This very issue has been discussed in all the judgments. The impugned order is not legal and proper and the same is set aside by allowing the appeal with consequential relief, if any.”
 
A perusal of the impugned order relating to the admissibility of transportation charges as dealt with by the Commissioner (Appeals) indicates that the relevant records and invoices having a direct bearing on this issue produced by the assessee, have not been gone through. It is, therefore, appropriate to remand the matter for reconsideration of this issue in the light of the relevant material that might have been produced before the concerned authorities.
 
For the foregoing reasons, Appeal Nos. 1852/2006, 2778/2006 and 565/2007 filed by the Revenue are dismissed.
 
As regards Appeal No. 939/2006 filed by the appellant/assessee, we set aside only that portion of the order which relates to transportation charges and remit the matter to the Commissioner (Appeals) for reconsideration of that issue on the basis of the relevant material that may have been adduced by the appellant/assessee and in the light of the decisions in Escorts JCB Ltd. v. CCE, Delhi (supra) and Motorola India Pvt. Ltd. v. CCE, Bangalore (supra) relied upon by them. This appeal is accordingly allowed by way of remand.
 
Decision:-Assessee’s appeal allowed.
 
Comment:-  The substance of the case is that for purpose of Assessable Value, Machine charges received for leasing of machine by assessee while manufacturing syrup shall not be included in assessable value u/s 4 of Central Excise Act, 1944. It was concluded that the sale of syrup and leasing of dispensing machine are two separate activities. Considerations for them are also separate. There is no warrant in law for the inclusion of the consideration for different activity in the assessable value of excisable goods.

Prepared By: Meet Jain
 

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