The Hindu Business Line : Superfluity comes sooner with white hairs

COLOURABLE transactions are what taxmen don't like. On that score, when a company manufacturing hair-dye approaches the Department, it is but natural that the officers try to find what lies under the artificial hue. Which is what happened when Akay Cosmetics P Ltd went to the Excise people in Hubli. The company manufactures instant hair colour under the brand name Bigen, and it filed a price list with the Department, seeking approval of assessable value at Rs 4.38 per bottle of 6 gm.

The Assistant Collector of Central Excise noticed that Bigen was sold and marketed by Nemaru Coiffure at Rs 18.78 per bottle; so, he approved the price list at Rs 7. Since this value was higher than what it had asked for, Akay appealed before the Collector of Central Excise (Appeals), who remanded the case back to the AC. Now, AC asked Akay to show cause why the assessable value shouldn't be based on the wholesale price of Nemaru.

In the meanwhile, the Excise Superintendent issued seven show-cause notices for the period 1988-1991, proposing revision of assessable value from Rs 7 per bottle to Rs 7.80. This was the price at which the AC too re-fixed the value after de novo adjudication.

Akay was unhappy, and went to the Collector, who again remanded the case back to the AC, "on the ground of lack of discussion on the point of disallowance of trade-discount and cost of accessories from the assessable value." In the second de novo adjudication, AC said that Nemaru was a `related person'; so, Akay was not entitled to deduction for freight, insurance, octroi, selling and handling charges and so on, he said.

Akay claimed deduction for `bought-out items, namely, the plastic measuring cups and hand-gloves' supplied along with Bigen, but the AC said, `No', in the absence of proof of supply and also owing to lack of evidence of bulk purchase of measuring cups. Confirming the value at Rs 7.80, he claimed a differential duty of Rs 5.6 lakh.

Dying to get relief, Akay went to the Commissioner (Appeals). He confirmed the Department's demand, and so the company knocked the doors of the Tribunal. One of the points the Tribunal said in its ruling was that measuring cups and hand-gloves were not essential items for customers. Aggrieved by the decision, the Department went to the apex court for remedy.

K. Swamy, arguing for the Department, drew attention to Bigen literature, which specified "dosage of hair-dye of prescribed measure". Thus, the measuring cup was not only meant to facilitate the pouring out of stipulated quantity of dye but also was an essential part of the product, as the customer was required to use the prescribed dosage of the product, he said. "Without the measuring cup, the customer was not in a position to apply the prescribed dosage of hair-dye and, therefore, the cost of the measuring cup was includible in the assessable value," said Swamy. His measured argument applied to hand-gloves too.

Representing Akay, Anoop Chaudhary said that measuring cups and hand-gloves were accessories and not essential parts of the product. "A user of the hair-dye could use the product even without the measuring cup and the hand-gloves and in the circumstances, the cost of these bought-out items was also not includible in the assessable value," he contended. Please note that Section 4 of the Central Excise Act, as substituted by Section 94 of the Finance Act, 2000 came into force from July 1, 2000, and this contains the provision for determining the transaction value of the goods for purpose of assessment of duty. However, Akay's case relates to an earlier year, when `normal price' held ground.

Justices S. N. Variava, AR. Lakshmanan and S. H. Kapadia of the apex court heard both sides and cited many precedents of value. On `bought-out items', that is, hand-gloves and plastic measuring cups, the court found no infirmity in the Tribunal's judgment. "Initially the assessee used to supply plastic measuring cups and hand-gloves with the product for use of the product by the user. Subsequently, the supply of hand-gloves stood discontinued," recounts the verdict.

Then, the court applied the `test of essentiality' to find that hand-gloves and measuring cups were not essential for delivery of the product.

Hand-gloves were used as protective cover by the users; the product was capable of being used without hand-gloves, said the court. "Measuring cup was not essential for the simple reason that the liquid was capable of being applied without the measuring cup," it added.

To wrap, here's a quote from The Merchant of Venice where Nerissa says, "Superfluity comes sooner by white hairs, but competency lives longer." To which, Portia quips, "Good sentences and well pronounced." One may say that of the verdict too.

Tailpiece

VAT sighted in Shakespeare's King Henry V!

"King: Madam my interpreter, what says she?

Alice: Dat it is not be de fashion pour les ladies of France, I cannot tell vat is baiser en Anglish.

King: To kiss."

Detaxification@TheHindu.co.in

D. Murali

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Short on credibility

Oil: Super spike or crying wolf?

A narrative on derivatives

Superfluity comes sooner with white hairs

Standard, dead and buried

Is FBT a fundamentally blemished tax?

Time to streamline regulatory law-making