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Thursday, August 27, 2015

''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." 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.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 This statement has not been retracted by Shri Gulati at all.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.

                                                                  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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