Customs, Excise and Gold Tribunal - Delhi
Travancore Cements Ltd. vs Collector Of Central Excise on 6 January, 1994
Equivalent citations: 1994ECR415(TRI.-DELHI), 1994(71)ELT498(TRI-DEL)
ORDER S.V. Maruthi, Member (J)
1. The appellant manufacture white cement and sold it to wholesale dealers (stockist) and industrial consumers in various parts of the country. According to them, white cement market is highly competitive which varies from State to State and all the white cement manufacturers have accordingly been selling at different prices at different areas. The Collector allowed different regionwise discount in respect of wholesale dealers. Similarly, they were selling to industrial consumers in different States at different prices treating them as different classes of buyers. The prices filed accordingly were approved by the Department. However, Show Cause Notice was issued proposing to revise the different prices for the industrial consumers for different States and to value all the sales at the price charged to industrial consumers in Kerala. On receipt of reply, the proposal in the Show Cause Notice was confirmed by the Assistant Collector. On appeal, the Collector rejected the appeal. Hence the appeal before us.
2. The Collector while rejecting the different prices in different States for industrial consumers relied on a judgment of Bombay High Court in the case of Godrej Boyce Manufacturing Ltd. v. Union of India, 1984 (18) E.L.T. 172. He held that industrial consumers are one class in terms of Section 4 of the Central Excises and Salt Act and there cannot be more than one price for industrial consumers.
3. The main contention of the learned Advocate for the appellant is that any group of buyers who are differently placed from each other for any relevant reasons have necessarily to be treated as different classes of buyers. Owing to factors as demand/supply and other market conditions, levels of competitions, taxation structure etc., the same goods have necessarily to be sold at different prices. He however, submitted that in a particular State, if there is no dealer selling white cement then the manufacturer can sell it at higher price. Whereas in States where there are more dealers selling white cement manufacturered by different manufacturers, he has to adjust the price to fall in line with other dealers. Therefore, market conditions are relevant criteria for classification of buyers.
4. Shri V.K. Jain, appearing for the Department submitted that the appellants have filed a price list in Proforma Part-II. The industrial consumers are a class of buyers and there cannot be any distinction in the same set of class of buyers on the basis of regions. If a distinction is made as suggested by the appellant's Counsel, there is no end and it would be an exercise in futility. It would be impracticable. He says that there cannot be different normal prices for one class of buyers.
5. In reply, Shri Joseph submitted that one single buyer can form a class of buyers. He relied on an Order of this Tribunal in Amar Chemicals v. Collector of Central Excise, 1992 (58) E.L.T. 85 and Music India v. C.C.E., 1986 (25) E.L.T 1032 and Gujarat State Fertilisers v. Union of India, 1980 (6) E.L.T. 397.
6. The question, therefore, under the above circumstances is whether there can be more than one normal price under Section 4(1)(a) in respect of industrial consumers placed in different States.
7. Section 4 of the Central Excises and Salt Act reads as follows :
"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;...."
8. A reading of Section 4 makes it clear that for the purpose of determining the assessable value it is the price at which such goods are ordinarily sold by the assessee in the course of wholesale trade where buyer is not related person and the price is the sole consideration for sale is relevant.
9. It is not disputed that the various industrial consumers situated in various States are not related persons and that the different prices are the actual prices at which the appellant sells the goods to various industrial consumers in various States, and the price is the sole consideration for sale. Therefore, the different prices to different industrial consumers in different States satisfy the condition of normal price laid down in Section 4. However, the contention of the Department is that there cannot be different normal prices in respect of a particular class of buyers. Industrial consumers being one class of buyers there should be one normal price even though they are placed in different regions. In this context, we may refer to the Order of this Tribunal in Amar Chemical Industries v. Collector of Central Excise, 1992 (58) E.L.T. 85, though it is slightly different on facts from the facts of the present case. The relevant facts are M/s. Amar Chemical Industries submitted two price lists, one in Part-I in respect of wholesale dealer and another in Part-II relating to the sale of goods for sale to different class of buyers namely Indo Kem Ltd. at small lower prices. The argument of the Department was the price under Part-I should be adopted even in respect of sales under Part-II to M/s. Indo Kem and Rama Kem Ltd. This Tribunal held relying on the judgment of the Delhi High Court in Sylvania & Laxman Ltd. v. Union of India, 1982 (10) E.L.T. 463 (Del.) that :-
From the above, it follows that it is the price which the manufacturer charges at the factory gate from the customer that is relevant for the purpose of determining the assessable value.
10. We may also refer to the judgment of the Bombay High Court in Music India v. Union of India (supra). The facts relevant are the assessee sold goods to M/s. Mecotronics Pvt. Ltd. at a price less than the price determined as assessable value and these sales were effected solely on the ground that the buyer had sales depot. Department rejected the claim of the assessee to determine the assessable value on the basis of actual price charged from the customer. High Court held that :-
"Assistant Collector will have to determine the payment of excise duty in respect of sales to the customer by taking into consideration only the actual price charged."
11. In other words, for the purpose of determining the assessable value it is the actual price that is charged by the assessee from the customer that is relevant. Whatever may be the consideration for charging a particular price, it may be market conditions, it may be due to the facility a particular buyer has, it is the price which is actually charged that is relevant for determining the assessable value. In other words, as long as the price is not influenced by extra-commercial consideration and as long as the customer is not related person and as long as the price is the sole consideration for sale, it should alone be the basis for determining the assessable value. We may point out, a manufacturer may enter into different contracts with different industrial consumers for different prices. The contract is a genuine contract and there is no evidence that it is influenced by extra-commercial consideration or there is flow-back to the manufacturer and price is sole consideration for sale, each such contract price shall be the normal price for the purpose of Section 4. In the instant case, it is not the case of the Department that the price is influenced by extra-commercial consideration or that it is not sole consideration for sale or that they are related persons of the appellant. It is also not disputed that it is the actual price which is charged from various industrial consumers from different States. In view of the above, we are of the view that the price charged by the appellant from various industrial consumers from different regions represent the price under Section 4 and the assessable value should be determined on the basis of different prices charged from different consumers from different States.
12. It is true in Godrej Boyce (supra) it was held that :-
"But wholesale dealers in India cannot be considered as belonging to different classes simply because they are located in different towns and cities unless there are different class of buyers there cannot be different normal price for excise purpose under Section 4."
The above observations are made in the context of the argument advanced by the Department that the manufacturers were selling-40% of the goods in Bombay to the wholesale dealers at the factory gate and the balance of 60% was sold outside Bombay packed in special secondary packing in order to protect them against damage through handling and transit. The manufacturers are levying a separate charge for the secondary packing under separate invoice. It was the contention of the Department that the manufacturers have to file a price list in respect of 60% sales outside Bombay by including the cost of the special packing. While rejecting the said argument, the above observations were made. The Bombay High Court did not have an occasion to consider the issue as to what should be the price for the purpose of determining the assessable value under Section 4 of the Central Excises Act. We are, therefore, of the view that the above observations cannot be taken as laying down the proposition that there cannot be different normal prices depending on the region where the industrial consumer is placed.
13. We, accordingly, allow the appeals.
Sd/-
(S.V. Maruthi)
Dated : 8-10-1992 Member (J)
P.K. Kapoor, Member (T)
14. I have gone through the order recorded by the learned Member (J). I respectfully disagree with the view taken by her.
15. The appellants have claimed that owing to factors like competition faced from other manufacturers of white cement, demand/supply position, tax structure etc. in different States they are forced to sell their product to industrial consumers in different geographical areas at different prices. The question therefore arises for consideration is whether in respect of industrial consumers in different States or geographical regions it would be legal to determine different assessable values by treating the industrial consumers in each of the State or region as constituting a separate class of buyer.
16. In this regard it is seen that proviso (1) to Section 4(1)(a) provides that where in accordance with the normal practice of wholesale trade any particular goods are sold by the assessee at different prices to different classes of buyers, then each such price can be deemed to be the normal price of those goods under Section 4 in relation to the corresponding class of buyer. It is evident that the first proviso to Section 4(1)(a) permits the adoption of only a single or uniform price in respect of buyers belonging to a particular class and in that proviso there is no authority for the determination of separate assessable values in respect of buyers belonging to different sub-classes where it may be possible to group the buyers in a particular class or to different subclasses on the basis of certain common factors.
17. In my view the judgment of Bombay High Court in the case of Music India v. Union of India reported in 1986 (25) E.L.T. 1032 which has been referred to by the learned Member (J) is not relevant. In that case it was held that regional discount is deductible from the sale price for arriving at the value under Section 4(1)(a). In the appellants' case in terms of proviso (1) to Section 4(1)(a) only a single price was determinate in respect of sales of white cement to industrial consumers who were treated as belonging to a particular class. Determination of separate assessable values in respect of industrial consumers in different States or geographical regions by deeming them as constituting sub-classes of a class of buyers namely, 'Industrial consumers' would not be permissible.
18. I, therefore uphold the order passed by the Collector (Appeals) and reject the appeal filed by the appellants.
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(P.K. Kapoor)
Dated : 15-10-1992 Member (T)
DIFFERENCE OF OPINION
In view of the difference of opinion, the papers are placed before the President for referring the following question :-
"Whether on the facts and circumstances of this case, there can be more than one normal price in respect of industrial consumers on the basis of region taking into account the marketing conditions prevailing in the said region."
Sd/- Sd/-
(P.K. Kapoor) (S.V. Maruthi)
Member (T) Member (J)
20. [Order per: P.C. Jain, Member (T)]. - The point of difference arising between the two Members of the Bench which originally heard the matter referred to me as third Member is as follows :-
"Whether on the facts and circumstances of this case, there can be more than one normal price in respect of industrial consumers on the basis of region taking into account the marketing conditions prevailing in the said region."
21. I have heard the learned advocate, Shri Markos Vellapally, for the appellants and the learned JDR, Shri A.K. Singhal for the Revenue.
22. Facts of the case are as set out in the order of the learned Judicial Member (as she then was), Ms. S.V. Maruthi. She has held that there can be different normal prices in different regions. In other words, she has held that industrial consumers in different regions cannot be treated as one class of buyers.
22.1. On the other hand, learned Technical Member, Shri P.K. Kapoor has held that all the industrial consumers in the country are to be taken as one class of buyers and there must be a single price for the same class of buyers.
23. Learned advocate for the appellant has submitted that the department's case is essentially based on Bombay High Court's judgment in the case of Godrej Boyce Manufacturing Ltd. v. Union of India and Others reported in 1984 (18) E.L.T. 172 (Bom.). It is the observation in para 25 of the said Report, emphasised now, which has led the lower authorities to come to a conclusion that buyers of the same class located in different regions cannot be treated as different classes. In order to appreciate the observations we reproduce in full para 25 of the said Report :-
Learned advocate has submitted that the aforesaid observations of the court cannot be taken as laying down an absolute rule of law that there cannot be different classes of the same class of persons (wholesale dealers) because they are located in different towns or cities. Learned advocate submits that it is so because the court has used the word 'simply' while holding that wholesale dealers in India cannot be considered as belonging to different classes simply because they are located in different towns or cities. He submits that use of the word 'simply' by the court is very significant. If the only criterion for treating the class of wholesale dealers as different classes because of their different location of towns and cities then alone the court had held that they cannot be treated as different classes. Learned advocate submits that if there are other factors, apart from the location of the dealers (persons) in different towns or cities or regions then there is no prohibition in treating such persons located in different regions or towns or cities as different classes. He submits that in the instant case it is not merely the location of the industrial consumers in different regions which has led the appellant herein to treat industrial consumers in different regions as different classes of buyers. There are other factors as well. Those other factors, he points out are purely commercial. In the instant case, rate of white cement is highly competitive price which varies from State to State and all the manufacturers have accordingly been selling white cement at different prices to dealers in different areas. Similarly, they are selling white cement to industrial consumers in different States at different prices treating them as different classes of buyers. In short, his contention is that any group of buyers who are differently placed from each other for any relevant reasons have to be treated as different classes of buyers. Owing to factors of demand and supply and other market conditions, levels of competitions, taxation structure etc., the same goods may be sold at different prices e.g. if in a particular State there is no dealer selling white cement then the manufacturer can sell it at a higher price. Whereas in States where there are more dealers selling white cement manufactured by different manufacturers the appellant has to adjust the price to fall in line with the other dealers. Therefore, the learned advocate has submitted that market conditions are very relevant for classification of buyers.
23.1 He further submits that the expression 'class of buyers' has not been defined in Section 4. The department appears to be taking the 'industrial consumers' as a class by virtue of definition of expression 'wholesale trade' under Clause (e) of Sub-section (4) of Section 4 of the CESA, 1944. This is a mistake committed by the lower authority to treat the entire community of industrial consumers as a single class. He says that it has been held in the case of Sharada Silicate and Chemical Industries v. CCE, Coimbatore & Another [1979 (4) E.L.T. (J 20)], no doubt in the context of old Section 4, that excise duty would be leviable on the prices charged by the manufacturer provided it is charged on a wholesale basis, even though certain concessions are made available to purchaser so long as those concessions are motivated by trade consideration and do not flow from extra-commercial considerations. He further submits that broadly the provisions of old Section 4 are pari materia and there is no change in the concept of valuation under the two provisions, as held by the Supreme Court in the case of Bombay Tyres International Ltd. [1983 (14) E.L.T. 1896]. The ratio of Sharada Silicate, he submits would be equally applicable to the new Section 4. The change that has been made in new Section 4 is laying down the rule, as held in Sharada Silicate, mentioned supra, that there can be different prices for different classes so long as classes are based on commercial considerations. In the instant case, he submits that Revenue has not challenged the classification made by the appellant that it is not on commercial consideration.
23.2 Next submission of the learned advocate is that instead of submitting a common price list for all industrial consumers in different regions, the appellant had the choice of submitting the price list as if under the contract between the manufacturer and the customer and the appellant could avail of the same normal trade discount for industrial consumers which he has shown for the industrial consumers as a whole in different regions, under the contracts with the individual buyers. In such a case the department could not raise any objection because the contract prices are acceptable under the accepted and settled principle of law. The department's objection, therefore, in essence boils around to the form of getting the price approved rather than to the substance of prices.
23.3 He, therefore, urges that the judgment of the learned Judicial Member, Ms. S.V. Maruthi, is correct in law and on facts and be upheld.
23.4 Learned JDR for the revenue, on the other hand, submits that classification on the basis of the regions or States is the appellant's own creation. Once a class of buyers is formed further sub-division of a class for the purpose of selling price or valuation under Section 4 is not permissible. He has also brought to the notice of the Tribunal that Bombay High Court's decision in the case of Godrej & Boyce Mfg. Ltd., supra has since been set aside and the matter remanded to the High Court in SLP No. 14564 of 1987; nevertheless he submits that the class of industrial consumers as a whole is one and no subdivision thereof can be made on the basis of their location in different towns and cities/regions. For this he relies on Tribunal's judgment in the case of CCE, Madras v. Ashok Leyland Ltd. [1987 (29) E.L.T. 530 (Tribunal)]. Para 7 of the said Report is reproduced below :-
He, therefore, submits that the view taken by the learned Technical Member is correct in law and on facts of this case and that view may be adopted.
24. I have carefully considered the pleas advanced from both sides.
24.1 Relevant provisions of law have already been set out in para 7 of the learned Judicial Member, Ms. S.V. Maruthi's order. From a perusal thereof, it is apparent that value of the goods is the normal price which is defined as -
(i) a price at which such goods are ordinarily sold by an assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal,
(ii) buyer is not a 'related person' to the assessee and the term 'related person' has been defined in Section 4 itself and
(iii) price is the sole consideration for sale.
It is not in dispute that all the three elements of the normal price, mentioned above, are satisfied in the case of sales made to the industrial consumers in the Northern States. Proviso (i) to the main Section 4(1)(a) has been provided as an exception to the aforesaid concept of value of the goods for the purposes of assessment to duty. It is apparent from the reading of Secton 4(1) (a) that normally price to all buyers is to be the same at which the goods are ordinarily sold in the course of wholesale trade for delivery at the time and place of removal. Proviso (i) carves out an exception to the uniqueness of the price under Section 4(1) (a) laying down that there may be different prices for the purposes of Section 4 if such goods are sold by an assessee at such different prices to different classes of buyers. The expression 'class of buyers' has not been defined either in Section 4 or in any other provisions of the Act. It is, therefore, left to the choice of the manufacturer /assessee to form classes of buyers. The question that arises in this case is whether classification of buyers to be made by an assessee would be at his mere whim and fancy or would have some nexus to commercial practices of sale of goods and business.
24.2 I am of the view that classification to be adopted by an assessee must be on objective criterion and should not be based on his mere whim and fancy; otherwise there will be a scope for a manipulation and evasion of duty. To lay down an objective criterion I would like to take a clue, for the purpose of classification under this section, from the judgment rendered by the Supreme Court under Articles 14 to 16 of the Constitution. Two conditions were laid down by the Court in the case of State of West Bengal v. Anwar AH Sarkar [AIR 1952 SC 75] in the context of Article 14 :-
"(1) the classification must be founded on intelligible differentia which distinguishes those that are grouped together from others and "(2) these differentia must have a relation to the object sought to be achieved by the Act. The differentia which is the basis of the classification and the object of the Act are distinct things and what is necessary is that there must be a nexus between them."
Modifying the aforesaid two conditions in the context of Section 4 of the Act, I am of the view that classification to be valid under Section 4 of the Act should fulfil the following two conditions :-
(i) the classification must be founded on intelligible differentia which distinguishes those that are grouped together from others; and
(ii) these differentia must have a rational relation to the object of Section 4 of the Act. The differentia which is the basis of the classification and the object of Section 4 are distinct things and what is necessary is that there must be a nexus between them.
25. The object of Section 4, as stated above, is to determine the value of goods in a particular manner, as laid down in Section 4(1)(a) subject to the other provisions of Section 4. The price determinable under Section 4(1)(a) should have three ingredients, as already stated. So long as any differentia leading to a classification adopted by an assessee fulfills the three ingredients of Section 4(1) (a) the classification adopted by an assessee in my view cannot be questioned. Purpose of Section 4 in the Central Excise Act is not to impose any price control. The price at which the goods are ordinarily sold in the course of wholesale trade is to be adopted for the purposes of assessment to duty so long as it satisfies the three ingredients mentioned in Section 4(1)(a).
25.1 In the light of the above discussion, there is no doubt that the classification adopted by the assessee in the instant case is a valid one and no objection can be taken to it in the absence of any definition of the expression 'classes of buyers'.
25.2 To draw an inference regarding 'class of buyers' from the definition of 'wholesale trade' in Section 4 is not desirable, nor is it legally permissible. The purpose of definition of 'wholesale trade' appears to be to take within its scope the sales not merely to dealers who further distribute the goods to consumers, but also sales to consumers, such as Government bodies, hospitals, etc. It is for this purpose that a broad classification of various types of consumers has been made who purchase the goods in wholesale lots (otherwise than in retail) from an assessee. The definition of 'wholesale trade' indicating some of the classes of buyers does not appear to give an exhaustive list of classes of buyers for the purposes of proviso (i) to Section 4(1)(a).
25.3 Learned JDR's reliance on Ashok Leyland's case is not well founded because the respondents therein, as is apparent form the extracts of para 7 set out earlier, did not make any distinction between various classes of buyers themselves. The respondents therein were trying to make out a new case for different prices to different classes of buyers which has been turned down by the Tribunal in the said case.
25.4 I am also inclined to agree with the learned advocate for the appellant that the Bombay High Court did not lay down absolute rule of law in the case of Godrej Boyce because of the use of the word 'simply' in that sentence. In any case, as rightly pointed out by the learned advocate since the judgment has been set aside, as brought to notice by the learned JDR, observations of Bombay High Court in the case of Godrej Boyce would no longer be a binding authority.
26. In view of the aforesaid discussion, I hold that there can be more than one normal price in respect of industrial consumers on the basis of regions taking into account the market conditions prevailing in the said region as in the facts and circumstancs of this case.
Dated : 11-11-1993. Sd/-
(P.C.Jain) Member (T) FINAL ORDER G.R Agarwal, Member (J) In view of the Majority Opinion that there can be more than one normal price in respect of industrial consumers on the basis of regions taking into account the market conditions prevailing in the said region, all the appeals are allowed.