2005 (12) TMI 92 - SC - Central Excise

Whether there was value addition on account of galvanization includible in the assessable value of m.s. galvanized pipes forthe period May 1994 to July 1996? Held that - In the present case, we find that the product cleared from the factory was m.s. galvanized pipes. Galvanization had given value addition to the m.s. pipes. The process of galvanization was incidental to the manufacture of the m.s. galvanized pipes and, therefore, the cost of that process was rightly included in the assessable value. No error in the concurrent findings recorded by the Commissioner and by the Tribunal. In the present case, a penalty of ₹ 10 lacs was imposed by the Commissioner. On appeal, it has been reduced to ₹ 7.5 lacs. No reasons have been given for imposing the penalty. The matter has arisen at the stage of assessment. The appellant has succeeded in showing that the cost of rubber rings (p.p. rings) was not includible in the assessable value of the m.s. galvanized pipes. The matter was, therefore, arguable. Hence, we set aside the penalty of ₹ 7.5 lakhs. Assessee's appeal partly allowed.

Summary

Issues:
Assessment of duty under Section 4 of the Central Excise Act, 1944 on account of galvanization value addition in m.s. galvanized pipes.

Analysis:
The appellant contended that galvanization does not amount to manufacture and should not be included in the assessable value of m.s. galvanized pipes. The appellant argued that galvanization occurred after the completion of manufacturing m.s. pipes, which were already duty paid. The department alleged under-invoicing due to the exclusion of galvanization costs. The appellant emphasized that galvanization was done to prevent rusting and did not change the nature of the product. The appellant sold 30% of m.s. pipes directly from the tube mill section and transferred the remaining 70% to the galvanizing section for galvanization.

The department argued that the cost of galvanization should be included in the assessable value of m.s. galvanized pipes as it added value to the product. They emphasized that the customers were charged for m.s. galvanized pipes and that the normal price under Section 4 of the Act should consider all processes contributing to value addition. The department relied on previous court judgments to support their stance that incidental processes like galvanization should impact the assessable value.

The Commissioner found that galvanization added value to the m.s. pipes, making it necessary to include the cost of galvanization in the assessable value. The Commissioner's decision was upheld by the Tribunal. The Supreme Court agreed with the Commissioner's findings, stating that galvanization enriched the value of the pipes and should be considered in the assessable value. The Court clarified that while galvanization itself may not constitute manufacture, it contributes to the quality and value of the final product.

The Court referred to previous cases to support its decision, emphasizing that expenses contributing to the value of the product must be included in the assessable value. The Court highlighted that the normal price at the factory gate should include all intrinsic costs necessary for placing the goods on the market. The Court concluded that the cost of galvanization was rightly included in the assessable value of m.s. galvanized pipes due to the value addition it provided.

Regarding the penalty imposed by the Commissioner, the Court noted that no reasons were given for the penalty, and since the appellant had succeeded in showing that certain costs were not includible, the penalty was set aside. The Court partly allowed the appeals, with no order as to costs, affirming the inclusion of galvanization costs in the assessable value of m.s. galvanized pipes.