2019 (12) TMI 114 - AT - Central Excise

Valuation - inclusion of cost of packing material in assessable value - case of the department is that since the packing material i.e. corrugated boxes were supplied free of cost by the buyers, the cost of the same needs to be included in the assessable value as in the form of supply of corrugated box, there is also an additional consideration flowing directly or indirectly from the buyers resulting in under valuation of Excisable goods and short levy of duty - extended period of limitation. HELD THAT - From section 4 it can be seen that only in cases where the transaction value is sole consideration such transaction value shall be the Assessable Value for charging of Excise Duty. However, in the present case apart from the transaction value the packing material supplied Free of Cost by the customer was also used by the appellant. The value of such packing material was not included. When any Excisable product is manufactured and cleared the value of such goods shall be the total value of the goods in the form it is cleared from the factory of the Assessee. It is immaterial that whether a part of the material contained in the final product to borne the cost. In the present case undisputedly the case of the appellant i.e. Metal Container cleared were packed in the corrugated boxes. Therefore, the value of the Metal Containers duly packed in the corrugated box has to be valued. Since the appellant have charged the value excluding the Cost of packing material the revenue is right in including the Cost of the packing material for a very simple reason that the goods were cleared duly packed in such corrugated boxes. Merely because the corrugated box was supplied by the customer that does not make difference as far as inclusion of cost of packing material required to arrive at the Assessable value - Since the Transaction Value is not the sole consideration as the packing cost was not included the value has to be determined resorting to the Valuation Rules made by authority of Section 4. It is absolutely clear that the said rule was made amongst other circumstances for the purpose of inclusion of Cost of packing material, if it is supplied Free of Charge by the buyer. Therefore, by virtue of the above Rule 6 read with Explanation 1 Clause-iii the value of packing material supplied Free of Cost by the buyer mandatorily needs to be included in the price of final product. Therefore, in view of Section 4 read with Rule 6 there is absolutely no ambiguity on the issue involved in the present case in as much as the cost of corrugated boxes supplied by the buyer to the appellant is includable in the Assessable Value. Every goods manufactured is otherwise complete in its manufacturing before packing. However, even though the packing is part of the manufacturing activity or otherwise, the Excise Duty is chargeable on the value of the goods in the form it is cleared from the factory of the manufacturer. In the present case, there is no dispute that the Metal Containers manufactured by the appellant are packed in the corrugated box and the same duly packed are cleared for sale to their customers. Therefore, since the goods are cleared in the packed form, the cost of packing material needs to be included in the Assessable value - Hence the argument of the appellant that the packing of the Metal container is beyond the stage of manufacturing will not help as long as the Valuation of goods for the purpose of charging Excise Duty in the form it is cleared. Extended period of limitation - HELD THAT - When the supply of corrugated box Free of Cost by the customer to the appellant was declared by the appellant to the department, it was open for the department to make out a case if they desire and issue the Show Cause Notice well within the stipulated time period of one year but despite all the details available with the department the Show Cause Notice was not issued in the normal period. In this fact the demand for the period before one year of the date of Show Cause Notice is time barred and the demand for extended period is set aside. On merit the demand is sustainable and on Limitation demand for the extended period is set aside - appeal allowed in part.

Issues Involved:
1. Inclusion of the cost of corrugated boxes supplied free of cost by the buyers in the assessable value of the final product.
2. Applicability of the extended period for the demand of duty.
3. Interpretation of Section 4 of the Central Excise Act, 1944, and related rules.

Detailed Analysis:

1. Inclusion of the Cost of Corrugated Boxes in the Assessable Value:
The core issue was whether the cost of corrugated boxes supplied free of cost by the buyers should be included in the assessable value of the final product, i.e., Metal Containers. The department argued that the cost should be included as it constitutes an additional consideration flowing indirectly from the buyers, resulting in undervaluation of excisable goods and short levy of duty.

The appellant contended that the corrugated boxes were not essential for the marketability of the Metal Containers and were used primarily for the convenience of the customers. They relied on various judgments, including those of the Hon'ble Supreme Court, which held that packing materials supplied free of cost by the buyers should not be included in the assessable value under the old Section 4 of the Central Excise Act.

However, the tribunal noted that the new Section 4 and the Central Excise Valuation Rules, 2000, explicitly require the inclusion of the cost of packing materials supplied free of cost by the buyer. Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, mandates that the value of such packing materials should be included in the assessable value. The tribunal concluded that the cost of corrugated boxes supplied free of cost by the buyers must be included in the assessable value of the Metal Containers.

2. Applicability of the Extended Period for the Demand of Duty:
The appellant argued against the applicability of the extended period for the demand of duty, stating that the issue involved interpretation of law and there was no suppression of facts. They pointed out that all relevant facts were disclosed during audits, and declarations were made regarding the free supply of corrugated boxes by the customers.

The tribunal agreed with the appellant, noting that the issue was based on the interpretation of Section 4 and related rules, and there was no evidence of suppression or mala fide intention. The tribunal observed that the facts were available on record and were pointed out during audits. Therefore, the demand for the extended period was not sustainable, and the tribunal set aside the demand for the period beyond one year from the date of the Show Cause Notice.

3. Interpretation of Section 4 of the Central Excise Act, 1944:
The tribunal examined the interpretation of Section 4 of the Central Excise Act, 1944, and related rules. It referred to various judgments, including those of the Hon'ble Supreme Court, which clarified that the new Section 4 did not substantially change the basis of valuation compared to the old Section 4. However, the tribunal emphasized that the specific provisions of the new Section 4 and Rule 6 of the Central Excise Valuation Rules, 2000, clearly required the inclusion of the cost of packing materials supplied free of cost by the buyers.

The tribunal distinguished the present case from other cited judgments, noting that the facts and issues involved were different. It concluded that the cost of corrugated boxes supplied free of cost by the buyers should be included in the assessable value of the Metal Containers, as required by the new Section 4 and related rules.

Conclusion:
The tribunal held that the cost of corrugated boxes supplied free of cost by the buyers must be included in the assessable value of the Metal Containers. It set aside the demand for the extended period due to the absence of suppression or mala fide intention. The appeals were partly allowed on the issue of limitation, but the demand on merits was upheld.

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