By TIOL News Service

NEW DELHI, APR 16, 2014: THE respondent assessee are manufacturers of Caustic Soda, Liquid Chlorine, S.B.P etc. chargeable to Central Excise duty under various Headings of Chapter 28 of the Central Excise Tariff. The liquid Chlorine is sold by them to their customers in their own cylinders called Tonners, and also in the cylinders/Tonners brought by the customers. Some quantity of liquid chlorine is also supplied through pipeline. The Tonners are required to undergo periodical Hydraulic testing as per the provision of Gas Cylinder Rules, 1981.

The audit officers in course of examination of the respondents records for the period from 2000-2001 to 20001-2002, pointed out that while the respondent are collecting the charges from their customers for testing of Tonners, they are not including these charges in the assessable value of Chlorine being sold by them. Accordingly two Show Cause Notices were issued for demand of Central Excise duty of Rs. 94,264/- and 67,792/- for the period from 01.07.2000 to 29.02.2004. The Show Cause Notices were adjudicated by the Assistant Commissioner by a common Order-in-Original dt . 09.09.04 by which the duty demands, as mentioned above, were confirmed along with interest and penalty of equal amount was imposed on the Respondent under Rule 25(1) of the Central Excise Rules.

On appeal being filed to Commissioner (Appeals) against this order of the Assistant Commissioner, the Commissioner (Appeals) vide Order-in-Appeal dt . 20.12.04 set aside the Assistant Commissioner's order and allowed the appeal. The Commissioner (Appeals) in his order relied upon the judgment of the Tribunal in case of CCE , Ludhiana Vs. Punjab Alkalis & Chemicals Ltd., reported in 2004-TIOL-228-CESTAT-DEL wherein it was held that Hydraulic testing charges for the Tonners in which Caustic Soda is sold are not includible in the assessable value of the caustic soda.

Against this order of the Commissioner (Appeals), Revenue is in appeal before the Tribunal ..

The point of dispute is as to whether the testing charges for the customers- tonners which according to the Respondent are optional, are part of the transaction value of the goods.

The Tribunal referred to the definition of 'transaction value':-

"the price actually paid or payable for the goods, when sold and include in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of the assessee, by the reason of, or in connection with sale, whether payable at the time of sale or at any other time, including, but not limited to any amount charged or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or other matters, but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid."

The Tribunal was of the opinion that the words any amount that the buyer is liable to pay to or on behalf of assessee for the reason of or in connection with sale would cover the amount paid or payable by the buyer for the goods, only for the expenses which contributed to the value of the goods or are necessary to make the goods marketable and this expression would not include the amounts paid by the buyers for something which has no nexus with the emergence of marketable goods or does not contribute to the value of the goods up to the point of sale from the place of removal. Thus if some goods become marketable and can be sold only when packed in certain type of containers and testing of those containers is mandated by law, the testing charges of those containers would be includible in the value along with the cost of such containers if the containers are of durable and returnable nature, the amortized cost of the container including testing charges during the period of use would be includible in the assessable value .

The Tribunal further observed:

In this case, the fact that liquid Chlorine manufactured by the Respondent is being sold by them either in their own tonners or in the customers tonners or even through pipeline, shows that Chlorine is marketable as such. It is also not disputed that testing is optional and the testing charges have been charged only in those cases where the liquid chlorine was supplied in the tonners brought by the customers and the customers had requested for testing of their Cylinder/tonners. In these circumstances neither the cost of tonners nor their testing charges would be includible in the assessable value of liquid chlorine. In fact, in this case, the testing of the tonners belonging to the customers on their request is an activity different from the sale of Chlorine which is marketable as such and, hence the charges for such testing cannot be said to be for the reason of or in connection with sale of Chlorine, as the customers could have got the testing of their tonners done from other persons also .

Held : the cylinder testing charges are not includible in the assessable value of the liquid chlorine.

(See 2014-TIOL-573-CESTAT-DEL)