Customs, Excise and Gold Tribunal - Delhi
Shriram Food And Fertilizers Ltd. vs C.C.E. on 22 December, 1994
Equivalent citations: 1996(85)ELT34(TRI-DEL)
ORDER K.S. Venkatfaramani, Member (T)
1. The issue involved in all these appeals is relating to fixing of different wholesale prices to various wholesale dealers situated in the different regions of the country by considering the regional wholesale dealers as different classes of buyers. It arises out of determination of assessable value of the Hydrochloric Acid (HCL) and bleaching powder manufactured by the appellants in terms of Section 4 of Central Excises and Salt Act, 1944. While submitting their price lists, the appellants declared a higher price for the dealers in Delhi region and for the dealers in outstations, a lower price was fixed. The price lists were submitted with the remark, "The zonewise prices have been arrived at after taking into account the freight element and market conditions since the dealer/consumer is concerned with delivered price and not the ex-works price." In the Show Cause Notices issued to the appellants, it was alleged that the prices declared in respect of outstation dealers is lower than the prices for Delhi dealers which is not allowed in Section 4 of Central Excises and Salt Act, 1944. Differential duty was also demanded based on the price declared for Delhi dealers. On considering their defence, the jurisdictional Assistant Collector in detailed orders referred to the provisions under Section 4(l)(a), and to a Circular of the Central Board of Excise and Customs dated 25-1-1990 as also to Bombay High Court decision in the case of Godrej Boyce Mfg. Co. v. Union of India - 1984 (18) E.L.T. 172, and concluded that wholesale dealers are a class by themselves irrespective of their location and that hence charging of different wholesale prices in respect of dealers located in different parts of the country is not permissible under Section 4 of Central Excises and Salt Act, 1944. These orders of the Assistant Collector were upheld by the Collector (Appeals) in the orders impugned before us.
2. Ld. Counsel, Shri V. Sridharan for the appellants contended that freight element is a commercial consideration as is evident in the Gujarat High Court judgment - 1980 (8) E.L.T. 397 in the case of Gujarat Fertilizers v. Union of India. There is also no charge against the appellants that price was influenced by any extra commercial consideration. The appellants are not claiming any discount and the freight is incurred on the dealer's account. Referring to their replies to show cause notice for the rationale for the pricing, the ld. Counsel pleaded that there is stiff competition for the sale of their product in the market. The appellants had been declaring ex-works prices zone-wise taking into consideration the element of freight from factory gate to destination and CST actually charged to meet the competitors' price in a particular zone so that appellants landed cost matches with the price of the competitor manufacturer. The ld. Counsel also referred to a comparative chart submitted by them before the lower authorities. Arguing further, the ld. Counsel cited and relied upon the Tribunal's decision in the case of Gora Mal Hari Ram v. Collector of Central Excise - 1994 (69) E.L.T. 269 which was followed in the case of Ind-Sphinx Precision Pvt. Ltd. v. Collector of Central Excise -1994 (74) E.L.T. 683 (Tribunal) as well as Tribunal's order No. 57 to 60/94-A, dated 4-3-1994 in the case of Somani Pilkington and Ors. v. Collector of Central Excise. In all these decisions in similar circumstances, it has been consistently held that wholesale dealers in different regions are different classes of buyers in terms of proviso (i) to Section 4(1 )(a) of Central Excises & Salt Act. The Delhi High Court decision in the case of Indian Rayon & Industries v. Union of India -1994 (73) E.L.T. 25 was also cited in support wherein the High Court had held that the Board's circular under Section 37B dated 31-12-1993, saying that wholesale dealers in different regions cannot be held as different classes of buyers, was not in accordance with provisions of Section 4(l)(a) read with proviso (i) thereof.
3. Ld. S.D.R., Shri B.K. Singh contended that in some of the impugned orders of Collector (Appeals), it has been found that local and outstation wholesale dealers can be treated as different class of buyers only when the differential is based on valid commercial reasons and it is not be taken as general rule in all cases. The Collector (Appeals) has found that the appellants, herein, had failed to substantiate their claim that the differential pricing is based on valid commercial reasons. Ld. S.D.R. urged that freight element by itself cannot be a commercial consideration; on the other hand, incidence of local taxes like octroi would be more appropriately the basis for such differential. Further, it was argued that even within the zone itself, freight may not be uniform in the whole of the zone. If this criterion is accepted as a general rule, then, ld. S.D.R. argued, factory gate sale would have no role to play in fixing assessable value. Citing the Bombay High Court judgment in the case of Music India v. Union of India - 1985 (25) E.L.T. 1032, ld. S.D.R. contended regional discounts are admissible only if established under agreements, or under terms of sale, or by established practice and the appellants have failed to show that they have fulfilled the criteria with evidence. The orders of the lower authorities, according to the ld. S.D.R., call for no interference as the appellants in all these cases have failed to substantiate their claim that the price differential as between dealers in Delhi zone and outstations was based on acceptable commercial considerations.
4. The submissions made by both the sides have been carefully considered. This Tribunal has held that wholesale dealers in different regions can be held to be different classes of buyers so long as the transaction is at arm's length in the Tribunal's decision in the case of Gora Mal Hari Ram (supra). There also the facts were similar. The goods, therein, were sold by the assessee through their distributors in Delhi region and to those in outstations. High price was declared for Delhi distributors and lower prices for those in outstations. In both the cases, sales were effected at factory gate. The Department's case there also was that Delhi distributors and outstation ones constituted a single class of buyers and that the class of buyers did not change merely because they are located in different regions. The assessee, therein, explained that the reason for charging lower prices from the outstation dealers was to meet competition from the manufacturers, who are located near those outstations and also taking the incidence of local taxes into consideration. The Tribunal after a detailed consideration of Section 4(l)(a) Central Excises & Salt Act, 1944 and proviso (i) thereto prescribing criterion required for different prices to different classes of buyers as normal price, the definitions of the terms 'wholesale dealer' and 'wholesale trade' held, The expression 'different classes of buyers' occurring in proviso (i) to Section 4(l)(a) of the Act, read with definition of 'wholesale dealer' under Section 2(k), and of 'wholesale trade' under Section 4(4) (e) appear to cover not only a trader, manufacturer, broker, commission agent, contractor, stockist, industrtial consumer, Govt. and local authority, but also different dealers and buyers who deal in and buy for re-sale, or purchase their requirement in wholesale.
5. There appears no doubt that all the wholesale dealers and all the wholesale buyers in the whole of the country could not be taken to form a single class of buyers. The Tribunal also found that the Department cannot seek support from the Supreme Court decision in the case of Indian Oxygen v. Collector of Central Excise - 1988 (36) E.L.T. 723. The ratio of that decision was not applicable to the facts of such a case as the goods had not been sold from any depot but in both the cases, for Delhi distributors and outstation distributors, the goods have been sold at the factory gate, but on varying rates. This decision of the Tribunal has been followed in Ind-Sphinx Precision Pvt Ltd. case (supra). In another judgment in the case of Indian Rayon & Industries v. Union of India -1994 (73) E.L.T. 25, the Delhi High Court held that a ruling by the Central Board of Excise & Customs under Section 37B of Central Excises & Salt Act on the same issue was contrary to the provisions of the Act. It was a ruling wherein the Board had ruled that wholesale dealers cannot be considered as belonging to different classes merely because they are located in different regions. Such discounts, the Board held, are not permissible. The High Court held that when Section 4 of the Act recognised that in arriving at normal price, assessees could give different discounts to different classes of buyers "in accordance with the normal practice of wholesale trade in such goods" the Board could not say that discount should be uniform in all circumstances to all categories of buyers all over the country. The court recognised that under Section 4(l)(a), there could be discounts on the basis of regions or other factors. Of course, observed the Court, these discounts have to be as per the normal practice of the wholesale trade in such goods, and that discounts cannot be given on extraneous considerations. From a consideration of the above decisions and on considering the facts of the present case, we are of the view that the ratio is applicable to the facts of the present case. The ld. S.D.R. urged with reference to the reasoning in one of the orders of the Collector (Appeals) that the appellants have not substantiated their claim by showing that the difference in price is on commercial considerations and that freight element is not such a consideration. However, it is found that before the Delhi High Court in the Indian Rayons case (supra), freight and transport expenses depending upon the distance of the region from the factory, as well as competitive prices of other manufacturers had been mentioned as a factor which arise for consideration by a manufacturer influencing pricing policy. These arguments had found acceptance. The present appellants' explanation is also on these lines. The show cause notice also mentions that the appellants had submitted price list with the remark that the zone-wise price has been arrived at after taking into account the freight element and market condition. There is also no charge that the price differential was due to any extra-commercial consideration, but the show cause notice alleges that such pricing is not permissible under provisions of Section 4 of Central Excises & Salt Act. Therefore, following the ratio of the decisions cited (supra), it has to be held that the zonal prices declared by the appellants herein in the facts and circumstances of these cases, will be in accordance with provisions of Section 4 of the Central Excises and Salt Act and the wholesale dealers in each zone can, in the facts and circumstances of the case, be considered as different classes of buyers. These appeals are, therefore, allowed.