2003 PLP (Trib (PTD)

Dates of hearing: 9th,. 22nd January; 14th February; 11th March; 8th, 17th April and 14th May, 2002. S. M. KAZIMI, MEMBER (TECHNICAL);

This judgment disposes of the appeal filed by Messrs Paramount Paperboard (Pvt.) Ltd., Hattar, against Order-in-Original No.57 of 2001, dated 9-5-2001 (dispatched on 11-5-2001) passed by the , Collector (Adjudication), Rawalpindi, having Camp Office at Peshawar,

2. Briefly, the facts of the case are that the officers of the Directorate-General of Intelligence and .Investigations (Customs, Excise and Sales Tax), Haripur, reported that during the period from January, 1998 to October, . 2000, Messrs Paramount Paperboard. (Pvt.) Ltd., Hattar,. had been clearing their excisable product i.e. 8,933,493 .Kgs. of Box Board, Liner Board, etc., at a lower assessable value (i.e. ex factory price) by not including the' element of incidental charges (i.e. charges on account of transportation; octroi, loading, etc.) in value of the goods paying duty in terms of the provisions of section 4(1) of the Central Excises Act, 1944. This had also been confirmed by the mill attorney in his statement. dated 13-12-2000 and it was attributed that the said incidental charges were paid by the buyers. The non-inclusion. of the said incidental charges (calculated at Re.1 per kg. from 1,498 to 6/99 anted Re.0.75 per kg. from 7/99 to 10/2000) in the assessable value (ex factory price) which paid duty and sales tax caused short-payment of Rs.384,953 as central excise duty and of Rs.1,212,605 as sales tax and breach of the provisions of sections 3, 3-B and 4(1) of the Central Excises Act, 1944, and rules 7, 9 and 10 of the Central Excise Rules, 1944 read with S.R.O. 456(1)/96, dated 13-6-1996 punishable under rule 210 of the Central Excise Rules, 1944 and also of sections 3, 6, 7, 11, 34 and, 36 of the Sales Tax Act, 1990`, punishable under section 33 thereof. The learned Collector (Adjudication) issued a Notice C. No.ST (Adj)C/24/2001 /389, dated 24-2-2001 requiring Messrs Paramount Paperboard (Pvt.) Ltd., to show cause why the aforesaid amounts of duty and sales tax, short-paid, should not be recovered and also why penal actions as aforesaid should not be taken against them. After hearing Mr. Mubarak Ahmad Qureshi, Advocate on behalf of Messrs Paramount Paperboard (Pvt.) Ltd., and Mr. Arif Hussain, I.O., on behalf of the detecting agency, the learned Collector (Adjudication) passed the impugned order holding that the short-paid amounts of Rs.384,953 of central excise duty, alongwith additional duty leviable thereon under section 3-B of the Central Excises Act, 1944, and of Rs.1,212,605 of sales tax, alongwith the additional tax leviable thereon under section 34 of the Sales Tax Act, 1990, were payable by Messrs Paramount Paperboard (Pvt.) Ltd., Hat tar. He also imposed penalty equivalent to 3% of the Sales Tax involved under section 33 of the Sales Tax Act, 1990. Hence this appeal.

3. During the course of hearing before us, the learned counsel for the appellant furnished a statement, gate-pass wise, showing the name of persons to whom their goods were consigned during the period from 1/98 to 10/2000 and argued that all these supplies were made directly to industrial consumers and packing companies and were not consigned to the wholesale market. He stated that the appellant sold the goods on ex factory price and the buyers paid the incidental charges (e.g, those on transportation, octroi. loading or unloading). He further argued that under section 4(1) of the Central Excises Act, 1944, ex-factory price is to be deemed to be the wholesale cash price when goods are supplied to various industrial consumers without receiving any amount on account of such incidental charges. He also invited attention to paragraphs 5, 6 and 8 of the C.E.G.O. No.53/67 and stated that there is no middleman in these transactions and also no amount has been charged to the buyers on account of transport, octroi. etc. He cited Tribunal, Peshawar Bench's Judgment, dated 3-1-2002 in Appeal Case No.52 of 2000 in Pepsi Cola case and the. Lahore Bench's Judgment, dated 31-1-2001 in Appeal No.651 /LB/ 1999 (Coca Cola Case). He also cited the judgment in Pakistan v. Popular Tobacco Co., Karachi (PLD 1961 SC 66) where the Honourable Supreme Court had held that: "The intention of the law is that excise duty should be paid by the manufacturers on the amount which they actually receive and it is on such amount that excise duty was being originally levied". He also cited the judgment, dated 31-1-2001 passed by the Honourable Supreme Court of Pakistan in C.A. No.1512 of 1999, etc., holding that "Admittedly, the retail price is to be fixed by the manufacturer but while fixing such prices he has to include all charges and taxes incurred and payable by the manufacturer. It is only the charges incurred by the manufacturer/producer and the tax payable by him which are to be taken into account while fixing retail price of the goods". He. therefore, prayed that the impugned order demanding central excise duty on the elements of incidental charges (e.g. transportation, octroi, loading/unloading, etc.) may be set aside. As regards sales tax, the learned counsel invited attention to the provisions of section 2(46) of the Sales Tax Act, 1990, which defines "value of supply" to be the value actually transacted, charged and received. He stated that even otherwise, they had remained exempt from sales tax for a period up to 31-7-1999 in terms of Notification No.S.R.O. 561(I)/94, dated 9-6-1994. He prayed that their appeal may be accepted and the impugned order may be set aside.

4. The learned Departmental Representative, Law Officer of the Collectorate and representatives from the Detecting Agency stated that they do not dispute the consignees' names and addresses as given in the respective gate passes. However, the appellants themselves, admit that the goods sold/supplied by them were assessed at the ex-factory prices and did not include the elements of incidental . charges (e.g. transportation charges, octroi, loading/unloading charges, etc.) on the plea that such charges, though incurred, were incurred and paid directly by the buyers and not by the appellants. They stated that this is in breach of the provisions of section 4(1) of the Central Excises Act, 1944, which provides for an equalized notional assessable price in a manner that all charges (including those on transportation, octroi, loading/unloading but not including elements of ,central excise duty and sales tax thereon) are included and reflected in such an assessable value. They also cited. the Honourable Supreme Court of Pakistan's judgment in Pakistan v. Kohat Cement Company and others PLD 1995 SC 659 where the issue of assessable value under section 4(1) of the Central Excises Act, 1944, has been decided by the apex Court. As regards sales tax and appellant's claim of exemption under S.R.O. 561(I)/94, dated 9-6-1994 on their supplies up to 31-7-1999, they stated that this claim is disputed by the Department and is a subject-matter independent of this appeal case involving valuation aspect only. They prayed that the appeal has no merit and may be rejected accordingly.

5. Having heard the parties and on perusal of record of the case, we find that before we decide this case, it shall be appropriate to reproduce the provisions of section 4(1) of the Central Excises Act, 1944, and paragraphs 5, 6 and 8 of the C.B.Rs C.E.G.O. No.53/67 and also section 2(46)(a) of the Sales. Tax Act, 1990, which read as hereunder:-- (I) Section 4(1) of The Central Excises Act, 1944: "

4. Determination of value for the purposes of duty.

(I) Where under. this Act any article is chargeable with duty at a rate dependent on the value of the articles, such value, shall be deemed to be the wholesale cash price for which an article of the like kind and quality is sold or is capable of being sold to the general body of retail traders (or, if there is no general body of retail traders, the general body of consumers) on the day on which the article which is being assessed to duty is removed from the factory or the warehouse, as the case may be, without any abatement or deduction whatever except the amounts of duty and sales tax then payable.". (II) C.B.R's C.E.G.O. No.53/67 dated 29-9-1967

5. In this context it should be carefully noted that section 4 provides for the wholesale cash price at which goods are capable of being sold. If the manufacturer himself part of his product to some retail traders and the rest of his product is sold to retail traders through' middlemen, like distributors, sub distributors and/or wholesale traders, then the prevalent price at which such middlemen sell the product to the retail traders should be reckoned as the wholesale cash price for the purpose of section 4.

6. The requirement of `capable of being sold'. can be considered. as satisfied if the wholesale cash price for the general body of retail traders is periodically advertised in. newspapers Market Bulletins or Trade. Journals. The advertisement should clearly indicate that the advertised prices are wholesale cash prices, for sale to the general body of the retail traders. Any advertisement referring to ex-mill or ex-factory prices should be ignored, as such prices are not relevant , to section

4. The advertisement of wholesale cash prices for sale to the general body of retail traders should be issued at least once in every two months, or whenever the prices are charged.

8. It should also be noted that section 4 provides for deduction of only the amounts of Excise duty and Sales tax (including Defence Surcharge and Rehabilitation Tax) from the wholesale cash price for determination of the assessable value. The assessment .value, therefore, is to include all charges up to the stage of sate to the general body of retail traders, whether the wholesale cash, price is an equalized price, or whether the wholesale cash price of the nearest wholesale market is taken into account for determining the assessable value. In other words, if in addition to the advertised price, or otherwise declared price, certain amounts are being charged to the retail traders on account of transport, octroi, etc., all such amounts should be included in the first for the purpose of section 4. (III) Section 2(46)(a) of the Sales Tax Act, 1990: "(2).(46) "value of supply" means

(a) in respect of a taxable supply, the consideration in money including all Federal and Provincial duties and taxes, if any, which the supplier receives from the recipient for that supply but excluding the amount of tax."

6. The provisions of section 4(1) of the Central Excises Act, 1944, show that it is based on the notional concept of equalized wholesale cash price at which an article of like kind and quality is sold is or is capable of being sold to the general body of retail traders or the general body or consumers if there does not exist any general body of retail traders. The words "wholesale cash price" and the. words "articles of like and quality" and the.' words "capable of being sold" and also the words "without any abatement or deduction except the amounts of duty and sales tax" are very important directions for the determination of the notional assessable price under section 4(1) of the Central Excises Act. 1944. By snaking it "wholesale cash price", it excludes cash discounts and it includes all expenses, even post-clearance or ex-factory, up to the wholesale stage or the wholesale market. If there is no wholesale market. it shall further extend to the consumer's stage or the consumers market. Likewise, "articles or like kind and quality" will not only mean identical goods but shall also include similar goods of that kind and quality e.g. in this case, the Boxboard and Liner Board manufactured by other manufacturers and sold to the general body of the retailers in the wholesaler's market or to the general body of consumers in the retailers market shall also constitute basis for determination of the value under section 4(1). The words "capable of being sold" bring the notional equalized concept of assessable value in disregard of the transaction price. Again, the words "without any abatement or deduction except the amounts of duty and sales tax" clearly mean that the charges (e.g. on account of loading, transportation, octroi, unloading, and duties and taxes other than central excise duty and sales tax') incurred or to be incurred post ex-factory up to, the stage of wholesale market (or the consumers stage/market; if. there is no wholesale market for such products) shall be included in the assessable value under section 4(1) irrespective of the fact as to whether these are borne by the buyers or by the sellers. In other, words, the notional concept of assessment value under section 4(1) of the Central Excises Act, 1944; implies the general wholesale price, as. if it was transacted as on-the-spot cash, where the seller's price ought to include all costs, duties, taxes and charges up to the wholesale market (or up to the consumers stage if there is no such wholesale cash market) except the amounts of central excise duty and sales tax involved. C.B.R.'s C.E.G.O. No.53/67, dated 29-9-1967 is an administrative instruction and has to be read as being subordinate to the dictates of section 4(1) of the Central Excises Act, 1944. Appellant's products are not specialized tailor-made products. Such Box Board and Liner Board are freely available in any wholesale market of such products. Appellant's option to restrict their supplies only to industrial/commercial consumers does not mean that these products do not have any wholesale market. Moreover, the appellants have not shown any document that they advertised the wholesale cash price of their products, in terms of paragraph 6 of C.E.G.O. No.53/67, if they transacted directly with the consumers without any middleman, or actual wholesale market operations/transactions. However, even such a situation will not negate the provisions of section 4(1) of the 1944-Act and will not entitle the appellant to avail of the concession of assessment on the basis of ex-factory value. The assessment has to be made on the basis of the notional value calculated by adding post-clearance incidental charges to the ex-factory price. As regards the Tribunal's judgments, ,dated 3-1-2002 in Appeal Case No.52 of 2000 and dated 31-10-2001 in Appeal Case No.651/LB/99, those cases relate to Coca-Cola concentrates and Pepsi Cola concentrates which are strictly and essentially transacted between the. concentrate manufacturers and their, selected few franchise holders. Those are not the value at arms length and/or between buyers and sellers independent of each other. The goods (concentrates) are sold under specific franchise agreements, containing .various peculiar conditions and limitations, concluded between the concentrate manufacturers and the bottlers. Those cases are not comparable with the appellants' case which is a general commodity abundantly available in its wholesale market for the prospective buyers. As regards the Honourable Supreme Court of Pakistan's decision in OLD 1961 SC .66, cited by the appellant, the case related to a period when the provisions of the then section 4 were quite different from the provisions of section 4(1), as involved in the appellant's case-The learned Justice B.Z. Kailkus, in the first paragraph of that judgment, has reproduced the, then section 4 as: "Where under this Act any article is chargeable with duty at a rate dependent on the. value of the articles, such value shall be deemed to be the 5xholesale cash price for which an article: of (the like kind and quality is sold or is capable of being sold for delivery at the place of manufacture and at the time of its removal therefrom without any abatement or deduction whatever except trade discount and the amount of duty then payable". The aforesaid provisions of the then section 4 are relatable to the. stage of sale/transaction "for, delivery at the place of manufacture and at the time of its removal therefrom" and this cruicial stage or determinants does not find mention in the existing provisions of section 4(1), as applicable to the appellant's case and cited in paragraph 5 above. The said specific distinctions between 'the then provisions of section 4,and the existing provisions of section 4(1) are, by themselves, exponent of the legislative intent that the assessable value which. was previously up to the stage of sale for delivery at the place of manufacture is now, under the existing provisions of section 4(1) of the Act. to be calculated as inclusive of the charges post-clearance or post delivery ex-factory, up to the wholesale market or up to the consumers stage if there 'is no wholesale market of goods of like kind and quality. The Honourable Supreme Court of Pakistan's judgment, dated 31-10-2001 in C.A. 1512/99 and others is also not relevant to the appellant's case as the said judgment deals with situations under section 4(2) of the Central Excises Act, 1944, while the appellant's case is confined to the provisions of section 4(1) thereof and the said 2 provisions are independent of one another. Reference to, the Honourable Supreme Court of Pakistan Judgment, dated .12-4-1995 in Civil Appeal No.97/93 (Pakistan v. Kohat Cement Co. and others) PLD 1995 SC 659 is relevant to this case where it as held that octroi and transportation charges beyond the factory premises up to the nearest wholesale market are to be included for computation of wholesale cash price, whether or not borne by the manufacturer. The said judgment while allowing the Government's appeal held that: "The amendments made in section 4(1) clearly signify an intention on the part of the Legislature to include the element of post-manufacturer charges for the purpose of computation of wholesale cash price, barring only what has been expressly provided for by the legislation itself, notwithstanding the fact that by some understanding between the manufacturer of articles and their retail traders octroi or transportation and any other such charges are to be borne by the latter. Therefore, even if the contention raised on behalf of respondent No. l that the actroi or transportation charges were not borne by it but the same were borne by its stockists is believed; the same would be-of little consequence to it. Consequently, we are of the opinion that the view taken by the learned Judges of the High Court is not correct as octroi and transportation charges could be included by the respondent No.3 while determining wholesale cash price of cement manufactured by respondent No. 1 since the same was permissible under section 4(1) of the Central Excises and Salt Act,. 1944". Accordingly, we have no hesitation in confirming the impugned order to the extent that central excise duty is payable by the appellant on the elements of post-clearance incidental charges (on account of loading, transportation, octroi, 11 unloading, etc.) incurred or liable to be incurred ex-factory and these: should be included in the assessable value under section 4(1) of the Central Excises Act, 1944. As regards demand for sales tax on 'such' elements of incidental charges, this is to be looked into from the angle of the provisions of section 2(46) of the Sales Tax Act, 1990, which levies sales tax on supplies made under section

3. As compared to the notional concept of assessable value for central excise purposes under section 4(1) of the Central Excises Act, 1944, we find that section 2(46) of the Sales Tax Act, 1990. provides for the duty-paid transaction concept of value by stating that it means "the consideration in money, including all Federal and Provincial duties and taxes if any which the supplier receives from the recipient for that supply but excluding the amount of tax". This distinction has to be borne by in, mind by the department which is assessing the excise duty and sales tax simultaneously. In this, case, we find that the department does not charge the appellant to have actually received or charged any charges on account of I3ost-clearance transportation, octroi, etc. There is also no allegation of any fraud or wilful misdeclaration of value of supply. In fact there is no allegation that the value of supply (except for element of central excise duty on the aforesaid incidental charges) is not correct, whether factually or actually: Under these circumstances, we set aside the impugned order to the extent of determination of sales tax on the element of charges for loading, unloading, transportation, octroi, etc,. However, the appellant shall be liable to pay sales tax on the element of central excise duty being confirmed in this order under the formula that the duty-paid value of supply in this case (i.e. assessable value for sales tax purpose) shall equal to the excise duty-free and sales tax-free transaction value in terms' of section 2(46) of the Sales Tax Act, 1990 plus the central excise duty .paid and payable under section 4(1) of the Central Excises Act, 1944. This amount of consequential sales tax should be calculated accordingly and paid urgently in addition to the amount of central excise duty already demanded in the impugned order and confirmed by this judgment. As regards the penalty imposed under section 33 of the Sales Tax Act, 1990, in the impugned order, the same is remitted, as the element of sales tax determined by u5 a3 aforesaid, is only consequential in nature i.e. c6nsequent to the revision of the amount of central excise duty payable. As regards the amounts of additional tax, under section 3-B of the Central Excises Act, 1944 and section 34 of the Sales Tax Act, 1990, we direct that same stand remitted if the appellant pays the .amounts of central excise duty and sales tax, as confirmed in this judgment by the 30th day of October, 2002, to the satisfaction of the Collector of Sales Tax and Central Excise, Peshawar. The impugned order is modified-to the extent stated in this paragraph and the appeal stands disposed of accordingly.

7. Inform all concerned accordingly.

8. Announced. C.M.A./667/Tax (Trib.) Order accordingly.