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PETITIONER: COLLECTOR OF CENTRAL EXCISE, MADRAS

       Vs.

RESPONDENT: INDIAN OXYGEN LTD.

DATE OF JUDGMENT02/08/1988

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) SHARMA, L.M. (J)

CITATION:  1988 AIR 1873            1988 SCR  Supl. (1) 761  1988 SCC  (4) 139        JT 1988 (3)   334  1988 SCALE  (2)599  CITATOR INFO :  E&R        1990 SC1676  (11)

ACT:      Central Excises  And Salt  Act, 1944:  Section 4(1) (a) and  35L(b)-Manufacturer  of  dissolved  acetylene  gas  and compressed oxygen  gas-For purposes of supply-Rental Charged for  cylinders-Interest   paid  on   deposits   taken   from customers-Charges on  account  of  rental  and  interest  on deposits-Whether relatable to cost of ’manufacture’.

HEADNOTE:      The respondent  firm  are  manufacturers  of  dissolved acetylene gas and compressed oxygen gas. They were supplying these gases  in cylinders  at their factory gate. For taking delivery some  consumers/ customers  used to bring their own cylinders and  take the  delivery. Others,  used to have the delivery in  the cylinders  supplied by the respondent firm. For the  purpose of such supply of cylinders certain rentals were charged  by the  firm, and  also to  ensure that  these cylinders are  returned, a certain amount as deposit used to be taken  from the  customers. On  these  deposits  notional interest at 18 percent per annum was calculated.      The  Central   Excise  Authorities   issued  show-cause notices to  the respondent  on the  ground that the notional income on  the deposit  of cylinders and the rental are part of the  assessable-value, and  hence should  be included  in computing  the   assessable  value.   In  their   reply  the respondent stated  that the  deposits from  the buyers  were only  to  ensure  return  of  the  gas  cylinders  from  the customers.      The Assistant  Collector by  his order  dated 3rd June, 1965 held  that the respondent had to pay excise duty on the interest earned  at 18% during the relevant period, and that as the  respondent had suppressed this fact from the revenue during the  past 5  years, the  amount  was  includible  and recoverable under  Rule 8  read  with  Section  11A  of  the Central Excises  and Salt  Act. He also included the rentals of the cylinders in the value.      In  appeal  the  Collector  upheld  the  order  of  the Assistant Collector but with certain modifications. 762

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    The respondent  appealed to the Central Excise and Gold Control Appellate  Tribunal, which  allowed the  appeal, and held that the charge on account of rentals for the cylinders and the  interest which  accrued  on  the  deposit  for  the cylinder are not relatable to the cost of manufacture of the goods, and therefore under Section 4 deleted from the value, rentals for the cylinders and the interest on the deposit.      In the appeals to this Court it was contended on behalf of the  Revenue that  there are  two  different  classes  of buyers, one  class who  brings their  own cylinders, and the others who  get their  supply through  the cylinders  of the suppliers, and that different rates for these two classes of buyers constitute two different markets and are contemplated and permissible,  under the first proviso to Section 4(1)(a) of the Act.      Dismissing the Appeals, ^      HELD: 1.  Section 4(1)(a) proviso can be of no avail to the Revenue.  There may  be different  classes of buyers for different classes  of goods.  In the  instant case,  if  the respondent company  sold the  gases to  different classes of buyers then  different prices  may be  charged. If the gases had been  sold to  different classes  of buyers at different rates, it  is possible that there might be different markets for the  same. The charges like rental for the cylinders and the notional  interest income  are for  ancillary or  allied services and  that is not an activity of manufacture. [766A- B]      Union of  India &  Ors. v.  Bombay  Tyre  International Ltd., [1984]  1 SCR  347 and  Asstt.  Collector  of  Central Excise v.  Madras Rubber  Factory Ltd., [1986] Supp SCC 751, referred to.      2. It  is well  settled that  levy  under  the  Central Excises Salt Act is on manufacture. In the instant case, the sale is  of gases.  The levy  is on the manufacture of gases and the excisable goods are these gases. [764G,H]      3. Gas  being a commodity of peculiar nature, has to be delivered  by   cylinders,  but  these  cylinders  might  be supplied either  by the supplier as an ancillary activity or brought by the consumers or purchasers at their own risk and cost. For  purchasers  taking  it  in  their  own  cylinders supplied by  them, there was no charge for them. This is not an activity  for the manufacture of gases. This is ancillary to it but not incidental. [765C]      In the  instant case, there are two different supplies. One is supply 763 of gases  and the other is an incidental supply of cylinders on rent.  The interest notional or real accruing on deposits for the safe return of cylinders as well as the rental would not constitute  part of  the assessable-value.  The Tribunal was right in the view it took. [766C-D]

JUDGMENT:      CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 2349-61 of 1988.      From the order dated 8.7.1987 of the Customs Excise and Gold Control  Appellate Tribunal,  New Delhi  in Appeal Nos. E/l583 to  l589/ 86-A  and 1533,  1521, 1528, 1529-31/1986-A and order No. 491 to 503 of 1987.      A.K. Ganguli,  Mrs. Indu  Malhotra and Mrs. Sushma Suri for the Appellant.      Soli J.  Sorabji, M.  Chandrasekharan Mrs. V.J. Francis

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and N.M. Popli for the Respondent.      The Judgment of the Court was delivered by      SABYASACHI MUKHARJI, J. These appeals are under Section 35L,(b) of the Central Excises & Salt Act, 1944 (hereinafter called ’the  Act’) directed  against  the  decision  of  the Customs Excise (Gold) Control Appellate Tribunal, New Delhi, (hereinafter called ’the CEGAT’).      The respondent  M/s. Indian oxygen Ltd., Visakhapatnam, are manufacturers  of dissolved acetylene gas and campressed oxygen gas  (hereinafter called ’the gases’). The respondent was supplying  these gases  in cylinders  at  their  factory gate.   For   taking   delivery   of   these   gases,   some consumers/customers used  to bring  their own  cylinders and take the delivery, while others used to have the delivery in the cylinders supplied by the respondent. For the purpose of such supply  of cylinders,  certain rentals  were charged by the respondent  and also  to ensure that these cylinders are returned properly,  certain amount  of deposit  used  to  be taken  from   the  customers.  On  those  deposits  notional interest @  18% per  annum was calculated. These two amounts with which  we are  concerned, namely,  the rentals  of  the cylinders and the notional interest earned on the deposit of cylinders, are  the subject-matters  of the  dispute herein. Whether these two amounts were includible in the value under Section 4 of the Act, is the question. The revenue’s case is that the notional income on deposit of 764 cylinders and  the rental  are part  of the  asessable-value and, hence,  should be included in computing the assessable- value. The  respondent, however,  disputed  that.  They  had neither included such rentals nor the interest received from the buyers  in the price list for the assessment. Therefore, the revenue  issued show-cause notices to the respondent. In their reply  the respondent  stated that  the deposits  from buyers were  only to  ensure return of the gas clinders from the customers.      The Asstt.  Collector Central Excise, Visakhapatnam, by an order  dated 3.6.1965 held that the respondent had to pay excise-duty on the interest earned @ 18% during the relevant period. He  further  held  that  since  the  respondent  had suppressed this  fact from the revenue, in the past 5 years, under Rule  8 read  with Section  11A of  the Act, these are includible. He  also included the rentals of these cylinders in the value. On an appeal, the Collector of Central Excise, Madras, upheld the said order with certain modifications.      Dissatisfied  with   the  aforesaid,   the  respondents appealed to  the CEGAT.  In  its  order  under  appeal,  the Tribunal observed, inter alia, as follows:           "As regards  charge on  account of  rental for the           cylinders  and   the  interest  which  accrues  on           account of  deposit receipts  for  the  supply  of           gases  in   returnable  cylinders,   we  are   not           persuaded that  either of these charges is related           to the cost of manufacture of the goods as such."      The Tribunal,  therefore, under  Section 4 deleted from the value,  rentals for  the cylinders  and  interest  which accrued on  account of  deposit receipts  for the  supply of gases. Hence, this appeal by the Collector.      It is  well-settled that  the levy under the Act, is on the manufacture.  Under Section  4(1)(a) of the Act, excise- duty is  chargeable on any excisable goods with reference to value, such  value shall, subject to the other provisions of this Section, be deemed to be the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the  assessee to a buyer in the course of wholesale trade

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for delivery  at the  time and  place of  removal, where the buyer is  not a  related person  and the  price is  the sole consideration for  the sale.  Here the sale is of the gases. The levy  is on  the manufacture  of gases and the excisable goods are these gases. 765      The scope of Section 4 has been explained by this Court in Union  of India & ors. v. Bombay Tyre International Ltd., [1984] 1  SCR 347  as well  as the  ramifications thereof in Asstt. Collector  of Central Excise v. Madras Rubber Factory Ltd., [19861  Supp SCC  751. In  the light  of the aforesaid principles it has to be borne in mind that the supply of gas cylinders is  ancillary to  the supply  of gases  but it  is strictly not incidental thereto because there are classes of persons who  can take delivery of these gases without supply of cylinders  by  the  respondent  and  in  those  cases  no question of  charging rental  nor interest on those deposits for cylinders,  would arise. It is true that the gas being a commodity  of  peculiar  nature,  had  to  be  delivered  in cylinders but  these cylinders  might be  supplied either by the supplier  as an  ancillary activity  or brought  by  the consumer or  purchasers at  their own  risk  and  cost.  For purchasers taking  it in  their own  cylinders  supplied  by them, there  was no charge for them. This is not an activity for the  manufacture of  gases. This  is ancillary to it but not incidental.  Any income  either in the shape of interest on deposits,  notional or real, may be earned on the deposit for the  safe return  of cylinders,  or any  rental would be though  ancillary  but  would  not  be  the  price  for  the manufacture. These might be profits or gains, if any, of any ancillary or  allied venture.  If that is the true position, then on  the principle under Section 4(1)(a) of the Act, the Tribunal was  right in  excluding these  two  amounts  while computing the value of the excisable goods.      Mr. A.K.  Ganguli, learned  counsel appearing  for  the revenue, sought  to  urge  before  us  that  there  are  two different classes  of buyers,  one class  of such buyers was who used to bring their own cylinders and the others used to get their  supplies through  the cylinders of the suppliers. According to  him, different  rates for these two classes of buyers., in  fact, constitute  two different markets and are permissible. This,  according to  him, is contemplated under the first proviso to Section 4(1)(a) of the Act, which reads as follows:           "(i) where, in accordance with the normal practice           of the  wholesale trade  in such goods, such goods           are sold  by the  assessee at  different prices to           different classes  of buyers  (not  being  related           persons) each  such price  shall, subject  to  the           existence of  the other circumstances specified in           clause (a),  be deemed  to be  the normal price of           such goods  in relation  to  each  such  class  of           buyers.’      There may  be different classes of buyers for different classes of goods. Section 4(1)(a) of the Act emphasises that if the goods is of the 766 same type,  the prices  should also be the same. The proviso to the said Section postulates that where in accordance with normal practice  such goods,  namely, the  gases are sold to different classes  of buyers  then different  prices may  be charged. If  gases had  been sold  to different  classes  of buyers at  different rates,  it is possible that there might be different markets for the same. But here the charges like rentals for  the cylinders and the notional interest income,

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are for  ancillary or  allied services  and that  is not  an activity of  manufacture. Hence, Section 4(1)(a) proviso can be of no avail to the renenue.      It is  a case  of two different supplies. One is supply of gases and the other is incidental supply of cylinders for rent. In  that view  of the  matter,  in  our  opinion,  the Tribunal was  right in  the  view  it  took.  The  interest, notional or  real, accruing  on deposits for the safe return of cylinders  as well  as the  rentals would  not constitute part of the assessable-value.      In the  aforesaid view  of the  matter the order of the Tribunal needs  no interference.  The appeals,  accordingly, fail and are dismissed There will be no order as to costs. N.V.K.                               Appeals dismissed.