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2005 Supreme(SC) 1624
2005(8) Supreme 511
Supreme Court of India
(From Customs, Excise and Gold (Control) Appellate Tribunal, New Delhi)
Ashok Bhan & S.H. Kapadia, JJ.
Siddartha Tubes Ltd. —Appellant
versus
Commissioner of Customs and Central Excise, Indore (MP) —Respondent
Civil Appeal Nos. 4247-4248 of 2000
Decided on 16-12-2005
Counsel for the Parties :
For the Appellant : J. Vellapally, Sr. Advocate, Pradeep Aggarwal, Ragevesh Singh, Advocate for Sushil Kr. Jain, Ms. Pratibha Jain, Advocates.
For the Respondent : G.E. Vahanvati, Solicitor General, Rajeev Dutta, Sr. Advocate, T.A. Khan, Rupesh Kumar, P. Parmeswaran, Advocates.
Important point
Where Galvanization added to quality of m.s. pipes and increased the value of pipes, cost incurred by assessee for galvanization was required to be included in assessable value.
Headnote:Central Excise Act, 1944—Section 4(4)(d)(i)—Question was whether there was value addition on account of galvanization includible in assessable value of m.s. galvanised pipes manufactured by appellant—Appellant’s claim that galvanization did not amount to manufacture—Value was the function of price—Galvanization as a process did not amount to manufacture—On facts Commissioner found that galvanization added to the quality of product and cost incurred by assessee for galvanization had to be loaded on the sale price of pipes—No error in the reasoning of adjudicating authority—Normal price for which goods were sold at factory gate has to be taken as the assessable value—Product cleared from factory was m.s. galvanized pipes—No error in concurrent findings recorded by Commissioner and Tribunal—No reasons however were given for imposing penalty—Matter was arguable—Penalty was liable to be set aside.
Held : At the outset, we may state that value is the function of price under section 4(4)(d)(i) of the Act. The concept of “valuation” is different from the concept of “manufacture” . Under Section 3 of the Act, the levy is on the manufacture of the goods. However, the measure of the levy is the normal price, as defined under section 4(1)(a) of the Act. It is not disputed that galvanization as a process does not amount to manufacture. However, on facts, it has been found by the commissioner that the process of galvanization has taken place before the product is cleared from the place of removal, as defined under section 4(4)(b). Further, on facts, the commissioner has found that galvanization has added to the quality of the product. It has increased the value of the pipes. Hence, the costs incurred by the assessee for galvanization had to be loaded on to the sale price of the pipes. Therefore, the cost had to be included in the assessable value of m.s. galvanized pipes. We do not find any error in the reasoning of the adjudicating authority. (Para 7)
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. We do not find any error in the concurrent findings recorded by the commissioner and by the tribunal. Before concluding, we may point out that in the present case, a penalty of Rs. 10 lacs was imposed by the commissioner. On appeal, it has been reduced to Rs. 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 Rs. 7.5 lac. (Paras 11 and 12)
Judgment
Kapadia, J.—The short question which arises for determination in these civil appeals filed by the assessee under section 35-L(b) of the Central Excise Act, 1944 (hereinafter referred to as “the Act”) is - whether there was value addition on account of galvanization includible in the assessable value of m.s. galvanized pipes. In these civil appeals, we are concerned with the period May 1994 to July 1996.
2. Appellant was engaged inter alia in the manufacture of m.s. galvanized pipes. These pipes were made from H.R. coils. The pipes emerging on hydro testing stage were pickled in acid, washed in running water and galvanized by dipping in molten zinc.
3. The appellant filed its classification list claiming that “galvanization” did not amount to manufacture. The appellant claimed that m.s. galvanized pipes were non-excisable goods, as the said pipes had been processed out of duty paid m.s. pipes manufactured in its factory. A show-cause notice was issued by the department stating that the appellant had cleared m.s. pipes without adding the cost of galvanization. Accordingly, the department alleged under-invoicing. According to the appellant, there were two sections in its factory, namely, “tube mill section” and “galvanizing section”. According to the appellant, 30% of its total production was in m.s. pipes cleared from tube mill section and the balance 70% of the pipes were transferred to another section, known as galvanizing section, in which the fully finished m.s. pipes were galvanized. According to the appellant, the process of galvanization took place after completion of the manufacture of the m.s. pipes, which were cleared on payment of duty and since the process of galvanization took place after completion of m.s. pipes and since galvanization did not amount to manufacture, the department was not entitled to load the cost of galvanization on the normal price of m.s. pipes.
4. Shri Joseph Vellapally, learned senior counsel appearing on behalf of the assessee submitted that the process of galvanization did not amount to manufacture, both on general principles as well as under section 2(f) of the said Act. He submitted that in the matter of levy of excise duty, the taxable event takes place at the point where the goods are cleared from the licensed premises and, therefore, the value of a product at the time of clearance should be taken into account. In this connection, he urged that the assessee was a registered company having its factory at Sarangpur, district Rajgarh, Madhya Pradesh and was inter alia engaged in the manufacture of m.s. pipes and tubes. He further pointed out that the assessee had two sections in its factory, one named as tube mill section, in which the assessee manufactured m.s. pipes and tubes. For manufacture of m.s. pipes and tubes, steel coils, strips and slits of required thickness were purchased from the market by the assessee. These items were then rolled in, welded and cut to required lengths and to ensure smoothness, grinding was carried out throughout the lengths of the pipes. The edges of the pipes were subjected to the process of elimination of uneven edges. The pipes were then subjected to hydro testing and threading. Learned counsel submitted that at this stage, the manufacture of pipes got completed and they became marketable. According to the assessee, the above entire process was carried out in “tube mill” section. The appellant sold about 30% of the entire production of m.s. pipes from the tube mill section to its wholesale dealers after payment of duty under sub-heading 7306.90. The balance 70% of the pipes manufactured in tube mill section were transferred to another section known as “galvanizing section”, which was far away from the tube mill section and in a different shed. According to the assessee, in the galvanizing section, the fully finished m.s. pipes were galvanized. They were washed in running water and dipped in molten zinc. According to the assessee, galvanization of pip
