Testing cost of returnable durable cylinders not includible in AV

CA Urvashi Porwal

Brief of the Case

In the case of M/s Bombay Oxygen Corporation Ltd. Vs. Commissioner of Central Excise, Mumbai-III, it was held that the cost of testing returnable durable cylinders is not required to be included in the assessable value.

Facts of the Case

The respondents, M/s Bombay Oxygen Corporation Ltd., are manufacturer and supplier of gases. For this purpose, they are receiving cylinders from various customers in which they fill the gases and sell it back to them. According to norms, the cylinders in which gases are filled are required to undergo certain test and the customers of the respondent ask the respondent to conduct the said test on cylinders before filling the gases. The Revenue has sought to add the test charges so recovered in respect of the cylinders in the assessable value of the gases supplied by the appellant. The demand was confirmed by the Addl. Commissioner, however, the same was set aside by the Commissioner (Appeals). The Commissioner (Appeals) relying on the order of the Tribunal in case of Century Spinning & Mfg. Co. Ltd. 1998 (37) ELT 277 (Tri), which has been upheld by the Hon’ble Supreme Court as reported in 1997 (94) ELT 16 (SC), dropped the demand. Aggrieved by this order, Revenue is in appeal before this Tribunal.

Contentions of the Revenue

The Revenue contended that while the cost of cylinders, being durable and returnable in nature is not includible in the assessable value. The revenue further contended that the decision of Tribunal in the case of Century Spinning (supra) is not applicable to the present case as in the said case the issue was charges incurred on maintenance and repairs of cylinders. The revenue further stated that to make the gas marketable safety of the container is an essential per-requisite. Therefore, even the value of the container is not includible; the cost of inspection needs to be included in the value of the gas.

Contentions of the Assesses

The assesses contended that the matter has been settled by the Hon’ble Supreme Court in the case of Century Spinning (supra). The assesses also relied on the decision of the Tribunal in case of Goyal M.G. Gases Pvt. Ltd. 2014 (309) ELT 327 (T) and in case of Punjab Alkalis & Chemicals Ltd. 2004 (168) ELT 82 (Tri). The assesses also argued that it is an admitted fact that such testing is done only at the request of the buyers and not otherwise.

Held by Hon’ble CESTAT

The Hon’ble CESTAT stated that the case of the respondent is squarely covered by the decision of the Tribunal in case of Goyal M.G. Gases (supra), wherein the Tribunal has observed as under: –

“8. As regards the inclusion in the assessable value of the cylinder rental and maintenance charges in the case where the gases were supplied in the appellants own cylinders and the charges for cylinder testing done at the request of the customers, in the cases where the gases were supplied in the cylinders brought by the customers, it is not disputed that the gases, in question, were marketable as such inasmuch as a substantial quantity of the gases was being supplied in tankers as well as through pipe line and also in the cylinders brought by the customers and as such, the packing of the gases into cylinders is not necessary for making the gas marketable. In view of this factual matrix, the ratio of the Tribunals decision in the case of CCE v. Grasim Industries Ltd., reported in 2014-TIOL-573-CESTAT-Del would be applicable to this case and these charges would not be includible in the asses sable value.”

The matter is also covered by the decision of the Tribunal in case of Punjab Alkalis (supra), wherein the Tribunal has observed as follows: –

“5. In Century Spg. & Mfg. Co. Ltd. – 1997 (94) E.L.T. 16, the Supreme Court held that service and maintenance charges in respect of tonners/cylinders which are durable and returnable cannot be added to the assessable value of the chlorine manufactured by the assesses and supplied to the customers in tonners/cylinders. In Boards Circular 7/89-C.E., dated 7-7-89 it was clarified that in the case of durable and returnable containers their value is not required to be included in the asses sable value. Therefore the question of including any maintenance and repair charges of such durable containers in the assessable value does not arise. The view taken by the Board was that the activity of supply of cylinders is not an activity of manufacturing of gas and, therefore, anything charged for such activity would not be a price for manufacture of gas.

6. We are of the view that the same principle should apply in the present case also. Hydraulic test conducted in respect of tonners/cylinders has no connection with the manufacture of caustic soda etc. Testing charges, are received from the customers for an entirely different activity. We therefore, find no error in the order passed by the Commissioner. The appeal filed by the Revenue is therefore dismissed.”

In view of the above, the appeal filed by the Revenue is dismissed.