Customs, Excise and Gold Tribunal - Delhi
Collector Of Central Excise vs Escorts Limited on 16 October, 1987
Equivalent citations: 1988ECR113(TRI.-DELHI), 1988(33)ELT147(TRI-DEL)
ORDER K.L. Rekhi, Member (T)
1. The point in dispute is whether (1) the dealers' margin of Rs. 550/- per motor cycle and (2) freight and insurance should be deducted from the sale price of motor cycles manufactured by the Respondents in order to arrive at their assessable value under Section 4 of the Central Excises & Salt Act, 1944.
2. The dispute relates to the initial period from October-November 1985 to the 2nd February 1986. The Respondents commenced manufacture of Yamaha RX-100, 100 CC motor cycles during October-November 1985. They did not appoint wholesale dealers/distributors straightaway for marketing these motor cycles. The initial pattern of sale of the motor cycles as contained in the Respondents' letter dated 7-10-1985 addressed to the Superintendent of Central Excises, and as" amplified later during the course of hearing before us, was as follows :-
The Respondents advertised for Yamaha RX-100, 100 C.C motor cycles for booking orders directly from the public. Individual customers from the public contacted the dealers appointed by the respondents for booking orders. These dealers booked orders from customers on payment of deposit of Rs. 1000/- per motor cycle. The customer paid the deposit by means of a demand draft made out in the respondent's name. The customer gave this demand draft to the dealer who transmitted the customer's order and the demand draft to the respondents. The respondents effected clearance in the order of computerised booking priority. The customer got an allotment letter when his turn came. He contacted the dealer again and paid the balance price of the motor cycle by means of a demand draft which was again made out directly in the name of the respondents. The dealer transmitted the second demand draft also to the respondents. The respondents made out the clearance documents (gate pass/despatch advice/invoice) directly in the name of the customer, but sent the motor cycle to the dealer who had booked the order. The dealer gave delivery of the motor cycle to the customer after cleaning and pre-delivery inspection of the motor cycle. The dealer also helped the customer in registration and insurance. After delivery, the dealer gave after sale service to the customer. The learned representative of the department admitted that in this pattern of sale, which lasted for barely 3-4 months during the initial period, the property in the motor cycle was, no doubt, not passed on to the dealer and hence sale was to the customer from the public at large and not to the dealer.
3. The respondents have made a two-fold plea before us :-
(1) There was no wholesale sale of the motor cycles during this period. They sold the motor cycles in retail to individual consumers in the public. As such, Rule 6(a) of the Central Excise (Valuation) Rules, 1975 applied which is in the following terms :
"(a) where such goods are sold by the assessee in retail, the value shall be based on the retail price of such goods reduced by such amount as is necessary and reasonable in the opinion of the proper officer to arrive at the price at which the assessee would have sold such goods in the course of wholesale trade to a person other than a related person :
Provided that in determining the amount of reduction, due regard shall be had to the nature of excisable goods, the trade practice in that commodity and other relevant factors."
According to the respondents, the dealers' margin of Rs. 550/- per motor cycle, which was actually given by them to the dealers, ought to be deducted from the retail price charged from the customer in order to arrive at the deemed wholesale price as per Rule 6(a) above.
(2) Freight and insurance (Rs. 200/- per motor cycle) should also be deducted from sale price charged from the retail customer. They cited the Supreme Court judgment in the case of Bombay Tyre International (1983 ELT 1896 SC) according to which cost of transportation has to be deducted for arriving at the assessable value under Section 4.
4. The learned representative of the Department pressed for the following four propositions :-
(1) The sale to individual customer was not a retail sale but a wholesale sale;
(2) Dealers were agents of the respondents. The dealers' margin of Rs. 550/- per motor cycle, which was described as "distribution expenses" in the case of sale to individual customer and as "dealers' margin" in the case of sale of motor cycles to the dealers, were nothing but agent's commission, deduction of which was not permissible as per Supreme Court judgment : 1984 (17) ELT 607 SC - Coromandal Fertilizers Limited;
(3) In any case, the whole of the dealers' margin of Rs. 550/- could not be deducted because the dealers spent some part of it on discharging warranty obligation and undertaking advertisement and publicity on behalf of the respondents.
(4) However, freight and insurance could be allowed to be deducted after verification of the amount by the Assistant Collector in view of the Supreme Court judgment in the case of Bombay Tyre International.
5. The primary question which we have to decide in the case is whether the sale of 1-1 motor cycle to individual customers from the public at large constituted wholesale sale or retail sale. On this question, let us have a look at the law and the understanding in other countries and in our own High Courts and Tribunal and also under the Central Excises & Salt Act, 1944.
Understanding in other countries :
We reproduce below extracts from the book "Words and Phrases Legally Defined", Second Edition, edited by 3ohn B. Saunders, in order to show the understanding in U.K., Australia and New Zealand :
"Wholesale"
U.K. - "Sale by way of wholesale dealing" means sale to a person who buys for the purpose of selling again (Pharmacy and Poisons Act, 1933, Section 29; Radioactive Substances Act, 1948, Section 12).
"Selling by wholesale" means selling goods of any class to a person who carries on a business of selling goods of that class (Purchase Tax Act 1963, Section 40).
(1) In this Act any reference to selling anything by way of wholesale dealing is a reference to selling it to a person who buys it for one or more of the purposes specified in Sub-section (2) of this section, except that it does not include any such sale by the person who manufactured it.
(2) The purposes referred to in the preceding sub-section, in relation to a person to whom anything is sold, are the purposes of -
(a) selling or supplying it, or
(b) administering it or causing it to be administered to one or more human beings, in the course of a business carried on by that person (Medicines Act, 1968, Section 131).
Australia. - "One characteristic of the business of a wholesale merchant to which Sir William Fitzgerald does not advert is that he intervenes as a 'middle mant between the producer or manufacturer and the retailer, and it is his function to distribute a particular commodity to the retailer who in turn sells it to members of the public, in reduced quantities but frequently in the same form. This is not, of course, an infallible guide. There are certainly cases in which two or more wholesalers intervene in succession between the producer or manufacturer and the retailer. But the failure of the prosecution to prove such transaction deprives it of powerful, perhaps conclusive, evidence in its favour." Loie v. Willmott, (1966) S.A.S.R. 368, per Walters, 3., at p. 373.
New Zealand. - "In England there appears to be some ground for the contention that, in certain circles at all events, a distinction is drawn between a manufacturer and a wholesaler, the latter description applying only to persons who both buy and sell goods in gross or in bulk. In my opinion, whatever the position may be in England, there is no justification for drawing that distinction in New Zealand, where it is a matter of common knowledge that many wholesale dealers have found it necessary to manufacture the goods they sell in bulk." Chemists' Service Guild of New Zealand Inc. v. Stilwell, (1966) N.Z.L.R. 654 (C.A.), per North, P., at p. 663.
"Having regard, as I may, to such knowledge of affairs as I possess, I would not myself in using the term 'wholesaler' exclude from the connotation of this term accepted in New Zealand manufacturers who make their own product and then dispose of it in bulk. Can the word 'dealer', then, make any difference? Is it necessary to buy as well as to sell to be a dealer? Looking at the definition of this word in the Shorter Oxford Dictionary. I have not found on the definitions there given of 'deal', 'dealer' and 'dealing anything to compel me to exclude the manufacturer-cum-seller." Ibid, per Turner, 3., at p. 668.
"Whatever may be the limitations placed on 'wholesale' or 'dealers' in dictionaries which illustrate their use overseas, and whatever may have been the position in the early days of this Dominion when a more rigid demarcation between manufacturer, wholesaler and retailer was observable, I have no doubt at all that in 1954 a manufacturer selling in quantity direct to the retail trade was covered by the words 'wholesaler' or 'wholesale dealer' when those words were used in this country." Ibid., per McCarthy, J., at p. 673.
"Retail"
U.K. - "Selling by retail" means selling goods by way of business otherwise than by wholesale, and "retail trader" means a person who sells by retail and not otherwise (Purchase Tax Act 1963, Section 40)., Australia. - "I think that the natural meaning of "retail" is 'sale of commodities in small quantities'. From time to time, a retailer may, no doubt, enter into executory contracts to sell, in the natural meaning of the word, I think that it imports 'sale and delivery'." Wright v. Edwards, (1961) S.A.S.R. 267, per Napier, C.3., at p. 282.
New Zealand. - "In our opinion the term 'at retail' presupposes a trading or a commercial transaction and is used in contradistinction to the term 'wholesale'. There is. we think, no doubt that a wholesaler is a person who. by way of business, deals only with persons who buy to sell again. whilst a retailer is one who deals with consumers. It would be, we think, a misuse of language to speak of a sale between two private persons as being a sale either at wholesale or at retail." Provident Life Assurance Co. Ltd. v. Official Assignee, (1963) N.Z.L.R. 961, per North, P., and Turner, 3., at p. 965.
"Sale by retail"
"Sold or supplied by retail" means sold or supplied otherwise than to a person acquiring solely for the purpose of resale or re-supply for a valuable consideration [Road Traffic (Amendment) Act, 1967, Section 9].
"Sale of milk"
'Selling milk by retail" means selling it -
(a) to any person other than a milk dealer (that is to say, a person who carries on a business which consists in or comprises the selling of milk) or a manufacturer of milk products (that is to say, a person who carries on a business which consists in or comprises the making of things made from milk or of which milk is an ingredient), or
(b) to such a dealer or manufacturer otherwise than for the purposes of his business as such (Food and Drugs Act, 1955, Section 46) Understanding by our own High Courts We reproduce below extracts from Law Lexicon Vol. 2 1982 Edition by T.P. Mukherjee :-
"Wholesale Dealer".- A wholesale dealer is a person who keeps for wholesale to traders a commodity for the purpose of trade Manoharbhai v. Emperor, A.I.R. 1946 Nag. 258 at 159 : I.L.R. 1946 Nag. 348 : 1946 Nag. Rule 188 : 1946 N.L.3. 304 : 225 I.C. 84.
Wholesale Price. - "Wholesale price" means, the price which a wholesale dealer and not a retail dealer charges for his goods, when he sells them in wholesale units; what will constitute a "wholesale unit" will have to be determined with reference to the practice of the trade at the place where goods in question, or goods of a like kind and quality, are sold or are capable of being sold to an independent buyer; meaning thereby, any one who intends to effect such a purchase or sale, upon payment of proper price, without restriction - Amco Batteries (P) Ltd. v. Assistant Collector, Central Excise, A.I.R. 1963 Mys. 216 at 218."
Coming to the understanding of this Tribunal, it was held in 1987 (27) ELT 718 (Tribunal) - Collector of Central Excise v. Voltas Limited - that sale of fork lift trucks to consumers (persons or institutions) for their own use constituted retail sale.
In 1987 (30) ELT 291 (Trib.) - Collector of Central Excise v. Madras Rubber Factory Limited, it was held that it was obvious that the concept of re-sale to consumers was built into "wholesale", in other words, one purchased goods in wholesale in order to sell them in retail to consumers. The trading interest was very much there in a wholesale purchase. In this view, the warranty involved in a particular transaction was not conclusive of the true character of the transaction. There could be no cut and dry answer based on tangible criteria of universal application to the question of what constituted 'wholesale' and sale in 'retail'. For. the concept had necessarily to vary depending upon factors such as the nature of goods under consideration, their value, the customer community or group and their purchasing power. It was also held that while the element of direct re-sale was not there in the case of the institutional buyers or industrial consumers buying in bulk, they too had a commercial interest in the purchase.
Section 4(4)(e) of the Central Excises & Salt Act 1944 defines "wholesale trade" in the following terms :-
" 'wholesale trade' means sales to dealers, industrial consumers, Government, local authorities and other buyers, who or which purchase their requirements otherwise than in retail."
6. From the diverse material reproduced by us above, it can be concluded that wholesale sales, as distinct from retail sales, are those which are made to -
(1) Dealers who resell the goods to others, (2) Industrial consumers or jobbers who use the goods in the manufacture of other goods and sell those other goods, and (3) Institutions or buik users who buy in bigger lots for their own commercial use as distinct from an individual consumer buying goods for personal or family use.
7. By no stretch of imagination, it could be said that when the respondents sold 1-1 motor cycle to consumers from the general public for the consumer's own use, it amounted to a wholesale sale. It was a retail sale beyond doubt. The learned representative of the department mentioned three or four instances of one motor cycle each having been sold to four dealers. The respondents explained that these were demonstration pieces meant to be kept by those dealers in their show room and that there were no further sales of Yamaha motor cycle to these dealers during the material period. The explanation given by the respondents is convincing enough. The fact of one demonstration piece having been sold to each of the three or four dealers hardly makes any change to the general proposition that sales to the public at large was a retail sale.
8. The dealers, no coubt, functioned as agents of the respondents. Rather, they were an extended arm of the respondents themselves. But this was not the case of the respondents selling to wholesale buyers where the dealers had booked the orders from those buyers. The facts of the Coromandal Fertilizers case cited by the learned representative of the department were different and so was the issue involved therein. In that case, the manufacturer had sold the goods to wholesale buyers and wanted deduction of the commission paid to agents (third parties) for the service rendered by the agents in procuring the orders. We do not have the wholesale price in the case before us. What we have is only a retail price and all that we have to do is to arrive at assessable value strictly in terms of the statutory provisions of Rule 6(a) of the Central Excise (Valuation) Rules, 1975, which is direct on the issue.
9. The next question is: how much deduction should be made from the retail price in order to arrive at the deemed wholesale price in terms of Rule 6(a). Here, we have two things to go by. First, we are informed that after the initial 3-4 months period, the respondents started selling their Yamaha motor cycles to dealers in wholesale. For that, they filed a price list in Part-I. In this price list, they claimed the same amount of deduction, i.e., Rs. 550/- per motor cycle by way of dealers' discount or margin which they had claimed out of the retail price in the case before us. Secondly, we note that the margin of Rs. 550/- on the net realisation of Rs. 11,135/- per motor cycle by the respondents works out to about 5% only. Considering the nature of the commodity and the expenditure required to be incurred by the dealers on maintenance of show-room, trained staff etc., discount of the order of 5% could hardly be called high or unreasonable. Without hesitation it can be called a very reasonable deduction from the retail price to arrive at the notional wholesale price in terms of Rule 6(a).
10. The learned representative of the Department then brought in the point that the dealers spent some money on advertisement, publicity and free after-sale service on behalf of the respondents and that according to the Supreme Court judgment in Bombay Tyre International case, these elements had to be included in the assessable value of the goods. The respondents explained that the agreement with dealers with reference to which the learned representative of the Department had raised this objection was not for the material period but for the subsequent period, i.e. period after 2-2-1986. Secondly, they explained that no free aftersale service was promised by the respondents to the customers. The respondents' warranty to the customers was only for replacement parts of the motor cycle. The after-sale serivce by the dealer was governed by the terms of the agreement between the customer and the dealer and the respondents had nothing to do with it. In view of the explanation given by the respondents, we do not consider that it is necessary to go into this point of the learned representative of the Department any further.
11. In the light of our discussion, we order that deduction towards freight and transit insurance should be allowed after verification of the amount by the Assistant Collector. Further, deduction of Rs. 550/- also be allowed from the retail price to arrive at the assessable value in terms of Rule 6(a) of the Central Excise (Valuation) Rules, 1975. The appeal is disposed of in these terms.s