Customs, Excise and Gold Tribunal - Delhi
Consolidated Hoists Pvt. Ltd. vs Collector Of Central Excise on 23 July, 1993
Equivalent citations: 1993(49)ECR514(TRI.-DELHI)
ORDER G.R. Sharma, Member (T)
1. This appeal has been preferred by M/s. Consolidated Hoists Pvt. Ltd. against the Order-in-Original dated 14.9.1990 passed by the Collector of Central Excise. The Collector in his order has held--
Therefore, I have no hesitation to conclude that the concessionaire is a selling agent of the company and not a mere distributor or wholesale dealer. Further I find that the case law on this issue of payment of commissions to selling agents for after sales service and advertisements are not trade discount is now well established.
In support of the above two views, the Collector has cited a number of case law decided by various Courts and the Tribunal. On the question of limitation, the Collector has held I therefore find that the extended period of five years for which duty has been demanded in the show cause notice is applicable in this case.
2. Before we proceed to discuss the above contentions, we would like briefly to state the facts of the case. The appellants are a small scale unit and manufacturer of electric wire rope hoists. For marketing these hoists, the appellants entered into an agreement with M/s. Greaves Cotton & Co. on 1.7.1983 appointing them as concessionaire for sale and distribution within a specified territory. Clause 4 of the agreement stipulates--
4(a) orders placed by the concessionaire on the company will be expressed in terms of current nett prices of the goods prevailing at the time when the orders are placed and will stipulate the destination and other attendant requirements of the concessionaire.
4(b) Unless otherwise agreed, the company shall on receipt of intimation to that effect, deliver or cause to be delivered the goods so sold to the concessionaire or to their agents appointed for the purpose or to their customers.
3. In accordance with the above agreement, 95% of the goods of the appellants were being lifted by the concessionaire and the remaining 5% were being lifted by actual users or industrial consumers. Scrutiny of the price negotiated with the appellants by M/s. Greaves Cotton & Co. revealed that M/s. Greaves Cotton and Co. have reduced the price to the extent of 22 1/2% while placing the orders with the appellants. But where discount of 15% was passed on by the concessionaire to the actual buyer, price reduction was to the extent of 39%. Industrial consumers and other actual users were being allowed discount varying between 5% to 10%.
4. In the grounds of appeal, the appellants have denied all the charges, contending that M/s. Greaves Cotton & Co. was not their sole selling agent; that this company was the appellant's distributor; that a copy of the agreement was sent to the Department as far back as June, 1983; that trade discount is bound to vary for different class of buyers; that there can be different prices for different class of buyers; that the alleged expenses were incurred after removal of goods from the factory and that extended period of 5 years is not applicable in their case.
5. Shri B.K. Kulkarni, the Ld. Chartered Accountant appeared for the appellants and Shri A.K. Singhal, the Ld. JDR for the Department. Shri Kulkarni argued that 95% of the sales of the appellants was to M/s. Greaves Cotton & Co. Remaining 5% were to industrial consumers. Whereas M/s. Greaves Cotton & Co. were entitled to a higher discount of 22'/2%, other industrial consumers were allowed the discount ranging between 5% to 10%. The Ld. Chartered Accountant further pleaded that M/s. Greaves Cotton & Co. were not their sole selling agent stating that the Collector (Appeals) in his order dated 15.2.1985 decided that M/s. Greaves Cotton & Co. is not a related person; that M/s. Greaves Cotton & Co. is the main distributor of the appellants; that the company sold its goods outright on invoices; that in the Manual of Instructions of 1984 M/s. Greaves Cotton & Co. was designated as sole selling agent but when the appellants realised its implication, the Manual was revised in 1988; that M/s. Greaves Cotton & Co. were designated as distributor; that M/s. Greaves Cotton & Co. buys for resale while others are industrial consumers who buy the appellants' goods for their own use; The appellants charge a lower price from M/s. Greaves Cotton & Co. to compensate them for the expenses incurred by them and also a reasonable margin of profit. The Ld. Chartered Accountant argued that the concessionaire agreement was expressly considered by the Collector (Appeals) in his order and that the concessionaire agreement was thus already known and examined by the Department and that the relationship between the appellant and M/s. Greaves Cotton and Co. was that of principal to principal. He in his arguments stressed that the Department was well informed about the agreement as well as the relationship between the appellants and M/s. Greaves Cotton and Co. Since the agreement was expressly adjudicated by the Department at various times and that the appellants were refunded the excess excise duty paid by the appellant on the basis of price charged by M/s. Greaves Cotton & Co. to the final customers. He argued that for different class of buyers, different prices can prevail at the same time. On the question of limitation, the Ld. Chartered Accountant argued that the Department's contention is not correct in holding that the specific clauses of the agreement between the appellants and M/s. Greaves Cotton & Co. were not known to the Department; that this agreement was specifically brought to the notice of the Department during the earlier cases adjudicated by the Department; that this agreement was sent to the Department as far back as June 1983. In support of his above contentions, the Ld. Chartered Accountant extensively cited case law to prove that the transactions between the appellants and M/s. Greaves Cotton & Co. were at arm's length; on principal to principal basis and there was no extra commercial consideration in the transactions. In support of his contentions, the Ld. Chartered Accountant particularly cited the case law as under:
Queens Chemists v. B.K. Agarwal, Collector Central Excise 1987 (31) ELT 389 (Bom) Mahindra & Mahindra v. Union of India 1984 916) ELT 76 (Bom) : 1984 ECR 338 (Bombay) Killick Slotted Angles Ltd. v. CCE Union of India v. Mahindra & Mahindra Ltd. .
6. Shri A.K. Singhal, Ld. DR appearing on behalf of the Department, argued that the appellants failed to declare the correct assessable value by not including the expenses incurred on marketing, after sales services, advertisement and warranty period services; that the price charged for the sale of goods was based on extra commercial consideration inasmuch as the responsibility of procuring orders, warranty period services, after sales services and advertisement of the products was entrusted to the concessionaire; that the goods were cleared mainly to M/s. Greaves Cotton & Co. for the period October 1984 to April 1989; that the expenses on the services stated above were being met out of extra discount of 12 1/2% which was being charged over and above the normal discount extended to other customers; that the respondents stress the fact that M/s. Greaves Cotton & Co. was their sole selling agent and the content of the agreements were not known to the assessing officers and therefore the extended period of 5 years is correctly applicable in the impugned case.
7. On proper appreciation of the ratio of the judgments cited above we observe that in each case the crucial question would be whether under a distributorship agreement property passes to the distributor and the risk taken is also placed on the distributor. In other words, whether the sale had been on principal to principal basis or on the basis of merely an agency agreement for reaching out to wholesale buyers of the manufacturer's products. The nomenclature of the agreement was not relevant. In the above view it is material to examine the terms of agreement of distributorship.
8. We have heard arguments of both sides, perused the ratio of judgments cited and case law referred to. We find that the issue to be resolved in the present case is whether M/s. Greaves Cotton & Co. were purchasing the goods on their own account and the transactions between the appellants and M/s. Greaves Cotton and Co. were at arm's length and whether these transactions can be termed as transactions from principal to principal meaning thereby whether title in the goods passes on to M/s. Greaves Cotton & Co., before the sale of goods to wholesale buyers or industrial consumers.
9. For proper appreciation of this aspect of the problem, it is essential to go through the relevant clauses of agreement reproduced as under:
1. The company hereby appoints the concessionaire to be its concessionaire for the sale and distribution within the territory of the goods listed in Schedule 2 (hereinafter referred to as the goods) and any subsequent amendment thereof by mandatory consent of the parties hereto in writing.
3. The Company shall sell and supply to the concessionaire such of the goods as shall be ordered by the concessionaire from the company at mutually agreed prices from time to time for resale in the territory.
4. (a) Orders placed by the Concessionaires on the company will be expressed in terms of the current nett prices of the goods prevailing at the time when the orders are placed and will stipulate the destination and other attendant requirements of the concessionaires.
4. (b) Unless otherwise agreed, the company shall on receipt of intimation to that effect delivery or cause to be delivered the goods so sold, to the concessionaires or to their Agents appointed for the purpose, or to their customers.
4. (d) In absence of a specific agreement to the contrary in regard to any particular order, the Company's invoice price for the goods supplied shall, except under circumstances beyond their control, be paid by the Concessionaires against a Hundi drawn for thirty days from the date of the Hundi accompanied by proof of despatch. It is agreed that the Hundi shall be submitted by the company to the Concessionaires within two days from the date of proof of despatch and that the Concessionaires shall bear interest charges, if any, in case of delay m payment after having availed of the grace period normally permitted for payment against Hundies. Hundi drawal charges, if any, shall be paid by the company.
10. This agreement is to be read with the relevant documents placing the orders with the appellants. It would be seen that in this case, the order has been placed by M/s. Greaves Cotton & Co. Ltd. for hoists with the appellant A/C Swaraj Tractor Division SAS Nagar Mohali. Similarly, if we see the invoice the same has been prepared in the name of M/s. Greaves Cotton & Co. a/c Swaraj Tractor Division. In the invoice the consignor has been declared as Consolidated Hoists (P) Ltd. and the consignee has been indicated as self Mohali. We find that the invoice indicates that the goods are not normally despatched to Mis. Greaves Cotton & Co. but are despatched directly to the consumer. The despatch of the goods direct to the consumers without bringing in Mis. Greaves Cotton & Co. in the picture leads us to believe that the title in the goods passes directly from the appellants to the consumers though the sale invoice is sent to Mis. Greaves Cotton & Co. Further we find that in the invoice the consignor is M/s. Consolidated Hoists (?) Ltd. and the consignee is self at Mohali. This strengthens our belief that the title in goods does not pass to M/s. Greaves Cotton and Co. Ltd. Another important point that comes to notice is that the invoice shows that it is made A/c (consumer), which goes to prove that the goods are not purchased by M/s. Greaves Cotton & Co on their own account and therefore the title in the goods does not pass to M/s. Greaves Cotton & Co. Further, scrutiny of the agreement shows that the damaged parts replaced become the property of the appellants. In case the goods were sold to M/s. Greaves Cotton and Co. the damaged parts replaced would have become their property. Agreement provisions as quoted in the preceding paragraphs also indicate that M/s. Greaves Cotton and Co. places orders with the appellants and the appellants send the goods direct to the consumer. We therefore hold that the transactions between the appellant and M/s. Greaves Cotton & Co. Ltd. are not on principal to principal basis as the property in the goods does not pass on to M/s. Greaves Cotton &. Co. Ltd.
11. In the case of Snowwhite Industrial Corpn. v. CCE , the Hon'ble Supreme Court held that it is well settled that whether an agreement was for sale or of agency must depend upon the facts and circumstances and the terms of each case. Such facts and terms must be judged in the background of totality of the circumstances even if the agreement describes the buyer as selling agent. That would not be termed as an agreement for agency because the essence of agency to sell is to deliver goods to a person who is to sell these not as its own property but as the property of the member who continues to be the owner of the goods. While the essence of the sale is transfer of the title of the goods for the price paid or promised to be paid.
12. On close scrutiny of the facts in the impugned order, we observe that there the title in the goods passed from the appellants to the consumer. The role of Mis. Greaves Cotton & Co. in such a transaction where the title in the goods did not go to them, was that of an agent.
13. In the light of the above findings, we hold that M/s. Greaves Cotton & Co. was a selling agent of the appellants. Selling agents are paid commission and commission is not a discount. Therefore, the discount given to M/s. Greaves Cotton & Co. from the price will not be deductible for the purpose of computing the duty.
(1) The case of Union of India v. Mahindra & Mahindra Ltd. this case the Hon'ble High Court of Calcutta has held In each case, the crucial question would be whether under a distributorship agreement, the property passes to the distributor and the risk is also placed on the distributor.
In the case before us, we have already held that the property in the goods does not pass to M/s. Greaves Cotton & Co. and hence distinguished.
(2) The case of Mahindra & Mahindra Ltd. v. U.O.I. and Anr. , in this case the essential test laid down by the Hon'ble High Court was In such a case, the distributor is in fact a wholesale buyer and the property in the goods passes to such a buyer.
Whereas in the case before us, we have already rendered a finding that the property in the goods did not pass to M/s. Greaves Cotton & Co. and hence distinguished.
(3) The case of Queens Chemists v. CCE . In this case there was a sale to the sole selling agent. Whereas in the case before us, there was no such sale to the selling agent as the title in the goods never passed to M/s. Greaves Cotton & Co. and hence the case is distinguished.
(4) The case of M/s. Killick Slotted Angles Ltd. v. CCE . In this case the Tribunal held The agreement between the appellants and the sole selling agents was one of the sale and purchase of goods and the sole selling agents were required to pay the purchase price within 45 days.
In the case that is before us there was no sale and purchase between the appellant and M/s. Greaves Cotton & Co. and hence distinguishable.
This commission varies from order to order. We find that the lower authorities have disallowed a discount of 12-1/2%. As the amount of commission is higher than 121l2%, we confine our order to disallowing the amount of 12 1/2% only.
14. We also hold that the price was not the sole consideration and the above amount was an additional consideration flowing under the provision of Section 4 of the Central Excises & Salt Act, 1944. The additional consideration therefore will have to be added to price declared for the purpose of assessment, under Rule 5 of the Central Excise (Valuation) Rules, 1975. It was also contended by the respondents that this additional consideration should be added to the assessable value as was held by the Tribunal in the case of CCE v. R. Gac Electrodes (P) Ltd. . However, we also find that in the case of VST Industries, the Bench examined the ratio of the decision in the case of CCE v. R. Gac Electrodes and came to the conclusion that the additional consideration should be added to the price and Central Excise duty so leviable should be worked out by working backwards. We agree with this decision.
15. Coming to the point of limitation and whether the demand can be extended to 5 years under the provisions of Section 11A of the Central Excises & Salt Act, 1944, the main contention of the respondent was that the relevant portion of the agreement were suppressed by the appellants and this suppression of relationship between the appellant and M/s. Greaves Cotton and Co. led to fixing up a lower assessable value. For this purpose the Collector has already considered the ratio of the judgment in the case of Mopeds India Ltd. v. A.C.C.E. . For the sake of convenience, we reproduce the extract of para 14 as under:
14. The learned Counsel for the petitioner company Shri Y.G. Ramamurthy has further contended that the agreements were examined by the competent authorities earlier before the approval of the price-lists and there is no case of Suppressio Veri Suggestio Falsi and therefore the demand of differential duty is barred by limitation of six months specified under Rule 10 of the Central Excise Rules, 1944. Rule 10 of the Central Excise Rules, 1944 reads as follows:
10. Recovery of duties not levied or not paid, or short-levied or not paid in full or erroneously refunded: (1) Where any duty has not been levied or paid or has been short-levied or erroneously refunded or any duty assessed has not been paid in full, the proper officer may, within six months from the relevant date, serve notice on the person chargeable with the duty, which has not been levied or paid, or which has been short-levied, or to whom the refund has erroneously been made, or which has not been paid in full, requiring him to show cause why he should not pay the amount specified in the notice:
Provided that--
(a) where any duty has not been levied or paid or has been short-levied or has not been paid in full, by reason of fraud, collusion, or any wilful mis-statement or suppression of facts by such person or his agent, or
(b) where any person or his agent contravenes any of the provisions of these rules with intent to evade payment of duty and has not paid the duty in full, or
(c) where any duty has been erroneously refunded by reason of collusion or any wilful mis-statement or suppression of facts by such person or his agent, the provisions of this sub-rule shall, in any of the cases referred to above have effect as if for the words "six months", the words "five years" were substituted.
The allegation against the petitioner company is not that it has not furnished the agreements before the competent authorities or had removed the goods surreptitiously. The allegation is that they have given wrong description of their related distributors as dealers to pass them off as persons who do not come within the category of related persons. To this extent it is clear that the petitioner company has voluntarily and wilfully suppressed the fact of there being a mutual interest in business between the related distributors and the petitioner company. The dealers are being given a commission for organising the sales and providing facilities. In such a situation the time limit prescribed under Rule 10(a) of the Central Excise Rules, 1944 is five years from the relevant date to serve a notice on the person chargeable with duty which has not been levied or paid or which has been short-levied, as such. Therefore, there is no substance in the argument of the learned Counsel for the petitioner that the demand now raised is barred by time.
However, the appellants have contended that the respondents were furnished a copy of the agreement and were aware of the agreement as in a number of cases decided earlier by the Central Excise authorities that agreement was examined. Having heard both sides and considered their submissions, we respectfully agree with the ratio of this judgment that the extended period of 5 years under the provisions of Section 11A of Central Excises & Salt Act will be applicable in this case. In the light of the above findings, the appeal is rejected.