2006 (5) TMI 293 - AT - Central Excise

Valuation - inclusion of the cost of carton cardboard packing in the assessable value of the refrigerator - grant of erroneous refund - HELD THAT - The original authority has given a finding that the carton packing is provided only for transportation at the request of the buyers. On the question of secondary packing, especially, with regard to refrigerators, the Bombay High Court, in GODREJ AND BOYCE MANUFACTURING CO. PVT. LTD. VERSUS UNION OF INDIA AND OTHERS 1984 (8) TMI 81 - HIGH COURT OF JUDICATURE AT BOMBAY has held The secondary packing, therefore, which is provided by the petitioners when goods are transported and delivered to wholesale dealers outside Bombay and which is separately charged for by the petitioners under a separate invoice, cannot be considered as packing which is a normal feature of the wholesale trade for the petitioners' refrigerators. The special secondary packing in question cannot be included in the wholesale cash price of the petitioners' refrigerators, for excise purposes. Revenue has no case and assuming but not admitting that the refund is erroneous, the same cannot be recovered without review of the refund order dated 20-4-1990 - The impugned OIA is set aside - appeal allowed.

Issues Involved:

1. Inclusion of the cost of carton cardboard packing in the assessable value of refrigerators.
2. Legality of issuing a Show Cause Notice under Section 11A for recovery of erroneous refund without challenging the order sanctioning the refund under Section 35E(2).
3. Whether the refund granted can be treated as 'erroneous refund'.
4. Validity of the Department's claim regarding the necessity of carton packing for refrigerators.
5. Admissibility of secondary packing costs in the assessable value under excise law.

Detailed Analysis:

1. Inclusion of the Cost of Carton Cardboard Packing in the Assessable Value of Refrigerators:

The main contention revolves around whether the cost of carton cardboard packing should be included in the assessable value of refrigerators. The Assistant Collector's order dated 17-8-1989 allowed the deduction of the cost of carton packing, considering it as secondary packing provided only for transportation or at the buyer's request. The Commissioner (Appeals) later held that this cost should be included in the assessable value, leading to the Department's effort to recover the refund granted based on the earlier order.

2. Legality of Issuing Show Cause Notice under Section 11A:

The appellant argued that the Show Cause Notice issued under Section 11A for recovery of an erroneous refund is not sustainable in law because the refund order dated 20-4-1990 was not challenged under Section 35E(2). The Board's Circular dated 22-9-1998 clarifies that a Show Cause Notice should follow the review of the order sanctioning the refund. The Tribunal agreed, stating that without reviewing the refund order, the Show Cause Notice is legally infirm.

3. Whether the Refund Granted Can Be Treated as 'Erroneous Refund':

The appellant contended that the refund made pursuant to a valid order of an Assistant Collector cannot be treated as an 'erroneous refund'. Erroneous refunds generally refer to those made due to mistaken calculations or technical errors. The Tribunal supported this view, citing the Law Ministry's opinion and the Madras High Court's decision in Madras Rubber Factory v. ACCE, which stated that refunds following a valid order cannot be deemed erroneous.

4. Validity of the Department's Claim Regarding the Necessity of Carton Packing:

The appellant provided evidence that refrigerators could be sold without secondary packing, supported by excise gate passes and judicial approval from the Bombay High Court in Godrej Boyce Manufacturing Co. (P) Ltd. v. UOI. The Tribunal found that the Department failed to produce proof that carton packing is primary packing, thus accepting the appellant's claim that refrigerators are capable of being sold with only polythene covering.

5. Admissibility of Secondary Packing Costs in the Assessable Value:

The Tribunal referred to the Supreme Court decisions and the Bombay High Court's ruling in Godrej & Boyce, which held that secondary packing costs for transportation to remote areas are excludable from the assessable value. The Tribunal concluded that the carton packing in question is secondary and not necessary for the wholesale market at the factory gate, thus its cost should not be included in the assessable value.

Conclusion:

The Tribunal set aside the impugned Order-in-Appeal and allowed the appeal, emphasizing that the refund order dated 20-4-1990 was not reviewed, making the recovery of the so-called erroneous refund legally untenable. Additionally, on merits, the cost of secondary packing (carton cardboard) was deemed excludable from the assessable value of refrigerators. The appeal was allowed with consequential relief.

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