Customs, Excise and Gold Tribunal - Delhi
Collector Of Central Excise vs Addison And Company Ltd. on 17 May, 1994
Equivalent citations: 1994(73)ELT331(TRI-DEL)
ORDER S.V. Maruthi, Member (J)
1. These three appeals are disposed of by a common order as the issue involved is common to all the appeals. The facts are as follows. The assessee has been granting various kinds of discounts to its wholesale dealers. Two such discounts, namely turnover discount and additional discount are the subject matter of these appeals. Turnover discount is granted to the wholesale dealers by the assessee on the basis of the turnover achieved by the dealer on a slab basis in terms of percentage and the same is reflected in the policies issued by them and signed by them at the commencement of the year and are indicated and filed alongwith the price list filed under Rule 173C. Once the dealer achieve the turnover in terms of the agreement, the company pays the discount at the agreed rate on the turnover in the form of credit notes.
2. In the case of additional discounts, the assessee has been granting these discounts in addition to trade discount for certain categories of tools in certain regions where the market conditions are poor to enable the dealers to increase the sales of such types of tools. The quantum of additional discount is also made known to all the wholesale dealers of the assessee and the agree- merits are entered into with the dealers at the beginning of the year and the relevant declarations are also made in the price lists.
3. After the amendment of Section 4 of the Central Excises & Salt Act, 1944 w.e.f. 1-10-1975, the issue relating to the determination of the assessable value was the subject matter of a Writ Petition No. 141/79 in the High Court of Madras. Following the judgment of the Supreme Court in Bombay Tyre International reported in 1983 (14) E.L.T. 1896, the High Court remanded the matter to the Asstt. Collector to adjudicate de novo in the light of the judgment of the Supreme Court referred to above.
4. The Asstt. Collector by his order dt. 18-1-1985 determined the assessable value by allowing the deductions in respect of trade discount, turnover discount, additional discount, among other things.
5. Subsequent refund claims upto the period of 31-3-1987 were also allowed on the basis of the order of the Asstt. Collector dt. 18-1-1985. However, on 26-4-1989 while approving the price list 11/88.89 disallowed the abatements in respect of turnover discount and additional discount on the ground that these discounts are not given at the time of clearance of the goods but at a later date based on the turnover achieved by certain dealers. On appeal, the Collector allowed the same and the Department has filed the Appeal No. E/1809/90A.
6. Similarly, Appeal No. E/2012/90-A was filed by the Department challenging the order of the Collector in Order No. 35/90-A, dated 21-2-1990 allowing the appeal of the assessee claiming the deductions in respect of the turnover discount and additional discount. The appeal arose out of a refund claim filed by the assessee which was rejected by the Asstt. Collector by his Order No. 72/Acr /1989, dated 16-12-1989.
7. Appeal No. 2594/90-A is filed by the Department challenging the order of the Collector and his order No. 84/90, dated 30-3-1990 where the Collector allowed the claim of the appellant for deduction of turnover discount and additional discount in the price lists No. 40/87 to 71/87 and 1/88 to 8/88 for the period from 1-4-1987 to 31-3-1988. The Asstt. Collector disallowed the said deductions by his Order No. 60/89 dated 23-8-1989.
8. The main proposition raised by Shri Prabhat Kumar on behalf of the department are that the turnover discount and additional discount are not allowable deductions. According to him, discount can be allowed as a deduction provided the nature of the discount is known prior to the removal of goods under an agreement. It cannot be allowed if it is computed at the end of the year, i.e. after the removal of goods and not at the time of raising the invoices. Discount conditional on future transactions reaching a fixed figure is not allowable. Discount contingent on the basis of purchased turnover performance is not allowable. Discount paid to a distributor whose net purchases exceeded a target figure as bonus incentive is not an allowable deduction. Discount is a part of selling expenses. In support of the above propositions, he relied on the following orders and judgments: Orient General Industries v. C.C.E. - 1985 (21) E.L.T. 326, R.R. Paints v. C.C.E. -1987 (28) E.L.T. 478, India Pistons v. State of Tamil Nadu - 33 STC 472.
9. Shri Prabhat Kumar elaborating his arguments submitted that the turnover discount varies from region to region and depends upon the volume of sale. It is distinguishable from cash discount in the sense that cash discount is given for prompt payment of sale price and there is an element of certainty, whereas in the case of turnover discount and additional discount. There is no certainty, that these discounts are in the nature of an incentives to promote sales of the manufactured goods. The quantity can be ascertained only at the end of the year and the element of quick payment is not there. It is in the nature of an additional consideration to the dealer. His further argument is that the turnover discount on the facts and circumstances of this case is given as an incentive to increase the sales. It is contingent upon completing a fixed target of purchases. If the dealer does not lift so much of the stock, he is not entitled to the discount and it is known only after the end of the year. He referred to various slabs provided in the Circular and said that whether a particular dealer is entitled to a particular percentage of discount indicated in the slab will be known at the end of the year and the discount is allowed only in cases where he lifts the quantity mentioned in the policy otherwise not.
10. His further submission is that this tribunal in Oriental General Industries Ltd. - (supra) has categorically held that special incentive bonus is not an admissible deduction under Section 4 of the Act. It is an order of three Members. Therefore, it is binding on the two Members in view of the judgment of the Supreme Court in Ujagar Prints - 1989 (39) E.L.T. 479. Therefore, it is submitted that the order in Oriental General Industries is binding and the said order concludes the issue. As regards the additional discount, he submitted that no particulars are given, therefore, it is not an admissible deduction. His next submission is that the discounts are given in the form of credit notes and therefore, they are not allowable under Section 4 of the Act.
11. Shri Anil Diwan appearing on behalf of the assessee contended that the 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 goods if established under an agreement or under terms of sale or by established practice; the allowance and the nature of discount being known at or prior to the removal of goods. Such trade discount shall not be disallowed merely because they are not payable at the time of removal of goods or at the time of invoice. Trade discount can be given at the time of sale or on subsequent dates so long as such discounts are given with reference to sale. Trade discount is a percentage reduction from the regular list or catalogue price allowed by the wholesaler to retailer in trade. Trade discount is permissible, if they are not determined on any extra commercial consideration. Different discounts allowed to consumers/dealers based on a legitimate consideration of volume of purchase is a permissible deduction. Trade discount is any concession shown in the price of goods for any commercial reasons. The object of discount is improving prospects of business. The demand for goods increases when marketed through reputed companies, firms or the individual dealers, correspondingly the business of manufacturer or wholesaler becomes more and more prosperous. The object of trade discount is to promote one's own trade. Referring to the nature of the turnover discount and the additional discount, the ld. counsel submitted that these are given in the normal course of trade and no portion of it is refundable to the assessee. It is a percentage reduction from the list price as can be seen from the agreements entered into between the assessee and the wholesale dealers from time to time. The nature and allowance of the discount is known prior to the removal of goods. It is a normal and established trade practice in the business of cutting tools. They are known only as discounts. His further submission is that the nature of the discount has been considered and allowed by the Asstt. Collector in his order dated 11-6-1985 and he categorically observed that these discounts are being given to dealers in the normal trade practice during the course of business and these discounts are given to them by way of credit notes and sale is being adjusted against the subsequent sales to his dealers. The Asstt. Collector also verified the credit notes with ledgers. The ld. counsel submitted that having arrived at the finding of fact that the discounts are given and having verified the-fact that the discounts are given in the normal course of trade, it is not now open to the Department to reject the claim for deduction of turnover discount and additional discount. He further pointed that the practice of giving discount by credit notes is accepted and upheld by the Courts. In support of the above, he relied on the judgment of the Bombay High Court in Ballarpur Industries v. U.O.I. - 1987 (30) E.L.T. 267.
12. Referring to the argument of Shri Prabhat Kumar that the order of this Tribunal in Oriental General Industries (supra) is binding on this Tribunal, he pointed out that the said order is distinguishable from the facts of this case. His further argument is that the said order is under the unamended Section 4 as the period involved is 1-2-1972 to 31-12-1972 and the nature of discount given in the said order is entirely different from the nature of discount given in the present case. He pointed out that the incentive bonus discount given in the said case did not disturb the sale price and the discount payable to the distributor was subsequent based on a target to be determined by the manufacturer. He also pointed out that the Tribunal while deciding the said case did not have the benefit of the judgment of the Madras High Court in the case of Union of India v. S.S.M. Brothers - 1986 (24) E.L.T. 269 decided on 8th March, 1985 and the judgment of the Bombay High Court in 1987 (30) E.L.T. 267 dated 19-12-1986 in the case of Ballarpur Industries v. Union of India. The order in Oriental General Industries was dated 24-12-1984. In the said order, the bonus discount was disallowed relying on the judgment of the Madras High Court in the case of India Pistons v. State of Tamilnadu - 1974 (33) STC 472. According to him, the Tribunal mis-applied the judgments in India Pistons Ltd. case for the reason that the Madras High Court considered a discount claim where the assessee gave to its distributors a bonus discount called an "additional rebate" which was neither received in cash by them nor reduced the actual sale value of the goods already purchased by them. The rebate was however, credited to the account of the distributors at the end of the year and treated as a reserve from which the distributors could draw to make further purchases. The Madras High Court rejecting the claim of the assessee for deduction of this rebate from the turnover held that discount given by the assessee cannot be called a cash discount so as to claim as a deduction from the turnover. While holding as above, the Madras High Court approved the judgments of the Allahabad High Court in Baidya Nath Ayurved Bhawan (P) Ltd. v. Commissioner of Sales Tax -1970 (26) STC 171 and the judgment of the Madras High Court in State of Madras v. Jeevanlal Ltd. -1973 (32) STC 649.
His argument is that the discount structure in the Baidyanath Ayurved Bhawan case was identical to the discount granted by assessee and therefore, the principle laid down in the judgment of the Allahabad High Court in Baidyanath Ayurved should be extended to the assessee's case. He further pointed out that the Madras High Court in Jeevanlal's case has referred to with approval the judgment of the Baidyanath Ayurved Bhawan. Therefore, the asses-see is entitled to the allowance of turnover discount as well as additional discount. He also pointed out that the reliance placed by the Tribunal on Orient General Industries case and on the judgment of the Supreme Court in Advani Oerlikons is out of context as the Supreme Court only approved the judgment of the Madras High Court on the facts of India Pistons Ltd.
13. Shri Anil Diwan pointed out that under Section 4, the assessable value is to be determined on the basis of the normal price i.e. 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 minus the permissible deductions provided under the various sub-sections. Therefore, it is to be seen on the facts and circumstances of each case as to what is the price a manufacturer is getting into his pocket. If the manufacturer is getting into his pocket the price minus the turnover discount and additional discount, then that should be the assessable value, as ultimately it is that price which gets into the pocket of the manufacturer, that is the assessable value. His further argument is does the discount reduces the sale price? If so, it is an admissible deduction. Therefore, the authorities have to ascertain as to what is the price which the manufacturer is getting, if it is list price minus discount, they have to deduct the discount from the price in order to arrive at the assessable value. In support of the above various propositions he relied upon the following judgments of the Supreme Court and the High Courts of Allahabad, Madras, Bombay namely U.O.I. v. Bombay Tyre International 1984 (17) E.L.T. 329 (SC); U.O.I, v. S.S.M. Bros. (P) Ltd. - 1980 (24) E.L.T. 269 (Mad.); Ramdas Motor Transport v. Collector - 1988 (36) E.L.T. 629; Dy. Commissioner of Sales Tax v. Motor Industries -1983 STC (53) 48; Jenson & Nicholson India v. U.O.I. -1984 (17) E.L.T. 4 (Bom.); Ballarpur Industries v. U.O.I. -1987 (30) E.L.T. 267; Sri Baidyanath Ayurved Bhawan (P) Ltd. v. C.S.T. -1970'(26) STC-171; State of Madras v. Jeevanlal -1973 (32) STC 649.
14. The question therefore that arises for consideration is whether the turnover discount and additional discount are admissible deductions under Section 4 of the Central Excises & Salt Act.
15. We are not considering the order of this Tribunal in R.R. Paints (supra) as the said order is based on the judgment of the Supreme Court in M.R.F. Ltd. which is under review.
16. The next question would be whether this tribunal should await the decision of the Supreme Court in M.R.F. case. We have heard Shri Prabhat Kumar and the ld. counsel on this issue and after hearing the arguments and looking into various authorities relied upon by the ld. counsel, we are of the view that we can proceed with the appeals as there is sufficient material available in order to decide the issue one way, or the other.
16(a) Section 4 provides for the determination of the assessable value and the relevant portion reads as follows :
Section 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 lay 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;
The other provisions are not relevant,
(d) "Value" in relation to any excisable goods
(i) . . . .
(ii) does not include the amount of 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."
17. From a reading of the above provision it is clear that under Section 4, the normal price minus the trade discount and other deduction is the assessable value. The expression used in the explanation (ii) to Section 4(4)(d)(ii) is trade discount. However, the expression is not defined under the Act. According to Corpus Juris Secundum Volume-26, as referred to by the Madras High Court in S.S.M. Bros, (supra), "the term trade discount means the difference between the seller's list price and the price at which he actually sells goods to the trade; a percentage deduction from the regular list or catalogue price of goods". The Supreme Court in the case of Voltas Ltd. has held that "the trade discount is a percentage reduction from the regular list of catalogue price of goods, thus, trade discount normally means a deduction or reduction from the catalogue price of goods allowed by the wholesalers to retailers in the trade". The Supreme Court in Bombay Tyre International observed "that the 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 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."
18. It follows from the above that the trade discount is the list price minus the manufacturer's price to the trade. The nomenclature used is irrelevant as the Supreme Court in Bombay Tyre International says 'by whatever name it is known in the trade'.
19. Let us now examine the nature of the turnover discount and the additional discount claimed by the assessee. According to the assessee, turnover discount is granted to wholesale dealers on the basis of turnover achieved by the dealer on a slab basis in terms of percentage and the nature of allowance of discount or already made known to the wholesale dealers by means of relevant policies which are signed by the dealers at the commencement of the year and are reflected in the price lists. Once the dealer achieves the turnover in terms of the agreement, the assessee pays the agreed rate on the turnover in the form of credit notes which are passed on then and there. We are taking up the policy for April, 1988 to March, 1989 as an illustration and the relevant policy reads as follows:
"ANNUAL TURNOVER POLICY FOR ALL TYPES OF STANDARD CUTTING TOOLS (Period: April, 1988 to March, 1989) Applicable for the Dealers covered by:
DELHI CITY
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Turnover Slabs on Turnover Discount
Gross Value on
Above Upto Gross Value
- 4.20 Nil
4.20 8.50 2.0%
8.50 12.00 3.0%
12.00 18.70 4.0%
18.70 24.80 5.0
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The Policy as against turnover discount says as follows:
"Turnover discount is given in addition to trade discount. The rate of turnover discount varies from region to region, product to product within the same region and also depends on the volume of turnover achieved by each dealer. Since the actual amount of annual turnover discount for which each dealer is eligible can be ascertained only in the year-end, we are allowing a portion of the same based on the previous years performance is claimed and allowed in the invoice itself at the time of each delivery. The balance of TOD will be given in the form of Credit Notes and refund will be claimed by us at the later stage."
Additional Discount: The dealers are given additional discount over and above trade discount, so that they can market more of our tools. This will be discontinued if they do not achieve as per our targets. This is also made known to each dealer in the beginning of the year and the policy will be signed by them and the same will be claimed as refund at a later stage on the basis of the credit note passed then and there.
20. Similar is the policy for Ahmedabad for 1987 and also for Rajkot.
21. A reading of the above policy discloses that a dealer would be entitled to a discount of 2% if he purchases goods between 4.20 lakhs to 8.50 lakhs. However, the total quantity is ascertainable at the end of the year as a dealer may purchase 4.20 lakhs to 5 lakhs or even 8.50 lakhs rupees goods. Therefore, the manufacturer categorically states in the Policy that a portion of the discount is allowed on the previous years' performance and the balance is given in the form of Credit Notes and in case, the dealer does not purchase the volume of goods, the assessee claims refund of the discount allowed by Credit Notes. The Policy dearly indicates the discount to which a dealer is entitled. A dealer knows at the time of the removal of the goods that in case he purchases more than the quantity of goods he purchased during the previous year, he will be getting a discount at a higher rate proportionate to the volume of goods he purchases. For example, if a dealer purchases goods during the previous year at 4.20 lakhs, then he will be given 2% discount and Credit Notes will be given depending upon the quantity which he may purchase during the course of the year. These Credit Notes are adjusted at the end of the year. It is true that credit notes depend upon the quantities that a dealer may be purchasing during the course of the year.
21A. Having examined the nature of discount given by the appellant, let us examine the position of law under Section 4 of the Central Excises Act.
22. As stated earlier, the assessable value under Section 4 is the price at which the goods are sold in the normal course of trade etc. minus the trade discount. We have already referred to, that the expression 'trade discount' has not been defined in the Act and according to the interpretation, it is the catalogue price minus the manufacturer's sale price. We may now refer to the interpretation given by the Supreme Court and various High Courts' and this Tribunal as to the meaning of trade discount. The earliest decision is the judgment of the Supreme Court in Dy. Commissioner of Sales Tax v. Advani Oerlikons - (supra). The facts in brief are as follows :
The assessee charged the retailers the catalogue price less the trade discount. The catalogue price is the price which the retailer is entitled to charge the customer. The return filed under the Sales Tax Act for the year 1971-72 showed a taxable turnover of sales amounting to Rs. 8,71,624 which excluded the amount of Rs. 1,06,708/- paid as discount by the assessee to the retailers. The assessee succeeded before the Appellate Asstt. Commissioner and an amount of Rs. 1,06,708/- was deducted from the turnover. The Revenue having failed before the Appellate Asstt. Commissioner and the High Court, appealed to the Supreme Court by way of special leave. The special leave was dismissed by the Supreme Court. The Supreme Court after considering the scope of the definition of sale price under the Sales Tax Act observed that 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 expenses. The outward invoice sent by a wholesaler to a retailer shows a 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 indicated in the books of respective parties as the amount realisable."
23. The argument of the Revenue was that the assessee enters into two distinct contracts with the retailer, the first contract relates to the sale of goods at the catalogue price and the second contract stipulates that notwithstanding the liability of the retailer under the first contract to pay the entire sale price, he may actually pay the sale price less trade discount. Therefore, it was contended that since the sale was effected under the first contract, the entire amount treated as a consideration for sale under that contract has to be included in the taxable turnover. The Supreme Court rejected the said argument. According to the ld. Judges, the trade discount does not enter into the composition of the sale price but exists apart from and outside it prior to it. "It is immaterial that the definition 'sale price' in Section 2(h) of the Act does not expressly provide for the deduction of trade discount from the sale price. Indeed having regard to the circumstances that the sale price is arrived at after deducting the trade discount, no question arises of deducting from the sale price any sum by way of trade discount."
24. The earliest decision to be considered and relied upon by Shri Anil Diwan is the decision of the Supreme Court in Dy. Commissioner of Sales Tax v. Motor Industries Co. Ltd. - (supra). The facts which are relevant are that the respondents were marketing their goods through its main distributors (purchasers) namely, the TVS group of companies which constituted a prestigious group of commercial concerns. The assessee was giving discount over and above the normal trade discount in consideration of the extra benefit derived by them by reason of the marketing of its goods through them. The said discount was given in accordance with the trade agreement. The assessee claimed deduction of these discounts. The Asstt. Sales Tax Commissioner disallowed the same. On appeal, the Dy. Commissioner of Sales Tax allowed the deduction of discount from the turnover. The Department having failed in revision and also before the High Court appealed to the Supreme Court by way of special leave. The main contention of the Department before the Supreme Court was that the said additional discount allowed by the assessee could not strictly be termed as discount as it was in lieu of services rendered by its main distributors by way of popularisation of sales and consumption of the products sold by the assessee. Rejecting the said contention, the Supreme Court held that "ordinarily any concession shown in the price of goods for any commercial reason would be a trade discount which can legitimately be claimed as a deduction under clause (a) of Rule 9 of the rules. Such a concession is usually allowed by the manufacturer or a wholesale dealer in favour of another dealer with the object of improving the prospects of his own business. It is common experience that when goods are marketed through reputed companies, firms and other individual dealers, the demand for such goods increases and correspondingly the business of the manufacturer or the wholesaler would become more and more prosperous and its capacity to withstand competition from other manufacturers and other dealers dealing in similar goods would also improve. Hence, any concession in price shown in such circumstances by way of an additional incentive with a view to promote one's own trade does qualify for deduction as a discount. It cannot be termed as a service charged or trading in.
25. The next decision to be considered is the judgment of the Allahabad High Court in Baidyanath Ayurved Bhawan v. Commissioner of Sales Tax - (supra). The relevant facts are as follows :
The appellant Sri Baidyanath Ayurved manufacture medicines. The price list indicated the payment of annuity to its customers and agents who purchased the medicines. The scheme was that purchases below Rs. 200/- in a year, no annuity allowed, between Rs. 200/- to Rs. 500/-, an annuity @ 21/2% of the sale price was allowed. The rate of annuity gradually increases and the maximum was 101/2% payable to customers or agents who made purchases totalling a sum of Rs. 25,000/- or over in a year. The matter went upto High Court. Before the High Court, the order of the Judge (Revisions) Sales Tax was challenged. It is relevant to refer to the observations made by the Judge (Revisions) Sales Tax which are exactly similar to the arguments advanced by Shri Prabhat Kumar before us. According to the ld. Judge (Revisions) Sales Tax that annuity is a contingent payment depending upon the total purchases by a customer during one complete year. It was a kind of reward or inducement for enthusiastic service by the purchaser or agents; and was granted on the total sales for the year and was undetermined until the year had actually closed. The rate of annuity is fluctuating. Holding as above, the ld. Judge (Revisions) Sales Tax disallowed the claim of the appellants for deduction of the discount paid on the total turnover from the taxable turnover. The High Court while setting aside the order of the ld. Judge (Revisions) Sales Tax held that "a deductible discount can be in cash or even in kind provided it is allowed on sale price. The motive of the dealer in giving a discount to a customer has not been defined. The legislature considered it immaterial as to what impels a dealer to pay a discount to a customer. Whatever may the reason motivating a dealer to pay a discount, it would be deductible provided it is paid on sale price. It is thus immaterial whether a dealer pays something to a customer as an inducement for prompt payment of the sale price or with a view to push up his own sales or with a view to get better of his competition in the trade. It was further held that the Additional Judge (Revisions) was in error in emphasising that the assessee was paying the annuity as a kind of reward to the customers to make heavy purchases. It was also held that the ld. Judge (Revisions) was in error in holding that since the annuity was paid not immediately the price is paid, but at the end of the year it is not a permissible deduction". The provision according to the ld. Judge "does not limit its applicability to only such cases where the discount is paid at the time of payment of the price. The only condition before a payment can be excluded from the turnover is that it should be a payment in cash or in kind and it may be allowed on the price of any sales."
26. The next decision to be considered is the judgment of the Madras High Court in the State of Madras v. Jeewan Lal - (supra). The facts relevant, in brief, are the respondents gave two discounts, one at the rate of 12 per cent on the invoice value at the time of preparation of the invoice, and the other, an extra discount at 5 to 9 per cent of the aggregate invoice value at the end of the month and an amount of Rs. 66,492.09 represents the total amount of discount granted to the purchasers. According to the Revenue, the said sum is not covered by clause (iii) of the explanation (2) to Section 2(r) of the Act which says that 'any cash or other discount on the price allowed in respect of any sale or any amount refunded in respect of articles returned by customers shall not be included in the turnover'. The contention of the Revenue was that the extra discount given at the end of the month without any particular sale cannot attract the exemption provided under clause (iii) of explanation (2) to Section 2(r). Rejecting the said argument, it was held that "the contention of the Govt. Pleader that it is only a discount that is given at the time of sale that will come within the category of discount contemplated by the above statutory provisions, ignores, in our view, the effect of the words "any cash or other discount". If the section has referred only to a cash discount then the contention of the learned counsel may have some force. But when the statute uses the words "any cash or other discount", the benefit of exemption cannot be denied to an assessee-merely because the discount is not given either in cash or at the time the invoice is prepared." Commenting on the type of discount, it was observed that:
"Trade discount is the one allowed to a customer if he places an order for a certain amount or quantity or more. Such a discount is given to encourage a buyer to buy more at a time or within a period of time. When the Legislature has specifically used the words "cash or other discount", it must be taken that it was aware of the normal trade practice in commercial circles of giving cash or other discount."
27. We may point out that the above decisions arose under various Sales Tax Acts. The decision in Advani Oerlikons arose under the Central Sales Tax Act, whereas the decision in Madras Motors, Baidyanath Ayurved Bhawan, Jeevan Lal arose under the General Sales Tax Act of Kerala, U.P. and Madras. In the case of Central Act the expression 'sale price' is defined by excluding the 'cash discount' whereas, the State Act defines 'sale price' by excluding 'cash or any other discount'. The Supreme Court in Advani Oerlikons having regard to the definition of sale price under the Central Act providing for excluding of 'cash discount' observed that trade discount existed prior to the definition of 'sale price'. In other words, the definition of sale price under the Central Act is after the deduction of trade discount. Whereas in the various Sales Tax Acts the 'sale price' is defined by excluding not only 'cash discount' but also any other discount. Therefore, the necessity for deduction of not only cash but any other discount from the sale price. The reason is obvious, as the emphasis is what is the price which the manufacturer is getting? Is it the price minus discount, then deduct the discount as ultimately it is the price which the manufacturer is getting, that should be the consideration for sale which represents the sale price., Summing up the position under the various Sales Tax Acts, the discount is a concession in the sale price. It is a legitimate concession in sale price for commercial reasons. The commercial reason being promotion of one's own sale of the goods, and in the words of the Supreme Court, 'improving prospects of his own business", and according to Allahabad High Court, "such discounts are given to encourage a buyer to buy more at a time or within a period of time. The service rendered by the purchaser for securing the discount is an integral part of the transaction of sale itself which confers the benefit on the assessee of popularisation of the assessee's goods in the market. The fact that the discount is not allowed at the time of sale but at a later date at the end of the month would not make any less the trade discount. The benefit could be extended even if it is not given at the time when the invoice is prepared. The motive for giving the discount is irrelevant as long as it is paid on the sale price. The fact that it is contingent depending upon the total purchases by a customer does not make any the less a trade discount."
28. We may now consider the decisions which are under the Central Excise Act. The earlier decision is the judgment of the Madras High Court in U.O.I, v. S.S.M. Bros. (P) Ltd. - (supra). The facts relevant are the respondents manufacture embroidered cotton fabrics and filed price list under Rule 173C of the Central Excise Rules excluding the trade discount which they were allowing. The Asstt. Collector allowed the trade discount of 4% to all purchasers and cash discount of 3% towards prompt cash subject to the condition that it is established in each case of clearance that the discounts were allowed uniformly to all purchasers. However, on the ground that the discount allowed is not uniform a demand was issued to the respondents proposing to recover the duty on the discount allowed to the customers. The demand was confirmed. The respondents did not succeed before the Departmental authorities. Therefore, they filed a Writ Petition before the High Court of Madras challenging the order of the Govt. of India confirming the orders passed by the Departmental authorities.
29. The High Court following the judgment of the Supreme Court in the case of Voltas Ltd. -1977 (1) E.L.T. (J177) and the judgment in Bombay Tyre International case allowed the trade discount. The next decision to be considered is the judgment of the Bombay High Court in Jenson & Nicholson (India) Ltd. v. U.O.I. -1984 (17) E.L.T. 4 (Bom.) The facts in brief are :
In the price list, the petitioner claimed 10% trade discount as deduction. On appeal, the Collector allowed only 4% cash discount in respect of sales made by it. Since the petitioner is aggrieved by the order of the Collector he filed a revision before the Revisional authority. The matter ultimately went upto the High Court. The argument before the High Court was that discount which is not actually availed by the buyers would not be deducted while arriving at the wholesale cash price for the purpose of levying the excise duty. The Department contended that a mere clause is inserted in the price list that certain amount of discount is allowed if payment is made in cash, and in actually it may happen that none of the buyers will avail of this facility or very few may avail of the same. In such a case, the wholesale cash price will be represented by the price mentioned in the price list without the discount. The department contended that in certain cases this discount may be only in theory and in practice no one will avail of the same, but by showing small or large discount as being payable in the price list, the goods will escape from payment of excise duty under the Act. Rejecting the above contention of the Department, the High Court held that, "the apprehension expressed by the Department cannot be made the basis of the interpretation of the Section itself, especially in view of the clear language used by the Division Bench of this Court in Voltas Limited's case, which judgment has been subsequently confirmed by the Supreme Court. Even theoretically, in our opinion, the apprehension seems to be totally mis-placed. If the discount is of a very small amount, say one per cent, the assessee is not likely to be benefited to any appreciable extent. If, however, the discount is of a higher amount, then the customers themselves will avail of the same."
"The purchase is made by the customers on the basis of the prices mentioned in the price lists and these price lists themselves mention the various terms subject to which the sales are effected. If the invoices are prepared by mentioning the prices in the price lists and thereafter, the cash discount as mentioned in the terms of sale is given, then the wholesale cash price on which the excise duty is assessable will naturally be the price minus the cash discount allowed in the invoice. In our opinion, the nature and the extent of the discount allowable is known and ascertainable prior to the removal of the goods." Holding as above, the Ld. Judges allowed the deduction of the discount from the assessable value.
30. The next decision to be considered is the decision of this Tribunal in Ramdas Motor Transport Ltd. v. C.C.E. -1988 (36) E.L.T. 629 (Tri.). This Tribunal while upholding the discount given on the basis of volume of purchases observed that, "the assessee (appellant) in addition to the minimum discount of 25%, the consumers/dealers in the second tier were granted extra discount of 2% to 10% depending upon the volume of purchases of the respective buyers. Since the differential discount as allowed to the consumers/dealers was based on legitimate commercial consideration of volume of purchases, we have no hesitation in holding that the actual discount as given to the respective consumer/dealer should be accepted.
31. The observations of the Supreme Court in Bombay Tyre International have already been referred to by us.
32. From the judgments under the Central Excise Act referred to above, it follows that the discount given on the volume of purchases is an allowable deduction. Secondly that no distinction is drawn between the cash discount and trade discount as long as it is indicated in the price list, under the terms of sale or agreement provided the allowance and the nature of discount is known at or prior to the removal of the goods. The indication given in the price list pro- viding for payment of a particular discount appears to have been taken as one of the criteria to show that discount is made known prior to the removal of the goods. If it is indicated in the price list, it is taken that the purchasers are aware of the said discount depending upon when the payment of the price is made.
33. Let us now examine the cases relied upon by Shri Prabhat Kumar. The case relied upon by him is the order of this Tribunal in Orient General Industries Ltd. v. C.C.E. - (supra). The brief facts relevant are as follows : The company had issued a Circular on 6-9-1969 indicating therein the nature and scope of the special incentive bonus. The reduction was Rs. 1.50 or Rs. 3 per tonne depending upon the increase of sale over the previous year. It was held that the said discount is not deductible from the assessable value. The reasoning of this Tribunal is that under Section 4(a) (old) the wholesale cash price should be determined at the time of removal of the article chargeable to duty. In a case where the sale price remains undisturbed and the bonus discount is paid to the distributor subsequently based on a target figure to be determined by the manufacturer, it cannot be considered a trade discount. According to this Tribunal, under the scheme bonus incentive is allowed to the dealers if they exceeded the target based on the performance of the preceding year and fixed by the appellants. It was observed that the distributors have paid for the goods purchased by them as per the contract or list price. It was only at the end of the year they are eligible to the incentive bonus discount was ascertained on the basis of the purchases at the end of the year for the year. Since the sale price had already been paid at the time of purchase and the bonus discount is determined only after the end of the year, the Tribunal held that it cannot be treated as trade discount. According to the Tribunal, it is a contingent concession depending on the basis of the purchase at the end of the year or performance. In support of the above, the Tribunal relied upon the judgment of the Madras High Court in India Pistons case 1974 (33) STC 472. We may analyse the reasons given by the Tribunal in disallowing the discount on the basis of volume of purchases. The Tribunal while rejecting the claim for the deduction gave three reasons :
(1) the wholesale cash price is to be determined at the time of removal of goods and since the amount is paid at the end of the year, price to be paid at the time of removal of goods is not reduced.
(2) it is a contingent concession depending upon increase in the turnover on the previous year's performance.
(3) the decision of the Madras High Court in India Pistons.
34. Taking up the first reason that the wholesale cash price is to be determined at the time of removal of goods and since the amount is paid at the end of the year, the price paid at the time of removal of goods is not reduced, we may point out at the outset that the above order arose under Section 4 before the amendment in 1975. The reason given by the Tribunal since the discount was not paid at the time of removal of goods and therefore, there is no reduction in price appears to be inconsistent with ratio laid down by the judgment of the Allahabad High Court in Sri Baidyanath Ayurved Bhawan's case and the judgment of the Madras High Court in Jeewanlal's case and also the judgment of the Supreme Court in Bombay Tyre International. The Allahabad High Court held that the fact that annuity is paid not immediately the price is paid, but at the end of the year does not make it a deduction not permissible. "The only condition before a payment is excluded from the turnover is that it should be a payment in cash or in kind and it must be allowed on the price of any sale." The Madras High Court following the judgment of Baidyanath Ayurved Bhawan also refused to restrict the interpretation of sale price so as to cover only those discounts given which are either at the time of the preparation of the invoice or with reference to a particular sale. Therefore, the observations in Orient General Industries case sale price is not reduced as the discounts are paid at the end of the year is based on a wrong presumption. Admittedly, these two judgments were not brought to the notice of this Tribunal. It is immaterial whether the trade discount is paid immediately at the time of invoice or at a later date as long as it is paid on the sale price. In other words, the time of payment is irrelevant as long as the discount is paid on the sale price. It is also not correct to infer that since the discounts are paid annually, there is no reduction in the sale price. The true test is what is the price which is paid by the purchaser according to the accounts of these assessee. According to the Supreme Court in Advani Oerlikon, the net amount is the sale price and it is net amount which is entered in the pockets of the respective parties as the amounts realisable which should be the assessable value; The Supreme Court in Bombay Tyre International gave final approval under the Central Excise Act that discount shall not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice price.
35. The second reason given by the Tribunal is that it is a contingent payment depending upon the turnover of the previous year's performance. Similar view was expressed by the Judge (Revisions) Sales Tax that, "annuity was a contingent payment depending upon the total purchase of a customer during one complete year (Sri Baidyanath Ayurved Bhawan's case). The above view was rejected by the High Court in Baidyanath Ayurved and the High Court held that the manner and method of payment is irrelevant as the rate of payment was related to the sale price.
35A. The third reason given by the Tribunal is the judgment of India Piston case by the Madras High Court. The Madras High Court was considering a case which arose under the Central Sales Tax Act where the expression "sale price" is defined by excluding only "cash discount". The facts in brief are that the assessee gave rebate or bonus discount to its distributers whose total value of the purchases from the assessee exceed predetermined target figure, 5% of the net purchase, and the said 5% is determined after the close of the agreed period. The scheme of discount provided is - that the amount allowed as discount to each of the distributors is credited to their accounts, (which are maintained on mercantile basis) at the end of the year and it is treated only as a reserve which distributor can draw to make future purchases.
35B. It was held that since bonus discount is treated as a credit reserve for making future purchases, it does not go to reduce the sale price already , agreed or paid for during the period. Another reason given by the Learned Judges is that the bonus discount is not refunded to the distributor. They distinguished the judgment of Allahabad High Court in Baidyanath Ayurved Bhavan on the ground that the cash payment was made in the said case whereas in the instant case only credit note is given. While holding as above, the Learned Judges referred to with approval the judgment of the Allahabad High Court in Baidyanath Ayurved Bhavan and the judgment of Madras High Court in Jeewan Lal's case (in fact, Mr. Justice Ramanujam and Mr. Justice Ramaswami are the judges in Jeewanlal's case). According to the Learned Judges, credit notes are given to the distributors to enable them to purchase goods from the assessee for the said amount. They refused to treat credit notes as equivalent to cash discount.
35C. The judgment of Madras High Court in India Pistons is distinguishable, the reason being that the said case arose under the Central Sales Tax Act which defines 'sale price' by expressly excluding only 'cash discount' whereas Section 4 of the Central Excises & Salt Act, 'assessable value' is defined as normal price minus trade discount and other deduction and according to Bombay Tyre International 'trade discount' is any discount by whatever name it is described, it should be excluded. Therefore, the definition of 'sale price' under Central Sales Tax Act is not in pari materia, with the definition of assessable value under Section 4. We may point out that the definition of 'sale price' and the 'turnover' under the various Sales Tax Acts is in pari materia with the definition of 'assessable value' under Section 4 of the Central Excises & Salt Act. Therefore, the judgment of the Supreme Court in Motor Industries and .the judgment of Allahabad High Court in Baidyanath Ayurved and the judgment of the Madras High Court injeewanlal is relevant to the interpretation of Section 4 of the Central Excise Act. Secondly, in the view of the Learned Judges since the discount cannot be refunded and can be utilised for making future purchases, treating it as a credit reserve, it does not reduce the sale price. In other words, they have not laid down any test different from what has been already laid down namely that the discount by whatever name it is called should reduce the sale price in various judgments referred to in the earlier paragraphs. As long as it reduces the sale price the discount is deductible if it does not - it cannot be deducted. In our view, the Tribunal misconstrued the Judgment of India Pistons in Oriental General Industries case. In fact, we may point out that the Supreme Court in Advani Oerlikon allowed trade discount on the ground that it existed prior to and apart from the sale price. We may also point out that the Supreme Court was concerned with the definition of 'sale price' under the Central Sales Tax Act in Advani Oerlikons case. We are therefore of the view that the order of the Tribunal in Orient General Industries is not correctly decided.
36. Shri Prabhat Kumar's contention that the payment contingent upon exceeding a particular turnover cannot be allowed as a deduction is rejected in the light of the judgment of the Allahabad High Court in Baidyanath Ayurved Bhaivan's case.
37. The above analysis makes it clear that the order of this Tribunal in Orient General Industries - (supra) is inconsistent with the views expressed by the two High Courts namely, Allahabad and Madras High Court and the judgment of the Supreme Court in Bombay Tyre International. Therefore, we are of the view that it is wrongly decided.
38. We may now consider the arguments of Shri Prabhat Kumar that the discount in the instant case is given as an incentive bonus and to promote the sales of the manufacturer and the element of quick payment is not there and it is distinguishable from the cash discount which is given for prompt payment and there is an uncertainty, therefore, it is not known at the time of removal of goods.
39. According to Allahabad High Court in Baidyanath Ayurved Bhawan's case, it is immaterial whether a dealer pays something to a customer as an inducement for prompt payment of the sale price or with a view to push up his own sales or with a view to get better of his own competition in the trade. The fact that it is given as a reward to customers to make heavy purchases is irrelevant as long as it is paid on sale price. The motive for payment of discount is irrelevant. The Supreme Court also in Motor Industries Case (supra) considered a similar argument and rejected the Revenue's contention that discount has not been given in accordance with the terms of sale but has been allowed as an incentive to promote the trade. The Revenue's contention was that the discount given for popularisation of the sale cannot strictly be termed as a discount as it was in lieu of services rendered by its main distributors. It was also held that any concession in price shown by way of additional incentive, in such circumstances, with a view to promote one's own trade qualify for deduction as trade discount. Promoting one's own sales/trade is a valid commercial reason. The Supreme Court in other words, endorsed the view of Allahabad High Court in Baidyanath Ayurved Bhawan's case namely, discount given for pushing up his own sales qualify for deduction as trade discount, though the Supreme Court has not referred to the judgment of the Allahabad High court. In the light of the judgment of the Allahabad High Court in Baidyanath Ayurved Bhawan's case, Madras High Court judgment in Jeewanlal's case and the Supreme Court judgment in Dy. Commissioner of Sales Tax v. Motor Inds. case referred to above, we reject the contention of Shri Prabhat Kumar for the Department.
40. The next contention of Shri Prabhat Kumar is that discount given by Credit Notes is not an allowable deduction. In this context, we may refer to the judgment of the Bombay High Court in Ballarpur Industries Ltd. v. U.O.I. -1987 (30) E.L.T. 267 (Bom.). The Bombay High Court held that, "since the manufacturer was giving additional discount by issuing credit notes even prior to June, 1983, the rejection of claim for deduction of additional discount deserves to be struck down."
41. It follows from the above that Trade discount is the difference between the price list i.e. catalogue price and the manufacturer's price. The trade discount does not enter the composition of sale price, but exists apart from and outside it and prior to it. The assessable value is the price which a manufacturer gets after the deduction of the trade discount. Incentive to promote one's own sales is a reasonable commercial consideration and trade discount given to promote one's own sales is a permissible deduction provided it is based on sale price. The fact that the trade discount is paid at the end of the year and not paid immediately at the time of removal of goods or in the invoice is not material as long as it reduces the sale price. The fact that it is contingent on the purchase of increased turnover and the amount can be ascertained only at the end of the year does not make any difference as long as the purchaser knows that if he purchases so much quantity of goods, he would be getting a particular percentage of discount at the end of the year. The expression trade discount under the explanation to Section 4 is wider and includes not only cash discount but any discount given on the sale price for commercial consideration. Discount given on the volume of sales is a valid commercial consideration and is a permissible deduction.
41A. In the light of the above, let us now examine the facts of this case. Let us first take up the turnover discount. According to the policy extracted above, it is filed alongwith the price list and the dealer has to sign the policy. According to the policy, a part of the discount is given in the invoice itself on the basis of the previous year's turnover and Credit Notes are given and these Credit Notes are adjusted at the end of the year depending upon the increased turnover. As far as the discount given in the invoice on the basis of previous year's turnover is concerned, there is no difficulty in ascertaining the amount of discount and the reduction in the sale price. As regards the discount given by the Credit Notes which is to be adjusted at the end of the year depending on the increased turnover, the amount becomes ascertained at the end of the year but the purchaser knows the percentage of discount. We may illustrate the above by taking an example from the policy. If during the relevant year, the increase in turnover is, say, 7.2 lakhs. The purchaser has already got 2% discount on 4.20 lakh. Lifting of 3 lakhs tonnes will be known only at the end of the year. However, the purchaser will know the percentage of discount to which he is entitled to although the total amount is quantified only at the end of the year in respect of the increased turnover. In view of the foregoing discussion, it is a permissible deduction.
41B. We have already pointed out that the order of this Tribunal in Oriental General Industries (P) Ltd. is wrongly decided and contrary to the Supreme Court's decision in Bombay Tyre International and the judgment of the Allahabad & Madras High Courts. Therefore, we see no reason to make a reference to a larger Bench and therefore it is not necessary to refer to the judgment of the Supreme Court relied upon by Shri Prabhat Kumar, namely the judgment in Ujjagar Prints -1989 (39) E.L.T. 493.
42. As regards the additional discount, the relevant paragraphs in the policy attached to the list does not give full particulars. We, therefore, direct the authorities to ascertain in the light of the various observations made in this order. If the criteria laid down in the above paragraphs is satisfied after ascertaining from the account books, the Assistant Collector may allow the deduction otherwise, disallow the same. To this extent the Department's appeals are allowed and remanded to the Collector.
ORDER P.K. Kapoor, Member (J)
43. I have given my best consideration to the order passed by the learned Member (J) Miss S.V. Maruthi. With respect, I am unable to agree for the following reasons :-
44. The issue that has arisen for decision in these appeals is whether turnover discount and additional discount offered by the assessees to their wholesale dealers can be deemed as admissible deductions in terms of Section 4(4)(d)(ii) of the Central Excises and Salt Act, 1944. According to the appellants the turnover discount is granted periodically in the form of credit notes as a percentage of the turnover achieved in accordance with the sales policy intimated by the appellants to their wholesale dealers at the commencement of each year. The additional discount on the other hand is granted by assessee over and above the normal trade discount in respect of selected categories of goods to dealers in certain regions where the market conditions are poor to enable them to increase their sales. The quantum of additional discount is also made known by the assessee to the concerned dealers at the beginning of the year.
45. The appellants case is that both turnover and additional discounts being in the nature of percentage deductions from the price list in accordance with agreements entered into between the assessee and the wholesale dealers have to be deemed as admissible trade discounts in terms of Section 4 of the Central Excises and Salt Act, 1944. In support of their contention that the time of payment of the discount is immaterial and a discount whether granted immediately at the time of preparation of the invoice or at a later date would be deductible as a trade discount as long as it is paid on the sale price, the appellants have placed reliance on a number of judgments of the High Courts and Supreme Court on the question of admissibility of the 'turnover discount' on the 'sale price' or 'turnover' under the relevant sales tax laws. In particular, reference has been made to the judgment of the Allahabad High Court in the case of Baidyanath Ayurved Bhawan (P) Ltd. v. Commissioner of Sales Tax 1970 (26) S.T.C. 171 wherein it was held that the fact that annuity is paid not immediately the price is paid, but at the end of the year would not make it a deduction not permissible since the only condition to be satisfied before a payment is excluded from the turnover is that it should be a payment in cash or kind and it must be allowed on the price of any sale.
46. Since Section 4(4)(d)(ii) of the Central Excises and Salt Act, 1944 provides for exclusion from the "value" only such trade discounts which are allowed in accordance with the normal practice of wholesale trade at the time of removal of the goods, in my view the definition of 'sale price' and the 'turnover' under the various sales tax Acts cannot be deemed as in pari materia with the definition of Value' under Section 4 of the Central Excises and Salt Act, 1944. Hence, the decisions in the Sales Tax matter reliled upon by the appellants do not appear to be relevant and the questions that arise for consideration in this case have to be examined only in the light of the interpretations of the provisions of Section 4 of the Central Excises and Salt Act, 1944.
47. In this regard it is seen that in the case of Orient General Industries Ltd. v. Collector of Central Excise, New Delhi reported in 1985 (21) E.L.T. 326, the Tribunal has held that 'Special incentive rebate or bonus' has to be deemed as includible in the assessable value in terms of Section 4 of the Central Excises & Salt Act, 1944 since it is in the nature of gift or reward and not 'trade discount' since it is contingent in nature and dependent upon the basis of the purchased turnover or performance. In the case of S.S. Miranda Ltd. v. U.O.I reported in 1990 (47) E.L.T. 553 the Bombay High Court on the basis of the Supreme Court's clarificatory order reported in 1984 (17) E.L.T. 329 has also held that 'Incentives or Rebates' not known at or prior to the time of removal of goods but contingent upon customers purchasing a particular quota and during particular period would not be deductible as trade discount from the sale price in terms of Section 4(4)(d)(ii) of the Central Excises and Salt Act, 1944. Para 6 from the said judgment is reproduced below :-
"6. I find much substance in the contentions raised on behalf of the Respondents. Section 4(d)(ii) of the Central Excises and Salt Act, 1944 states that "value" in relation to any exisable goods 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. The Supreme Court in its clarifying order reported in 1984 (17) E.L.T. at page 329 while referring to trade discounts which are allowed as deductions has stated 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."
This makes it clear that trade discounts if they are to be allowed as deductions from the said price must be known at or prior to the removal of the goods, judged on this criterion the discounts claimed for none of the period is permissible as deductions. As regards the period upto 31st May 1983, admittedly the Petitioner's customers were not even aware that there was going to be any such incentive scheme since it was announced for the first time only by a circular dated the 23rd May 1983. Similar is the situation with regard to the period from July to October 1983, for the incentive was announced for the said period only by the circular dated the 1st November 1983. The customers were therefore obviously unaware of any such incentive at the time they cleared their individual consignments during the said three months. The only period for which it can be said that the customers were made known of the said incentive scheme within the period of three months viz., June, November and December 1983. All that however can be said with regard to the said three months is that the Petitioner's customers were aware that there was some such incentive scheme operative during the period. But even with regard to these three months it can hardly be said that they knew at the time they agreed the individual consignments during the said three months, the quantum of discount that they would be entitled to. In fact at the time they cleared the specific consignments, during the said three months they could not even be sure that they would get any discount at all. This was because according to the scheme itself their entitlement to the discount was dependent on their fulfilling certain target within a specific period. Both the availability of the incentive as well as its quantum were contingent upon the customers' purchasing a particular quota and during a particular period. If they failed to complete the specified quota during the specific period, they were not entitled to any discount at all. In other words the incentive was not as a matter of course accompanying each purchase. It was more in the nature of a contingent benefit. It could hardly be described as a trade discount. That it was not a discount allowed in accordance with the normal practice of the wholesale trade at the time of removal of the goods is patent on the face of the said scheme itself. Both the circulars did not make a secret of the fact that they were both surprise and incentive schemes. The contents of the circulars themselves show that neither the factum of the incentive nor its quantum was known in advance for a major part of the period. Nor was the quantum known to the purchasers at the time of clearing their individual purchases during the rest of the period. At best this was a profit sharing scheme between the Petitioners and their customers on the customers reaching the targets of purchase. I am therefore of the view that the Petitioners are not entitled to claim any deduction on account of their said surprise incentive scheme for the year 1983."
48. In above view of the matter the appeal is rejected.
Sd/-
(P.K. Kapoor)
Dated : 6-2-1992 Member (T)
In view of the difference of opinion between the two Members, papers are placed before the Hon'ble Vice President for reference to a third Member on the following question :-
A) On the facts and circumstances of this case whether the turnover discount and additional discount are admissible deduction within the meaning of Section 4(4)(d)(ii) of the Central Excises & Salt Act, 1944.
B) Whether the various judgments of the Supreme Court and the High Courts namely, the Allahabad and Madras High Courts under the Central Sales Tax Act and the State Sales Tax Acts dealing with the definition of turnover discount and sale price, are relevant for the purpose of deciding the scope and allowability of trade discount, namely, in the present case, turnover discount and additional discount under Section 4(4)(d)(ii) of the Central Excises & Salt Act, 1944.
Sd/- Sd/-
(S.V. Maruthi) (P.K. Kapoor)
Member (J) Member (T)
Harish Chander, Vice President
The points of difference are referred to Sh. P.C. Jain, Member (T).
Sd/-
Dated : 17-2-1992 (Harish Chander)
ORDER
P.C. Jain, Member (T)
49. One question before me is whether the turnover discount and additional turnover discount allowable under the terms of sale of the excisable goods between the assessee and its customers is admissible or not.
50. Conditions of turnover discount are set out in para 19 at page 18 of the learned sister Ms. S.V. Maruthi, Judicial Member (as she then was) order. Certain features of the turnover discount which emerge from the policy circular of the assessee are :-
51. (i) Nature of the discount i.e. discount admissible after attainment of a certain turnover, is known before hand to the dealers of the assessee.
(ii) rate of discount is also known to them before hand.
(iii) 50% of the discount is given in advance at the time of sale of goods in a current year to a dealer on the basis of previous year's turnover of the dealer in respect of goods purchased by him from the assessee.
(iv) Final adjustment of the discount is made either after attainment of the turnover or at the end of the year.
(v) It was also admitted by the assessee's counsel on instructions during the course of hearing that if a particular dealer fails to achieve the expected turnover, on the basis of which he has been given advance 50% of the turnover discount, duty has been paid by the assessee and question of claiming any such discount as a deduction from the price does not arise.
52. Policy regarding additional discount is not at all clear. It cannot be said whether the nature of discount or its allowance is at all known to the dealers at the time of, or before removal of the excisable goods from the factory.
53. In view of the above factual setting, let me set out the provisions of law and ruling, if any, of the Supreme Court on the subject. Section 4 of the Central Excises & Salt Act, 1944 and the rules made thereunder lay down the method of determining the value of excisable goods for the purpose of assessment of duty where duty is chargeable on ad valorem basis.
53.1 Provisions of Sub-section (4)(d)(ii) of Section 4 read as follows :-
"(4) For the purposes of this section, -
(d) 'value', in relation to any excisable goods, -
(ii) does not include 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".
53.2 Supreme Court in its clarificatory order dated 14th/15th Nov. 1983 reported in 1984 (17) E.L.T. 329 has ruled as follows :-
1. "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 agreement 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".
54. There is no direct judgment on the question of turnover discount, either of the Tribunal or of any High Court or of the Apex Court. There are, however, several judgments on similar types of discounts, both under the CE & SA, 1944 and the various Sales Tax Acts of the country. Revenue has relied on the following judgments :-
(i) Orient General Industries v. C.C.E. 1985 (21) E.L.T. 326
(ii) R.R. Paints v. CCE 1987 (28) E.L.T. 478 (Tribunal)
(iii) India Piston v. State of Tamil Nadu [33 STC 472 (Madras HC)]
(iv) D.C. Sales Tax (Law) v. Advani Oerlikon (P) Ltd. 1981 (6) E.L.T. 801A (SC)
(v) S.S. Miranda Ltd. v. U.O.I. 1990 (47) E.L.T. 553 (Bom.) 54.1 Learned JDR, Shri Prabhat Kumar, has submitted for the Revenue that Tribunal's judgment in Orient General (supra) is a three Members' judgment and is of a binding character on a two Member Bench. Learned Judicial Member, Ms. S.V. Maruthi could not declare the said judgment to be incorrect. She could at the best, recommend for a larger Bench, if she held a different view. Learned SDR has submitted that he fully supports the reasoning of Orient General. Turnover discount is not admissible because of its uncertainty at, or prior to removal of the goods. Quantum of allowance is ascertainable at a later date. In similar strain is the reasoning of the Tribunal in R.R. Paints, even though Supreme Court's judgment in the case of MRF on which R.R. Paints is based has been recalled. Recall of MRF's judgment by the Apex Court on a Review Petition cannot take away the reasoning in R.R. Paints leading to inadmissibility of the discount. Learned Single Judge in S.S. Miranda also adopts the same reasoning in disallowing 'Surprising Incentive Rebate'.
55. Learned advocate, Shri Anil B. Divan for the assessee has however, relied on the following judgments :-
(i) Baidyanath Ayurved Bhavan v. Commissioner of Sales Tax 1970 (26) STC 171 (Allahabad HC)
(ii) State of Madras v. Jeevanlal 1973 (32) STC 649
(iii) Ramdas Motor Transport Ltd. v. Collector 1988 (36) E.L.T. 629
(iv) D.C Sales Tax v. Motor Industries 1983 (53) E.L.T. 48
(v) Jenson & Nicholson (India) Ltd. v. U.O.I. 1984 (17) E.L.T. 4 (Bom.)
(vi) Goodlass Nerolac 1993 (65) E.L.T. 186
55.1 Learned advocate for the assessee on the other hand, supports the view taken by the learned Judicial Member. He has submitted that, Tribunal in Orient General based itself on Madras High Court's judgment in India Pistons (supra) which was distinguished in Jeevanlal (supra) by the same High Court. Jeevanlal of Madras High Court has relied upon Allahabad High Court's judgment in Baidyanath (supra) which allows turnover discount in the context of U.P. General Sales Tax Act. Learned advocate has submitted that the learned Judicial Member has rightly observed that the turnover discount in the present case is identical to the one involved in Baidyanath and therefore, following the ratio of the said judgment, it should be treated as an admissible discount as has been held by the learned Judicial Member.
55.2 After the matter had been closed for orders, an application was received from the assessee's advocate that a recent judgment of a Division Bench of Bombay High Court in the case of National Radio & Electronics Co. Ltd. v. Collector has been published subsequently in 1993 (67) E.L.T. 232 which is on all fours with the present matter. Nature of the bonus to dealers mentioned in the said judgment is identical to the turnover discount herein. The said bonus to dealers was sought to be denied by the lower authorities in that case exactly on the same reasoning which has been adopted by the Tribunal in Orient General. Bombay High Court has, however, held that bonus to dealers is an admissible trade discount in terms of Section 4 of the CE & SA, 1944. In order to appreciate the applicability of the said judgment and to give a fair opportunity to the other side matter was reopened for hearing on this limited point after due notice to both sides. Assessee's learned advocate Shri K. Srinivasan has submitted that the judgment of Bombay High Court in National Radio should settle the controversy being a direct judgment on the nature of discount herein. This judgment, according to him, impliedly over-rules the reasoning which found favour with the Tribunal in Orient General. Learned SDR has, however, reiterated his earlier submission. He also points out that another two judgments of Bombay High Court reported in the same issue at 1993 (67) E.L.T. 241 and 1993 (67) E.L.T. 249 does not allow similar discounts.
56. I have carefully considered the pleas advanced on both sides. Reliance placed by the learned advocate for the assessee on various judgments in the context of turnover tax in various Sales Tax Laws of the country would not be applicable in the context and scheme of Central Excise duty under the CE & SA, 1944 and the rules made thereunder. Turnover tax is determined on the aggregate sales during the year after allowing cash and other discounts. This is apparent from the following extracts from the judgments in the case of Baidyanath by Allahabad High Court and in the case of Jeevanlal by Madras High Court :-
From Baidyanath's case "Under the U.P. Sales Tax Act, sales tax is payable by a dealer on the turnover. The term 'turnover' has been defined in Section 2(i) of the Act to mean the aggregate amount for which goods are supplied by way of sale by a dealer. Clause (ii) of its second explanation runs as follows :-
'any cash or orther discount on the price allowed in respect of any sale ...shall not be included in the turnover...
'any sale' would not, in our opinion, mean an individual sale. It will include any aggregate of sales".
[Emphasis supplied] From Jeevanlal's case "...
Explanation (2) to Section 2(r) of the Act, in so far as it is relevant, is set out below :
'Subject to such conditions and restrictions, if any, as may be prescribed in this behalf....
(iii) any cash or other discount on the price allowed in respect of any sale and any amount refunded in respect of articles returned by customers shall not be included in the turnover..."
Rule 5A(a) provides: -
'In pursuance of explanation (2) to Section 2(r) of the Act, the amounts specified in the following clauses shall not, subject to the conditions specified therein, be included in the total turnover of a dealer :-
(a) all amounts allowed as discount, provided that such discount is allowed in accordance with the regular practice of the dealer or is in accordance with the terms of a contract or agreement entered into in a particular case, and provided also that the accounts show that the purchaser has paid only the sum originally charged less the discount.' Clause (iii) of explanation (23) to Section 2(r) read along with the above rule makes it clear that all amounts allowed either as cash discount or other discount on the price payable in respect of any sale in accordance with the regular practice of the dealer or in accordance with the terms of any contract entered into between the seller and the purchaser will not form part of the total turnover of the dealer. The contention of the learned Government Pleader that it is only the discount that is given at the time of sale that will come within the category of discount contemplated by the above statutory provisions, ignores, in our view, the effect of the words 'any cash or other discount'. If the section has referred only to a cash discount, then the contention of the learned counsel may have some force. But when the statute uses the words 'any cash or other discount', the benefit of exemption cannot be denied to an asessee merely because the discount is not given either in cash or at the time the invoice is prepared. The learned Government Pleader also particularly refers to the proviso found in Rule 5-A(a). But, in our view, that proviso is intended to see that as per the account of the assessee, it is only the price as discounted that is ultimately paid by the purchaser, and not more. We are not able to read the above statutory provisions in a restricted manner so as to cover only those discounts which are given either at the time of the preparation of the invoice or with reference to a particular sale.
It is well-known that a scheme of discount adopted by commercial circles is normally of two types - cash discount and trade discount - and a discount normally denotes a deduction from the amount due as price of goods in consideration of its being paid promptly or in advance. Trade discount is the one allowed to a customer if he places an order for a certain amount or quantity or more. Such a discount is given to encourage a buyer to buy more at a time or within a period of time. When the Legislature has specifically used the words 'cash or other discount', it must be taken that it was aware of the normal trade practice in commercial circles of giving cash or other discounts."
[Emphasis supplied] 56.1 Scheme of collection of the Central Excise duty is at the time of removal of the goods from the factory. It is for this reason that Section 4(1)(a) envisages valuation of excisable goods at the time of removal of goods. Section 4(4)(d)(ii), as already extracted, also envisages trade discount allowed at the time of removal of goods. It is ostensibly for this reason that the Apex Court has laid down in its clarificatory order reported in 1984 (17) E.L.T. 329 (supra) that "the allowance and the nature of the discount" should be known at or prior to the removal of the goods". In other words quantum of duty i.e. the assessment, gets fixed at the time of removal of the goods in any particular consignment. Quantum of duty will get fixed when the value of goods liable to ad valorem levy gets determined at the time of removal of goods. This would be possible, if the quantum of trade discount, to be abated from the price of the goods, is determined at the time of removal of the goods. It is immaterial that the trade discount is paid later on by an assessee/manufacturer to its customers through credit notes or otherwise. That is a matter between the assessee and its customers. But the liability to pay the fixed amount of trade discount must accrue at the item of removal of the goods and not later in point of time. If scheme of any particular trade discount does not follow the above principle, in my view it is not liable to be abated from the normal price of the goods in .view of the provisions of Section 4 of the CE & SA, 1944.
56.2 Turnover discount, salient features of which have already been set out does not satisfy the above criteria. The discount is indeterminate at the time of removal of the goods. It gets determined only after attainment of a particular turnover set by the assessee herein.
57. Further, stark fact of indeterminate character of the turnover discount does not remain hidden by a system of provisional advance payment of a certain amount of the turnover discount at the time of removal of goods on the basis of previous year's performance of customer. All such provisional assessment is liable to be refunded or adjusted if the customer fails to achieve the targeted figure for which he got provisionally a portion of the turnover discount. Such being the position in the case of turnover discount, it comes into direct conflict with the statutory mandate referred to in Section 4(4)(d)(ii) that the trade discount, not liable to be included in the value of the goods, should not be refundable on any account whatsoever.
58. Let me examine it from another angle. Supreme Court's clarificatory order in 1984 (17) E.L.T. 329 uses the words "the allowance" in the expression "the allowance and the nature of the discount being known at or prior to the removal of the goods". What is the meaning of this word "allowance"? In Chamber's Twentieth Century Dictionary, 'allowance' means : that which is allowed; a limited portion or amount allowed, allotted, granted; a ration or stint; money allowed to meet expenses or in consideration of special conditions; abatement, a sum periodically granted; a taking into account in calculation or excuse. All the relevant meanings of the word 'allowance' imply a fixed sum or money for various considerations. Apex Court, therefore, meant determination of a fixed sum of discount known at or prior to the removal of the goods for reduction from the price.
59. Learned Advocate for the assessee's reliance on National Radio (supra) no doubt at first blush tends to support him. Assessee therein, in pursuance of a format order passed on Dec. 1993 consequent to decision of the Supreme Court in Bombay Tyres International 1983 (14) E.L.T. 1896 claimed, inter alia, 'bonus to dealers', as a post-manufacturing expense. The Assistant Collector determined the revised assessable value without abatement of post-manufacturing expenses as claimed by the assessee [c.f. para 2 of 67 E.L.T. 232]. The Assistant Collector declined to accept the claim for deduction on account of 'bonus to dealers' on the ground that the allowance and nature of discount was not known at the time of removal of goods. The Assistant Collector observed that though the nature of the discount is known, the allowance is not known till the dealer fulfils the conditions required for claiming the bonus and the fulfilment of conditions can be ascertained only at the end of the year or specified period of the bonus scheme. Bombay High Court, after setting out Supreme Court's clarificatory order in 1984 (17) E.L.T. 329 has formulated a question whether the 'bonus to dealers' falls within the expression "discounts allowed in the trade". The Court has held as follows, as per extracts from para 3 of the said report :-
"3. ...We have no hesitation in holding that the bonus to dealers is in the nature of trade discount. As per the test laid down by the Supreme Court, the allowance in the nature of the discount should be known at or prior to the removal of the goods. It is not in dispute that in accordance with the policy documents produced by the company, bonus to dealers is known at the time of sale of goods to wholesale dealers. It is equally not in dispute that the rate at which bonus would be paid to the dealers is also set out. In our judgment, once these two averments are established, then the advantage of deduction cannot be declined on the ground that exact quantum of bonus which will be payable to the dealers is not known at the time of removal of the goods. In the nature of things, it is impossible to expect what would be the quantum of bonus at the time of removal of the goods because the quantum can be determined only at the end of the year and would upon the quantity of articles sold. It is entirely unnecessary for the manufacturer to establish what should be the quantum of bonus which will be payable at the end of the year at the time of removal of the goods."
59.1 It is clear from the above observations of the Hon'ble High Court that the word "allowance" occurring in the expression "allowance and nature of the discount being known at or prior to the removal of the goods" has been equated to the words "rate of discount". No significance appears to have been attached to the 'quantum of allowance' being known at or prior to the removal of the goods. This view, in my opinion runs counter to another Division Bench judgment of the same High Court in Jenson & Nicholson (supra) wherein para 15 of the said Report, in the context of cash discount, Division Bench in Jenson & Nicholson observed : "In our opinion the nature and the extent of the discount allowable is known and ascertainable prior to the removal of the goods". 'Extent of the discount', in my view, means the quantum of discount and not the rate of discount. The word 'extent' in Chamber's Twentieth Century Dictionary means :-
(i) the space or degree to which a thing is expanded; bulk; compass : scope : degree or amount (as to some extent) : a stretch or extended space : a valuation of property : (law) a writ directing the shessif to seize the property of a debtor, for the recovery of debts of record due to the Crown. Therefore the most relevant meaning of the word 'extent' in the expression "extent of the discount" would be the "degree" or "amount" of discount and not just the rate of discount. It is also to be noted that Jenson & Nicholson does not appear to have been brought to the notice of the Bench deciding National Radio.
59.2 Learned Single Judge of the Bombay High Court in S.S. Miranda (supra) relied upon by my learned Brother, Shri P.K. Kapoor, Technical Member in his order has spoken of the 'quantum of discount' while construing the word 'allowance' in the expression "allowance and nature of the discount being known at or prior to removal of the goods" in Supreme Court's clarificatory order.
59.3 There is thus a conflict of judicial opinion amongst various Benches of Bombay High Court. Five Member Bench of this Tribunal in the case of Atma Steels 1984 (17) E.L.T. 331 has in similar circumstances ruled that this Tribunal has the judicial freedom to give its independent decision, having regard to the scheme of the Customs Act, Central Excises & Salt Act and Gold (Control) Act, whenever there is a conflict of judicial opinion. Adopting the same approach and with utmost respect to the views of the various decisions of Bombay High Court mentioned above, I am inclined to agree that if the quantum of discount is not known at or prior to the removal of the goods, the same cannot be treated as a permissible discount under Section 4 of the CE & SA, 1944.
60. In view of the foregoing discussion, I answer the two questions referred to me as follows :-
(i). Turnover discount and additional discount are not admissible abatements as held by the learned Technical Member.
(ii) No general rule about non-applicability of judgments under Sales Tax laws can be laid down. However, in the facts and circumstances of this case, judgments under Sales Tax laws regarding deduction of turnover discount from the computation of annual turnover are not applicable for the purpose of determining value under Section 4 of the CE & SA, 1944, having regard to the different schemes of assessment of turnover tax and Central Excise Duty.
ORDER G.P. Agarwal
61. When the case was called on for delivery of judgment, Smt. C.G. Lal, learned SDR, appeared on behalf of the appellants. None appeared on behalf of the respondents.
62. At the outset, Smt. C.G. Lal, learned SDR, pointed out that in paragraph 6, page 54 of the separate order written by the learned Technical Member, Shri P.K. Kapoor, there appears to be a typographical error, that is to say, instead of the words "the appeal is rejected" it should be "the appeals are allowed" adding that this is the logical conclusion in view of the findings recorded in the earlier paragraphs. After going through the order we find that the learned SDR is right in her contention. Accordingly, we order that the words "the appeals are allowed" be read in place of the words "the appeal is rejected" in paragraph 6, page 54 of the order.
63. In accordance with the majority opinion, all the appeals are hereby allowed.