Customs, Excise and Gold Tribunal - Delhi
Hindustan Gas And Industries Ltd. vs Collector Of Central Excise on 15 February, 1991
Equivalent citations: 1991ECR280(TRI.-DELHI), 1991(54)ELT383(TRI-DEL)
ORDER
I.J. Rao, Vice President
1. We heard these four appeals together as they emanate from a common impugned order and involve common issues.
2. The appellants, holders of a Central Excise Licence manufacture "cutting tools" falling under the erstwhile Tariff Item No. ISA of the Central Excise Tariff. They submitted a Price List in Part I to be effective from 1-10-1975 in respect of the cutting tools claiming certain abatements for deduction from the declared price. The appellants thereafter approached the Calcutta High Court and ultimately on 21-8-1986, the High Court passed an order directing the Excise Authorities to make assessment in terms of the principles laid down by the Supreme Court Bombay Tyres International [1983 (14) ELT 1896,1984 (17) ELT 329], Godfrey Philips India Ltd. [1985 (22) ELT 306], Moped India Ltd. [1986 (23) ELT 8] as also any other decision given or to be given by the Supreme Court. The Asstt. Collector thereafter adjudicated the matter, allowing only the abatement of the difference between the prices in the Price List effective from 1-10-1975 and those in the D.G.S. & D. contract rates but rejected all other claims of abatement in respect of sales, departmental expenses, administrative expenses, secondary packing, commissions to selling agents, turnover bonus [quantity discount, special discount and cash discount]. He, however, allowed the deduction of equalised freight.
3. Aggrieved by the said order, the appellants preferred an appeal before the Collector (Appeals). He allowed the abatements of cost of wooden crates, hoops and nails used for packing the products (files) as also special discounts, rebates and rate rebates as per the agreed terms of sales, Regional Discount, Festival Discount and Cash Discounts but rejected the appeal in respect of turnover bonus and commission to the selling agents. The appellants then preferred two appeals Nos. 2560 & 2578 [one against the Price List and one against the O/O before the Tribunal].
4. The Revenue filed appeals against the appellate order claiming that the orders were not sustainable in respect of packing and trade discounts. [Appeal Nos: 2724 & 2725/88-A].
5. We heard Shri Laxmikumaran, the Id. advocate in the two appeals filed by the assessee. He submitted that so far as the appellants are concerned, two issues are being pressed before us. These relate to the deduction of turnover bonus and commission to the extent that sales were made to dealers.
In respect of turnover bonus, the Id. advocate argued that the Supreme Court in M.R.F. [1987 (27) ELT 553 (SC)] held against turnover bonus for the reason that at the time of clearance, it was not known to buyers. Here, according to him, the fact of turnover bonus was known to dealers. He submitted that irrespective of the nomenclature employed by the appellants, the fact of the bonus was known to the buyers at ah1 times including the time of clearance. Therefore, the deduction on account of turnover bonus was admissible. He argued that hi view of the arrangement by which the turnover bonus was given when dealers purchased a minimum amount of goods from the appellants, the turnover bonus was in fact a quantity discount.
6. In respect of commission, the Id. advocate argued that he accepted the position that commission, as such, cannot be allowed as a deduction from the sale price. He, however, stated that in some cases the appellants sold the goods to the agents on a principal to principal basis and the deal is the same as between the appellants and their dealers. He submitted that though the invoice described the amount as commission, it was discount for all purposes and relied on the ratio of the judgment of the Supreme Court in Coromandel Fertilizers Ltd. [1984 (17) ELT 607 (SC)]. On being questioned by the Bench, the Id. advocate answered that the aspect of the commission being discount was not taken up before the Asstt. Collector.
7. The Ld. advocate then summed up submitting that the various discounts claimed by the appellants were actually given, that these discounts were within the knowledge of the buyers and of the Department and that, if ordered, further evidence hi this regard can be filed.
8. Shri Prabhat Kumar, the Ld. JDR opposing the arguments submitted that the Collector's findings are based on good evidence and law. He referredNto the copies of certain documents filed before us at the time of hearing and submitted that from these documents it is clear that the bonus was given at the year end only. Therefore, what was given was only an incentive and not a bonus. The result was, according to the Ld. Representative, that at the time and place of removal, the bonus was not paid. He referred to the judgment of the Tribunal in R.R. Paints [1987 (28) ELT 478 (Tribunal)] and submitted that in the said judgment, the Tribunal held against the admissibility of turnover discount. The Ld. Representative emphasised that the Department gave full opprotunity to the appellants to prove by evidence that the turnover bonus was allowed as a matter of policy but the appellants did not succeed in proving to the Department, with acceptable documentary evidence, that grant of turnover bonus was their policy and that this policy was known to all their customers. He vehemently submitted that the sales policy document was never disclosed to the Department prior to 1982-83 and therefore, the appellants did not discharge the onus of proof on them. In so far as the appellants' claim that even in respect of commission agents, there were sales to them, the Id. Representative stated that if the appellants prove sales to the commission agents on principal to principal basis, the Department may consider allowing the admissible discounts.
9. In his Rejoinder, Shri Laxmikumaran submitted that in the light of the Supreme Court judgment in Bombay Tyres International (P) Ltd. v. UOI [1984 (17) ELT 329 (SC)], 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 discount being known at or prior to the removal of the goods, such trade discount shall not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice price. While accepting that knowledge of the discounts by the buyers is a necessary ingredient, the Id. advocate submitted that even in the Writ Petition filed in the Calcutta High Court in 1975, the appellants mentioned the various discounts granted by them to their customers. Therefore, according to the Id. advocate, to say that no trade practice in respect of discounts was proved before the Department, would not be correct.
10. In the common hearing, we heard both sides on the two appeals filed by Revenue also. These appeals have two grounds viz., that cost of wooden crates, hoops and nails used for the products should not be allowed for deduction and that various types of deductions allowed by the Collector (Appeals) should not have been allowed.
11. Shri Prabhat Kumar, the Ld. JDR submitted that admittedly all the clearances effected by the appellants were in boxes only and these included local sales also. Therefore, he pleaded that the packing in wooden boxes was a regular feature. He submitted that the non-uniformity of the boxes is a uniform feature and no importance should be given to the same. The Ld. Representative argued that the Collector (Appeals) followed para 52 of the Supreme Court's judgment in Bombay Tyres International but did not apply the ratio properly. Arguing that packaging which is necessary for marketing, is includible. Shri Prabhat Kumar, the Ld. JDR relied on these two judgments :
Seraikella Glass Works (P) Ltd. v. CCE, Patna [1988 (37) ELT 452 (Tribunal)] Shiva Glass Works v. CCE [1989 (41) ELT 376 (SC)] and submitted that the deduction of the value of the wooden boxes etc. should not have been allowed. On the point of discounts, the Id. Representative argued that the Respondent Company did not declare the grant of the various types of discounts and referring to the grounds of appeal submitted that from the records made available to the Central Excise Officers, it was not ascertainable that the terms of sales were such that the various types of discounts and rebates were allowable to the buyers. He also submitted that from the verification report duty certified by a Chartered Accountant, it was culled that all types of discounts were allowed at a time in only four cases. Therefore, all customers were not allowed all the discounts with the result that such discounts would be inadmissible. He emphasised that the appellants never placed material to show that there was prior knowledge on the part of buyers about these discounts. He also argued that the Collector (Appeals) did not meet the findings recorded by the Asstt. Collector in the Order (Original) and emphasised that the appellants did not file necessary documents before the Collector (Appeals) based on which he could have arrived at a conclusion.
12. Shri Laxmikumaran in his reply submitted that the discounts were available to whoever was eligible and the necessary documents could not be placed before the Department only because they were missing due to floods. He submitted that on an earlier occasion, Price Circulars were shown and pleaded that there was too much supply of files in India and too little demand and therefore, in the entire trade and not only in respect of the respondents, there was the practice of granting several kinds of rebates and discounts. He submitted that the dealers were in business with the respondents for several years. In this context, the Id. advocate referred to the submissions made on 15-9-1987 before the Asstt. Collector by way of written submissions after personal hearing (Page 54 of the Paper Book). He also referred to the documents filed by the respondents and contained in the Paper Book from page 61 to page 229 to plead that the respondents have all the necessary records to prove that the discounts were in fact given and known to the buyers at the time of purchases. He reiterated that when the respondents filed a Writ Petition before the Calcutta High Court in 1976, they gave details of all the discounts in the said Petition.
13. In his Rejoinder, Shri Prabhat Kumar submitted that the respondents not having mentioned any floods at any earlier stage, cannot now claim, after nearly 15 years, that floods washed away the records. He observed that the respondents had 500 dealers including 25 in Calcutta and unless the floods washed away all the documents from all over the country, the respondents should have been able to collect documents from the dealers and to file them before the authorities. He also pleaded that the impugned order was a non-speaking order and the Collector arrived at his findings without any evidence. Observing that the respondents could have produced documents at any time earlier, but they did not do so, the Id. Representative submitted that they cannot, at this stage, bring any new documents.
14. We have considered the submissions made by both sides in all the four appeals. In so far as the two appeals filed by Hindustan Gas Industries (HGI for short) are concerned, we have examined the arguments of Shri Laxmikumaran that where sales were made by the appellants to their agents on a principal to principal basis, the discounts should be allowed as in these transactions the agents did not act as agents but did so as dealers. Admittedly, this point was not raised before the authorities but in view of our findings which will follow and in view of the availability of the necessary documentary evidence, we feel that the interests of justice call for a consideration on this point. In our opinion, there should be no legal objection to granting the discounts in respect of sales to appellants' agents if it is conclusively proved that the sales were made on a principal to principal basis. We further observe that it was only because the margins allowed to the agents were considered as commissions, the deductions were disallowed. Where the appellants do not retain the title to the goods and actually sell them, be it to Commission Agents,discounts should be admissible. We have noted the Id. advocate's argument that it is the real substance of the transaction that matters and not the nomenclature given to a particular type of discount. This was the view of the Supreme Court in Moped India (supra). The Id. advocate did not advance any arguments and in fact accepted that where commissions are given, they cannot be allowed in the light of the Supreme Court's judgment in CoromandalFertilisers [1984 (17) ELT 607 (SC)]. We, therefore, direct that the Asstt. Collector should consider this plea and if the appellants prove that there was actual sales of goods to the so called commission agents, and the sale was on a principal to principal basis, the discounts admissible to the dealers should be given to them, irrespective of the nomenclature.
15. The next point pleaded by the appellants relates to the turnover bonus claimed as deduction by the appellants. We noted the argument of the Id. advocate that the turnover bonus in question was known well in advance to the dealers and therefore, the ratio of the Supreme Court's judgment in M.R.F. [1987 (27) ELT 553 (SC)] cannot be applied to the facts of this matter. We have considered his plea that there is a glut of files' production in India and therefore, the manufacturers have to give several discounts to their dealers. More importantly, we note his submission that turnover bonus was one of the items mentioned in the Writ Petition filed by them in Calcutta High Court in 1976. Besides, the Id. advocate produced some documents in the Court seeking to prove that the turnover bonus was known to the dealers. The Id. JDR's argument that the appellants could have but did not produce the documents before the authorities till now and therefore, they cannot do so at this stage, was examined by us. Since the claim was there throughout and as the appellants have shown that they can, if given a chance, prove the factual position, it appears that it would not be fair to throw them out at the threshold on the ground of not having placed the documents before the authorities. Shri Prabhat Kumar's argument that the floods could not have retrospectively and universally destroyed all the relevant evidence is pertinent but if in spite of the floods, the appellants can now produce documents, the authenticity and reliability of which can be judged by the Department, we feel that such a plea should not be rejected. Our rejection of the documents was for the reason that they were not tested by the Department at any stage. In these circumstances, we feel that it would be in the interests of justice to allow the appellants to place the evidence before the Asstt. Collector who should then, after examining the documents, hearing the appellants and judging the facts, pass a fresh order in this regard. We, therefore, set aside the impugned order in so far as it relates to turnover bonus and direct that the matter be examined afresh by the Asstt. Collector before whom the appellants should place their submissions and the documents and explain the matter and the factual position to the satisfaction of the said Officer. If the Asstt. Collector, after examination of the arguments and evidence, comes to the conclusion that the grant of turnover bonus was known to the dealers before or at the time of clearance and not at the end of the year, the plea of the appellants can be examined as it would be different from the circumstances prevailing in M.R.F. case. The Asstt. Collector may then grant whatever relief follows.
16. The two appeals filed by the company/appellants are disposed of accordingly.
17. Coming to the appeals filed by Revenue, we note that they want the impugned order set aside in respect of allowing the cost of wooden crates, hoops and nails and grant of various types of deductions.
18. In so far as packing is concerned, the appellants in their reply to show cause notice, submitted before the Asstt. Collector, contended that the packing was only for purposes of safety and meant only for protection of the goods during transportation and delivery. The Asstt. Collector in paragraph 7(b) of his order extracted the appellants' reply in this regard. This was in reply to the show cause notice which took the view that the deduction claimed on account of cost of packing towards secondary packing was nothing but cost of packing necessary for selling the goods in the course of wholesale trade. The Asstt. Collector passed an order in which he took pains to examine the issues in a very admirable way and directly examined the point whether packing was done only for the protection of the goods during transportation and whether the said packing was necessary for selling the goods in the wholesale market at the factory gate. He distinguished the ratio of Supreme Court's judgment in Godfrey Philips India on the ground that in Godfrey Philips, the commodity was cigarettes which were soft and week (not weak) whereas in the present case the goods are steel files which are not comparable with cigarettes. He also took note that even local sales were done in wooden cases indicating that the purpose of the packing was not merely protection of the goods.
19. He also took note of the Company's reply to the show cause notice wherein inter alia they stated that the goods were generally sold to the customers at their retail outlets in the cardboard boxes. The Asstt. Collector inferred from this that the goods were not sold in cardboard boxes in the wholesale market. He also rejected the plea that the packing in wooden boxes was secondary packing.
20. Thus, it was the effect of all clearances including the local clearances being in wooden boxes that led the Asstt. Collector to come to the conclusion that the packing in wooden boxes was necessary for placing the goods in the wholesale market. The Collector (Appeals) went by the findings of the Supreme Court's judgment in Bombay Tyre (Para 52) and the Bombay High Court judgment in Godrej BoyCe's -1984 (18) ELT 17 (Bom.) and again the Supreme Court's judgment in Godfrey Philips. He, however, noted the appellants' plea that the packing was done for protection so as to avoid the files losing their teeth and getting rusted etc.
21. We have noted with appreciation the detailed and very balanced way in which the Asstt. Collector examined the issues with reference to facts and the legal position. However, he failed only in one regard, viz., that while he considered the position vis-a-vis the wholesale market, he over-looked the question whether the packing was necessary to place the goods in the wholesale market at the factory gate. Though he took note of the legal position, he judged on the basis of:
i) The appellants selling all goods in wooden crates and,
ii) Charging for them.
He did not consider whether if sales were made at factory gate such wooden boxes would be necessary. This was the test applied by Supreme Court in Godfrey Philips (supra). The ratio of this and the various judgments of the Supreme Court wherein the question of packing was examined, always was that packing as necessary at the factory gate to be placed in wholesale market existing there, is the packing whose value was to be included. It is in this context that the Id. advocate's argument that the steel files are very heavy and have sharp edges, have to be protected, assumes significance. This factual position was, quite correctly, not denied. Steel files, if they lose their sharp edges, would not be accepted, especially in a market where there is a glut of these products. Though they are not delicate like cigarettes, they also require much protection. In our opinion, this explains why, even local sales are made in wooden crates. These wooden crates are of varying sizes and their 'non-uniformity' pointed out by the Ld. JDR shows that the crating is done for each despatch. Considering all the circumstances together, we feel that though 100% of the goods are removed in wooden crates only, it should be held that the packing in view of the quality of the products it contains should be considered as intended for safety in transport over short and long distances. We, therefore, uphold the impugned order in this regard.
22. The other part of the Revenue appeal is that the various deductions allowed by the Collector should be nullified. The main ground of the Collector is that these deductions were not known to the buyers and that they were not given to all. We have noted the submission made in the course of the hearing as also mentioned in the grounds of appeal that only four dealers were given these commissions. We have perused the impugned order keeping in mind the arguments advanced by the Ld. JDR that it is a non-speaking order and that the Collector (Appeals) did not meet the points raised by the Asstt. Collector. We have also perused the grounds of appeal. The argument that all the claimed deductions were allowed only to four persons appears to be prima facie correct but this does not lead to a conclusion that the finding of the Collector (Appeals), impugned before us, deserves to be set aside. This is so because the Department has not placed before us any instances where the discounts even if deserved, according to what the Company says, were not granted to any particular party. It could be that only four people qualified for all the discounts. Besides, the Department did not make any inquiries with the dealers to show that these discounts claimed by the Company were not being actually granted. In their letter dated 15-9-1987, reply to Show Cause Notice, the respondents mentioned the various discounts granted by them. Therefore, it is not as if they are making a claim for the first time. There is nothing in the appeal or in the arguments advanced before us to justify setting aside the impugned order. We, therefore, uphold the impugned order in so far as the issues raised by Revenue are concerned.
23. As a result, we allow the appeals by remand filed by the Company and dismiss the appeals filed by Revenue.