caselaws
Supreme Court of India
M/S. Purolator India Ltd vs Commnr. Of Central Excise, … on 25 August, 2015Author: ……………………J.
Bench: A.K. Sikri, Rohinton Fali Nariman
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 1959 OF 2006
M/S PUROLATOR INDIA LTD. …APPELLANT
VERSUS
COMMISSIONER OF CENTRAL EXCISE,
DELHI – III …RESPONDENT
J U D G M E N T
R.F. Nariman, J.
1. M/s Purolator India Limited (hereinafter referred to as the
appellant) is engaged in the manufacture of excisable goods, namely Filter
Elements, Inserts, and Cartridges and Components. These goods are either
cleared by the appellant to various vehicle manufacturers or stock
transferred to depots from where they are further stock transferred to
clearing and forwarding agents.
2. For effecting stock transfers, the appellant filed declarations under
Rule 173C with the excise department. In these declarations, the appellant
claimed deduction towards Sales Tax, Cash Discount and Volume Discount on
excise duty payable to arrive at the assessable value under Section 4 of
the Central Excise and Salt Act, 1944.
3. Apart from undertaking manufacturing activities, the appellant at
times also receives goods from customers for repair in case of defects
noticed by the customers. The customers either reject the entire lot or a
particular box etc. if they notice any defect, so that their time is not
wasted in checking each and every item and thus, goods are sent back to the
appellant. On receipt of such consignments, the appellant checks the same
for defects indicated and undertakes necessary repairs. Thereafter, the
finished products are returned to customers. The appellant was filing the
necessary D-3 declarations for receipt of such returned goods and was
maintaining the register required in Form V for the said purposes and was
thereafter returning such repaired items under the provisions of Rule 173H
without payment of duty thereon.
4. A Show Cause Notice dated 2.4.2002 was issued wherein it was alleged
that the appellant is not eligible for the various deductions claimed on
account of volume discount, sales tax and cash discount. Besides this it
was also alleged that the appellant has removed new finished excisable
goods instead of old/repaired goods.
5. The appellant filed a detailed reply to the show cause notice
countering each and every allegation. The Commissioner of Central Excise,
Delhi-III passed an Order dated 31.12.2003 dropping the duty demands on all
the issues for the period April 1996 to February 1997, being more than five
years old. Further, he dropped the duty demand on the issue of cash
discount for the period prior to July 2000. However, on the remaining
issues, the Commissioner has confirmed duty demand of Rs. 44,66,247/- and
also imposed penalty of Rs. 49,66,247/- on the appellant as follows:-
“ORDER
With a view to the discussion and findings recorded above
(i) invoke extended period of limitation provided in first proviso to
Section 11A(1) of the Central Excise Act, 1944, and determine the following
amounts in terms of provisions of Section 11A and direct the assessee to
pay the same forthwith.
(a) Rs. 13,43,046/- towards duty involved on replaced goods cleared between
March 1997 to March 2001.
(b) Rs. 14,27,483/- towards duty computed for the period of March 1997 to
March, 2001 on volume discount.
(c) Rs, 11,96,601/- towards duty computed for the period of March 97 to
March, 2001 on Sales Tax deduction and
(d) Rs. 4,99,117/- towards duty on cash discount for the period of July
2000 to March, 2001
(ii) confirm that the interest in terms of provisions of Section 11AB ibid
is payable by the assessee on the amounts of (i) (a) to (i) (d) above;
(iii) impose a penalty of Rs. 44,66,247/- on assessee under the provisions
of Section 11AC ibid;
(iv) impose a penalty of Rs. 5 lakhs on assessee in terms of provisions of
Rule 173Q of the Central Excise Rules, 1944 and Rule 25 of the Central
Excise Rules, 2001 both read with section 38A of the Central Excise Act,
and
(v) appropriate the amounts of Rs. 29,140/-, Rs. 38,896/-, Rs. 42,728/- and
Rs. 19,443/- which were voluntarily paid by the assessee on account of duty
on handling charges and differential duty.
It is clarified that the amount of penalty in (iii) above shall be reduced
to 25% thereof if the assessee deposits the amounts of the duty, interest
and penalty, determined vide this order within 30 days from the date of
communication of this order; and that if the assessee has already deposited
/paid some amount in relation to the dues determined above, then such
payment shall be adjusted against the dues.”
6. When it came to cash discount, the Tribunal upheld the finding of the
Commissioner on the following basis:-
“10. Regarding cash discount, it is not in dispute that the duty has been
demanded in respect of cash discount which was not actually passed on to
the customers. The learned Advocate has relied upon the decision in Pace
Marketing Specialities Ltd, supra, wherein it has been held by the Tribunal
that cash discount is a discount allowed for prompt payment for the goods
and when this discount is reduced from the invoice price, transaction value
at the time of delivery of goods is obtained, otherwise, the invoice price
is a future price and as the assessable value is to be determined with
regard to time of removal financing and other cost cannot form part of the
assessable value. With due regard, we find ourselves unable to agree with
this view. The measure for valuation under New Section 4 of the Central
Excise Act (with effect from 1.7.2000) is the “transaction value” and not
the “deemed value” which was the case under the Old Section 4 of the Act.
Under Old Section 4 the value shall be deemed to be the normal price, that
is to say, the price at which such goods are ordinarily sold by the
assessee to a buyer in the course of wholesale trade or delivery at the
time and place of removal. In view of this clear language of the Section
itself, the Bombay High Court in the case of Jenson & Nicholson (India)
Ltd. Vs. Union of India, 1984 (17) ELT 4 (Bom.) has filed that the
wholesale cash price on which the excisable duty is assessable will
naturally be the price minus the cash discount allowed in the invoice. The
Hon’ble High Court has proceeded on the basis that the sales are effected
on the basis of the price basis which themselves mention the various terms
subject to which the sales are effected. The Tribunal followed the said
Judgment in CCE, Meerut Vs. Station Shox Ltd. 1996 (85) ELT 139 (T). The
provision of Section 4 of the Central Excise Act have since then completely
changed. As per new Section 4. Value shall “in a case where the goods are
sold by the assessee, for delivery at the time and place of the removal,
the assessee and the buyers of the goods are not related and the price is
the sole consideration for the sale, be the transaction value.” Thus in the
present matter, the value for the purpose of Section 4 shall be the
transaction value which has been defined in clause (d) of sub-section(3) of
Section 4 of the Act as under:-
”transaction value” means the price actually paid or payable for the
goods, when sold, and includes in addition to amount charged as priced, any
amount that they buyer is liable to pay to, or on behalf of, the assessee,
by reason of, or in connection with the sale, whether payable at the time
of sale or at any other time, including , but not limited to, any amount
charged for, or to make provision for, advertising or publicity marketing
and selling organization expenses, storage, outward handling, servicing
,warranty, commission or any other matter, but does not include the amount
of duty of excise, sales tax and other taxes, if any actually paid or
actually payable on such goods.”
11. Thus the value has under gone a complete change. The question to be
asked for determination of the assessable value under new Section 4 is what
is the “transaction value” of the goods that is “the price actually paid or
payable for the goods when sold.” Contrary to these provisions, under the
old Section 4 the value was a deemed one, that is to say, the price at
which goods a ordinarily sold in the course of wholesale trade. Now under
New Section 4, one has not to look as to what is the price at which goods
are ordinarily sold in the course of wholesale trade. The price actually
paid or payable is to be taken up as the assessable value. In the present
matter, the transaction value has to be taken for the purpose of
assessment of duty under Section 4 of the Central Excise Act and as
admittedly no cash discount has been given to the customers, the actual
price paid by them shall be the assessable value.
12. Accordingly, we reject the appeal as far as it relates to the allowance
of deduction on account of cash discount. In respect of volume discount and
sales tax and duty liability in respect of returned goods, the matter is
remanded to the jurisdictional Adjudicating Authority for re-adjudication
in terms of our direction. We leave the issue regarding imposition of
penalty open to be decided by the Adjudicating Authority.”
7. Shri Lakshmikumaran, learned counsel for the appellant, has argued
that Section 4 of the Central Excise and Salt Act, 1944 as amended in 2000,
has made no change in the situation qua cash discount as it obtained under
the old Section 4. According to him, what has to be seen in order to
arrive at the correct value of excisable goods under Section 4 is such
value at the time of removal, and this being so under both the old Section
and the new Section, cash discount has to be allowed as has been held in
Union of India v. Bombay Tyre International Limited, 1984 (17) ELT 329
(SC), and Government of India v. Madras Rubber Factory Ltd., 1995 (77) ELT
433 (SC).
8. Further, according to the learned counsel, “transaction value” which
was introduced for the first time into the amended Section 4 does not make
any change with regard to the fact that such transaction value is only at
the time of removal from the factory or depot, being the time of clearance
of excisable goods from the factory premises or depot as the case may be.
According to him, every agreement of sale entered into by the assessee with
its buyers makes it known before the goods are cleared that there is to be
a cash discount insofar as the appellant’s goods are concerned. Therefore,
this being the case, it is clear that at the time of clearance of the
excisable goods from the appellant’s factory, such discounted price alone
has to be the value of the goods cleared from the appellant’s factory even
under the amended Section 4.
9. Ms. Pinky Anand, learned Additional Solicitor General, has, on the
other hand, stated that the introduction of “transaction value” into the
amended Section 4 makes a world of difference and that therefore only what
is actually paid ultimately is to be looked at for the purpose of valuation
of the appellant’s goods. If it is found that what is “actually paid” is
not the discounted price, then the transaction value cannot possibly
include cash discount. For this purpose, she relied upon the decision in
Commissioner of Central Excise, Jaipur-II v. Super Synotex (India) Ltd. and
Ors., 2014 (301) ELT 273 (SC).
10. We have heard learned counsel for the parties. In order to better
appreciate the arguments on both the sides, it is necessary to set out
Section 4 of the Central Excise and Salt Act as it obtained prior to the
amendment made in 1973, the amendment made in 1973; and finally the
amendment made in 2000.
11. Section 4, prior to its amendment in 1973, read as follows:-
“4. Where under this Act, any article is chargeable with duty at a rate
dependent on the value of the article, 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 at the time of the removal of the
article chargeable with duty from the factory or any other premises of
manufacture or production, or if a whole the place of manufacture or
production, or if a wholesale market does not exist for such article at
such place, at the nearest place where such market exists, or
Where such price is not ascertainable, the price at which an article of the
like kind and quality is sold or is capable of being sold by the
manufacturer or producer, or his agent, at the time of the removal of the
article chargeable with duty from such factory or other premises for
delivery at the place of manufacture or production, or if such article is
not sold or is not capable of being sold at place at any other place
nearest thereto.
Explanation-In determining the price of any article under this
section, no abatement or deduction shall be allowed except in respect of
trade discount and the amount of duty payable at the time of the removal of
the article chargeable with duty from the factory or other premises
aforesaid.”
12. After the amendment of 1973, Section 4 reads as follows:-
“4. Valuation of excisable goods for purposes of charging of duty of
excise.- (1) Where under this Act, the duty of excise is chargeable on any
excisable goods with reference to value, such value, shall, subject to the
other provisions of this section, be deemed to be –
(a) the normal price thereof, that is to say, the price at which such goods
are ordinarily sold by the assessee to a buyer in the course of wholesale
trade for delivery at the time and place of removal, where the buyer is not
a related person and the price is the sole consideration for the sale:
Provided that –
(i) where, in accordance with the normal practice of the wholesale trade in
such goods, such goods are sold by the assessee at different prices to
different classes of buyers (not being related persons) each such price
shall, subject to the existence of the other circumstances specified in
clause (a), be deemed to be the normal price of such goods in relation to
each such class of buyers;
(ia) where the price at which such goods are ordinarily sold by the
assessee is different for different places of removal, each such price
shall, subject to the existence of other circumstances specified in clause
(a), be deemed to be the normal price of such goods in relation to each
such place of removal;
(ii) where such goods are sold by the assessee in the course of wholesale
trade for delivery at the time and place of removal at a price fixed under
any law for the time being in force or at a price, being the maximum, fixed
under any such law, then, notwithstanding anything contained in clause
(iii) of this proviso, the price or the maximum price, as the case may be,
so fixed, shall, in relation to the goods so sold, be deemed to be the
normal price thereof;
(iii) where the assessee so arranges that the goods are generally not sold
by him in the course of wholesale trade except to or through a related
person, the normal price of the goods sold by the assessee to or through
such related person shall be deemed to be the price at which they are
ordinarily sold by the related person in the course of wholesale trade at
the time of removal, to dealers (not being related persons) or where such
goods are not sold to such dealers, to dealers (being related persons), who
sell such goods in retail;
(b) where the normal price of such goods is not ascertainable for the
reason, that such goods are not sold or for any other reason, the nearest
ascertainable equivalent thereof determined in such manner as may be
prescribed.
(2) Where, in relation to any excisable goods the price thereof for
delivery at the place of removal is not known and the value thereof is
determined with reference to the price for delivery at a place other than
the place of removal, the cost of transportation from the place of removal
to the place of delivery shall be excluded from such price.
(3) The provisions of this section shall not apply in respect of any
excisable goods for which a tariff value has been fixed under sub-section
(2) of section 3.
(4) For the purposes of this section, –
(a) “assessee” means the person who is liable to pay the duty of excise
under this Act and includes his agent;
(b) “place of removal” means-
(i) a factory or any other place or premises of production or manufacture
of the excisable goods;
(ii) a warehouse or any other place or premises wherein the excisable goods
have been permitted to be deposited without payment of duty;
(iii) a depot, premises of a consignment agent or any other place or
premises from where the excisable goods are to be sold after their
clearance from the factory and,
from where such goods are removed;
(ba) “time of removal”, in respect of goods removed from the place of
removal referred to in sub-clause (iii) of clause (b), shall be deemed to
be the time at which such goods are cleared from the factory;
(c) “related person” means a person who is so associated with the assessee
that they have interest, directly or indirectly, in the business of each
other and includes a holding company, a subsidiary company, a relative and
a distributor of the assessee, and any sub-distributor of such distributor.
Explanation. – In this clause “holding company”, “subsidiary company” and
“relative” have the same meanings as in the Companies Act, 1956 (1 of
1956);
(d) “value”, in relation to any excisable goods,-
(i) where the goods are delivered at the time of removal in a packed
condition, includes the cost of such packing except the cost of the packing
which is of a durable nature and is returnable by the buyer to the
assessee.
Explanation. – In this sub-clause, “ packing” means the wrapper, container,
bobbin, pirn, spool, reel or warp beam or any other thing in which or on
which the excisable goods are wrapped, contained or wound;
(ii) does not include the amount of the duty of excise, sales tax and other
taxes, if any, payable on such goods and, subject to such rules as may be
made, the trade discount (such discount not being refundable on any account
whatsoever) allowed in accordance with the normal practice of the wholesale
trade at the time of removal in respect of such goods sold or contracted
for sale.
Explanation. – For the purposes of this sub-clause, the amount of the duty
of excise payable on any excisable goods shall be the sum total of –
(a) the effective duty of excise payable on such goods under this Act; and
(b) the aggregate of the effective duties of excise payable under other
Central Acts, if any, providing for the levy of duties of excise on such
goods,
and the effective duty of excise on such goods under each Act referred to
in clause (a) or clause (b) shall be,-
(i) in a case where a notification or order providing for any exemption
(not being an exemption for giving credit with respect to, or reduction of
duty of excise under such Act on such goods equal to, any duty of excise
under such Act, or the additional duty under section 3 of the Customs
Tariff Act, 1975 (51 of 1975), already paid on the raw material or
component parts used in the production or manufacture of such goods) from
the duty of excise under such Act is for the time being in force, the duty
of excise computed with reference to the rate specified in such Act, in
respect of such goods as reduced so as to give full and complete effect to
such exemption; and
(ii) in any other case, the duty of excise computed with reference to the
rate specified in such Act in respect of such goods.
(e) “wholesale trade” means sales to dealers, industrial consumers,
Government, local authorities and other buyers, who or which purchase their
requirements otherwise than in retail.”
13. Section 4, as it reads after the amendment of 2000, is as follows:-
“4. Valuation of excisable goods for purposes of charging of duty of
excise.-
Where under this Act, the duty of excise is chargeable on any excisable
goods with reference to their value, then on each removal of the goods,
such value shall –
in a case where the goods are sold by the assessee, for delivery at the
time and place of the removal, the assessee and the buyer of the goods are
not related and the price is the sole consideration for the sale, be the
transaction value;
in any other case, including the case where the goods are not sold, be the
value determined in such manner as may be prescribed.
The provisions of this section shall not apply in respect of any excisable
goods for which a tariff value has been fixed under sub-section (2) of
section 3.
For the purpose of this Section,-
“assessee” means the person who is liable to pay the duty of excise under
this Act and includes his agent;
persons shall be deemed to be “related” if-
they are inter-connected undertakings;
they are relatives;
amongst them the buyer is a relative and a distributor of the assessee, or
a sub-distributor of such distributor; or
they are so associated that they have interest, directly or indirectly, in
the business of each other.
Explanation. – In this clause –
“inter-connected undertakings” shall have the meaning assigned to it in
clause (g) of section 2 of the Monopolies and Restrictive Trade Practices
Act, 1969 (64 of 1969); and
“relative” shall have the meaning assigned to it in clause (41) of section
2 of the Companies Act, 1956 ( 1 of 1956);
“place of removal” means –
(i) a factory or any other place or premises of production or manufacture
of the excisable goods;
(ii) a warehouse or any other place or premises wherein the excisable
goods have been permitted to be deposited without payment of duty,
from where such goods are removed;
(d) “transaction value” means the price actually paid or payable for the
goods, when sold, and includes 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 reason of, or in connection with the sale, whether payable at
the time of the sale or at any other time, including, but not limited to,
any amount charged for, or to make provision for, advertising or publicity,
marketing and selling, organization expenses, storage, outward handling,
servicing, warranty, commission or any other matter; but does not include
the amount of duty of excise, sales tax and other taxes, if any, actually
paid or actually payable on such goods.”
14. It can be seen that the common thread running through Section 4,
whether it is prior to 1973, after the amendment in 1973, or after the
amendment of 2000, is that excisable goods have to have a determination of
“price” only “at the time of removal”. This basic feature of Section 4 has
never changed even after two amendments. The “place of removal” has been
amended from time to time so that it could be expanded from a factory or
any other premises of manufacture or production, to warehouses or depots
wherein the excisable goods have been permitted to be deposited either with
payment of duty, or from which such excisable goods are to be sold after
clearance from a factory. In fact, Section 4(2) pre- 2000 made it clear
that where the price of excisable goods for delivery at the place of
removal is not known, and the value thereof is determined with reference to
the price for delivery at a place other than the place of removal, the cost
of transportation from the place of removal to the place of delivery is to
be excluded from such price. This is because the value of excisable goods
under the Section is to be determined only at the time and place of
removal. Even after the amendment of Section 4 in 2000, the same scheme
continues. Only, Section 4(2) is in terms replaced by Rule 5 of the Central
Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.
15. Post 1973, this Court has in two of its decisions, namely, in Union
of India v. Bombay Tyre International Limited, 1984 (17) ELT 329 (SC),
clearly held as follows:-
“Trade Discounts. – Discounts allowed in the Trade (by whatever name such
discount is described) should be allowed to be deducted from the sale price
having regard to the nature of the goods, if established under agreements
or under terms of sale or by established practice, the allowance and the
nature of the discount being known at or prior to the removal of the goods.
Such Trade Discounts shall not be disallowed only because they are not
payable at the time of each invoice or deducted from the invoice price.”
(at para 1)
16. In the second judgment in Government of India v. Madras Rubber
Factory Ltd., 1995 (77) ELT 433 (SC), what has been held is as follows:-
“Year Ending Discount and Prompt Payment Discount:
What is called ‘Year-ending discount’ is really a bonus given by Madras
Rubber Factory to its dealers @ Rupees fifty per tyre in respect of a
particular type of tyres. This discount is payable only where the payments
are actually received within forty five days from the date of the invoice.
Under this scheme, it appears that a declaration is to be received dealer-
wise and thereafter provision is to be made at the head office of MRF for
the bonus. The Assistant Collector has found that this discount was allowed
by the assessee not out of any extra-commercial considerations but that
they were meant only to boost the sales particularly in the year 1981-82 in
respect of Leader Tyre in order to achieve the target of sales for that
year. He has recorded a finding that “such a system of grant of discount is
prevalent in normal trade practice and the only difference may be that MRF
limited have granted the discount only at the end of the year and not at
the time of actual sales”. The learned Additional Solicitor General
disputed the correctness of the basis on which the Assistant Collector has
allowed this deduction. He commended for our acceptance the reasoning in
Para 13(ii) of the judgment dated December 20,1986 (Assistant Collector of
Central Excise v. Madras Rubber Factory.) The reasoning in the said order
runs thus:
“The allowance of the discount is not known at or prior to the removal of
the goods. The calculations are made at the end of the year and the Bonus
at the said rate is granted only to a particular class of Dealers. This is
computed after taking stock of the accounts between MRF and its dealers. It
is not in the nature of a discount but is in the nature of a Bonus or an
incentive much after the invoice is raised and the removal of the goods is
complete. In the circumstances, we are of the opinion that MRF is not
entitled to deduction under this head.”
We are, however, of the respectful opinion that the said reasoning cannot
be accepted in view of the clear finding recorded by the Assistant
Collector that this system of discount is prevalent in the industry and is
known and understood at the time of removal of particular goods, though the
amount is quantified later. In view of the said finding and in the light of
the clarificatory Order in Bombay Tyre International, we hold that this
claim has been rightly allowed by the Assistant Collector.
So far as the prompt payment discount is concerned, it is payable under a
scheme called ‘prompt payment discount scheme’ which is applicable only to
up-country non-RCS dealers (except, of course, the Government and DGS&D
accounts). The discount is @ 0.75% on the total value of the invoice
including sales tax, surcharge etc. provided the bill is cleared/paid
within 26 days from the date of invoice. The case of the Union of India is
that this discount is limited only to certain varieties of products as
explained in the scheme document and is valid only for a limited period.
The Assistant Collector, however, dealt with this discount along with the
year ending discount and allowed it on the same reasoning as is applicable
to the year ending discount.
In view of the findings recorded by the Assistant Collector and the
clarificatory order in Bombay Tyre International this claim too must be
held to have been rightly allowed by the Assistant Collector.” (at
paras 59 to 62)
17. The only question that falls for our determination is whether Section
4 as amended in the year 2000 makes no change to the aforesaid position.
18. It can be seen that Section 4 as amended introduces the concept of
“transaction value” so that on each removal of excisable goods, the
“transaction value” of such goods becomes determinable. Whereas previously,
the value of such excisable goods was the price at which such goods were
ordinarily sold in the course of wholesale trade, post amendment each
transaction is looked at by itself. However, “transaction value” as
defined in sub-clause (3)(d) of Section 4 has to be read along with the
expression “for delivery at the time and place of removal”. It is clear,
therefore, that what is paramount is that the value of the excisable goods
even on the basis of “transaction value” has only to be at the time of
removal, that is, the time of clearance of the goods from the appellant’s
factory or depot as the case may be. The expression “actually paid or
payable for the goods, when sold” only means that whatever is agreed to as
the price for the goods forms the basis of value, whether such price has
been paid, has been paid in part, or has not been paid at all. The basis of
“transaction value” is therefore the agreed contractual price. Further,
the expression “when sold” is not meant to indicate the time at which such
goods are sold, but is meant to indicate that goods are the subject matter
of an agreement of sale. Once this becomes clear, what the learned counsel
for the assessee has argued must necessarily be accepted inasmuch as cash
discount is something which is “known” at or prior to the clearance of the
goods, being contained in the agreement of sale between the assessee and
its buyers, and must therefore be deducted from the sale price in order to
arrive at the value of excisable goods “at the time of removal”.
19. We were referred to the Central Board of Excise and Customs Bulletin
for the period January-March, 1975 in which the Board laid down:-
“Cash Discounts
That is, discounts for prompt payment of price of goods on delivery, are
admissible in arriving at the assessable value if they are available to all
buyers. This aspect has been dealt with in detail under the heading
“price”.
“…Some assessee may give to all his buyers cash discount, that is a
discount for prompt payment. In other words, they charge a somewhat lesser
price where there is cash payment, but charge a higher price (i.e. without
deduction of the cash discount) if the payment is not made in cash. In such
cases, the cash discount, if allowed, will be admissible on the principle
that only the net price obtained after deduction of the cash discount is
the price of the goods.”
“Illustrations.
(iv) Assessee A sells the goods at Rs. 100 per unit but given a cash
discount of 2% if payment is made at the time of delivery or within a
specified period. Such cash discount will be admissible and the price will
be Rs. 100 per unit minus 2%.”
20. This understanding of the Board would necessarily continue in view of
what is said above as regards cash discounts even after the amendment of
Section 4 in the year 2000.
21. We were referred to the judgment of this Court in Deputy Commissioner
of Sales Tax (Law) Board of Revenue (Taxes), Ernakulam v. Advani Oorlikon
(P) Ltd., 1981 (8) ELT 801 (S.C.), in which it was stated:-
“… Cash discount is allowed when the purchaser makes payment promptly or
within the period of credit allowed. It is a discount granted in
consideration of expeditious payment. A trade discount is a deduction from
the catalogue price of goods allowed by wholesalers to retailers engaged in
the trade. The allowance enables the retailer to sell the goods at the
catalogue price and yet make a reasonable margin of profit after taking
into account his business expense. The outward invoice sent by a wholesale
dealer to a retailer shows the catalogue price and against that a deduction
of the trade discount is shown. The net amount is the sale price, and it is
that net amount which is entered in the books of the respective parties as
the amount realisable.” (at para 5)
22. This judgment arose in the context of the Central Sales Tax Act, but
it is instructive only in that it makes it clear that a cash discount is
the discount granted in consideration of expeditious payment, and is
therefore directly related to price.
23. It only remains to discuss the sheet anchor of revenue’s case,
namely, the judgment of this Court in Commissioner of Central Excise,
Jaipur-II v. Super Synotex (India) Ltd. and Ors. (supra). The said judgment
was concerned with sales tax incentives that were given under the Rajasthan
Sales Tax Incentives Scheme. On the facts of that case, 25% of the sales
tax was paid to the Government, and 75% of the said amount of sales tax was
retained by the assessee and became the assessee’s profit. Under the
earlier Board’s circulars that were issued by the Central Board of Excise
and Customs, the amount of 75% of sales tax that was never paid to the
Government but retained by the assessee was also liable to be deducted from
“price” under the old Section 4, that is, Section 4 before its amendment in
the year 2000. This Court held that the amended Section 4 would require
that such amount of 75% is not deductible as sales tax because, according
to this Court, only sales tax that is “actually paid” could be deducted
post Section 4 as amended in 2000. This Court said:-
“It is evincible from the language employed in the aforesaid circular that
set off is to be taken into account for calculating the amount of sales tax
permissible for arriving at the “transaction value” under Section 4 of the
Act because the set off does not change the rate of sales tax
payable/chargeable, but a lower amount is in fact paid due to set off of
the sales tax paid on the input. Thus, if sales tax was not paid on the
input, full amount is payable and has to be excluded for arriving at the
“transaction value”. That is not the factual matrix in the present case.
The assessee in the present case has paid only 25% and retained 75% of the
amount which was collected as sales tax. 75% of the amount collected was
retained and became the profit or the effective cost paid to the assessee
by the purchaser. The amount payable as sales tax was only 25% of the
normal sales tax. Purpose and objective in defining “transaction value” or
value in relation to excisable goods is obvious. The price or cost paid to
the manufacturer constitutes the assessable value on which excise duty is
payable. It is also obvious that the excise duty payable has to be excluded
while calculating transaction value for levy of excise duty. Sales tax or
VAT or turnover tax is payable or paid to the State Government on the
transaction, which is regarded as sale, i.e., for transfer of title in the
manufactured goods. The amount paid or payable to the State Government
towards sales tax, VAT, etc. is excluded because it is not an amount paid
to the manufacturer towards the price, but an amount paid or payable to the
State Government for the sale transaction, i.e., transfer of title from the
manufacturer to a third party. Accordingly, the amount paid to the State
Government is only excludible from the transaction value. What is not
payable or to be paid as sales tax/VAT, should not be charged from the
third party/customer, but if it charged and is not payable or paid, it is a
part and should not be excluded from the transaction value. This is the
position after the amendment, for as per the amended provision the words
“transaction value” mean payment made on actual basis or actually paid by
the assessee. The words that gain signification are “actually paid”. The
situation after 1.7.2000 does not cover a situation which was covered under
the circular dated 12.3.1998. Be that as it may, the clear legislative
intent, as it seems to us, is on “actually paid”. The question of “actually
payable” does not arise in this case.” (at para 22)
24. It will be noticed that this Court did not deal with Section 4(1)(a)
as amended in the year 2000 insofar as it speaks of delivery of goods at
the time and place of removal. This Court was only concerned with whether
sales tax is to be deducted from “transaction value” as newly defined. We
have already seen that “transaction value” specifically states that it will
not include sales tax “actually paid or actually payable on such goods”.
On the facts of that case, this Court was not concerned with the expression
“actually payable” as it did not arise in that case. This Court was only
concerned with sales tax not “actually paid” to the Rajasthan Government,
and therefore held that since 75% of sales tax was retained by the
assessee, the said amount could not be deducted as only amounts payable to
the State Government as sales tax can be deducted. This was so held on an
interpretation of the last part of the definition of “transaction value”.
The facts of the present case are concerned with the first part of the
definition of “transaction value” which has to be read with Section 4(1)(a)
as has been stated above.
25. This judgment does not in any manner deviate from the settled legal
position so far as cash discounts are concerned as has been laid down in
Union of India v. Bombay Tyre International (supra) and Government of
India v. MRF (supra). In fact, as has been pointed out earlier, this
judgment did not concern itself with the “price” of excisable goods that
must be ascertained only at the time of removal from the factory gate.
Since this Court was only concerned with whether or not certain amounts by
way of sales tax were or were not to be deducted from “price”, the said
judgment has little application to the facts of the present case.
26. In view of what has been said above, it is clear that “cash discount”
has therefore to be taken into account in arriving at “price” even under
Section 4 as amended in 2000.
27. Insofar as the other point of defective goods and volume discount on
sales tax is concerned, the Tribunal has stated:-
“8. We have considered the submissions of both the sides. Regarding
defective goods, we observe from the statement dated 9.10.2000 of Shri R.K.
Gulati that he has clearly deposed therein that “the goods so received from
various customers under the said D3s,have not actually been rectified and
entire new finished products have been sent to the buyer taking it as the
goods rectified.” This is clear admission on the part of the authorized
signatory for Excise matters that new excisable goods were cleared in place
of defective goods received back. This statement has not been retracted by
Shri Gulati at all. The certificate given by the Chartered Engineer is
dated 5.7.2002 which is much after the period involved in the present
matter before us and cannot overcome the clear admission by the authorized
signatory of the Appellant company. We also do not find any force in the
submission that Shri Gulati’s statement can be relied upon only in respect
of Khandsa factory not in respect of factory at Mehrauli Road since no such
qualification has been attached by Shri Gulati in his statement. Further,
if the defective goods were substituted by new goods at one factory, it is
reasonable to include that the same practice would be prevalent at the
other factory of the same manufacturer. We, therefore, hold that the
Appellants were removing the new excisable goods to their customers in lieu
of defective goods received back by them. We, however, find force in the
contention of the learned Advocate that duty cannot be demanded in respect
of the defective goods against which no excisable goods were cleared by the
Appellants. This aspect is being remanded to the jurisdictional
Adjudicating Authority for reconsideration of the material/evidence that
may be produced by the Appellants within two months of receipt of this
Order.
9. Regarding volume discount and sales tax, the dispute is not with regard
to their deduction but the actual amount of volume discount passed or sales
tax paid. In our view the actual amount of volume discount passed on by the
Appellant and actual amount of sale tax paid/payable have to be deducted
from for the purpose of determining the assessable value of the goods. This
is a factual matter which has to be looked into again by the jurisdictional
Adjudicating Authority after considering the material adduced by the
Appellants within two months of receipt of this Order.”
28. Both parties have requested us that since the matter is going to be
remanded in terms of the Tribunal’s order on these issues, the remand
should be an open-ended one, namely, that both parties should be free to
argue afresh on all points that arise insofar as these issues are
concerned. We therefore, while affirming the Tribunal’s order of remand,
allow both parties to argue all points that may arise insofar as these
issues are concerned. So far as the cash discount issue is concerned, we
set aside the Tribunal’s order.
29. Appeal is disposed of accordingly.
……………………J.
(A.K. Sikri)
……………………J.
(R.F. Nariman)
New Delhi;
August 25, 2015.
ITEM NO.1B COURT NO.13 SECTION III
(FOR JUDGMENT)
S U P R E M E C O U R T O F I N D I A
RECORD OF PROCEEDINGS
Civil Appeal No(s). 1959/2006
M/S. PUROLATOR INDIA LTD. Appellant(s)
VERSUS
COMMNR. OF CENTRAL EXCISE, DELHI-III Respondent(s)
Date : 25/08/2015 This appeal was called on for pronouncement of
Judgment today.
For Appellant(s) Mr. Rajesh Kumar,Adv.
For Respondent(s) Ms. Pinky Anand, ASG
Ms. Nisha Bagchi, Adv.
Ms. Snidha Mehra, Adv.
Ms. Aruna Gupta, Adv.
Mr. B. Krishna Prasad,Adv.
Hon’ble Mr. Justice Rohinton Fali Nariman pronounced the Judgment of
the Bench comprising Hon’ble Mr. Justice A.K.Sikri and His Lordship.
The appeal is disposed of in terms of the signed reportable judgment.
Pending application(s), if any, stand disposed of.
(Ashwani Thakur) (Renu Diwan)
COURT MASTER COURT MASTER
(Signed reportable judgment is placed on the file)
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