Bombay High Court
Garware Paints Ltd. vs Union Of India on 31 March, 1993
Equivalent citations: 1993ECR65(BOMBAY), 1993(67)ELT241(BOM)
Bench: S.H. Kapadia, Sujata V. Manohar
JUDGMENT Kapadia, J.
1. This Writ Petition seeks to challenge, inter alia, the Order passed by the Assistant Collector of Central Excise bearing No. V(68) 18- 154/80/1993 dated 19th March, 1984, as also the Order No. C. EX. 6/WP/59/91/PL/1441 dated 19th March, 1984, by which the Assistant Collector, Central Excise, Division - I, Thane, rejected eight refund claims amounting to Rs. 90,17,762.05 for the period from 1st July, 1977 to 10th February, 1981 as also the refund claims for the period 16th February, 1981 to 30th June, 1993, amounting to Rs. 44,700.48, respectively.
2. The facts giving rise to this Writ Petition, briefly, are as follows :
(a) The petitioners manufacture paints, enamels and varnishes falling under Central Excise Tariff Item No. 14. The petitioners also manufacture thinners falling under Central Excise Tariff Item No. 68. The total gross turnover of the petitioners for 1977-78, 1978-1979 and 1979-80 has been Rs. 1,181 lacs, Rs. 1,570 lacs and Rs. 1,970.46 lacs, respectively. On the aforesaid total gross turnover, the petitioners have paid excise duties amounting to Rs. 1,19,83,958/- Rs. 1,49,44,630/- and Rs. 1,48,15,278/- annually for the aforestated period. The above products manufactured by the petitioners are chargeable to excise duty on ad valorem basis and on tariff value has been fixed by the Central Government in respect thereof.
(b) By two Price Lists dated 20th March, 1980, the petitioners claimed deduction of 28% of the turnover as post-manufacturing expenses.
(c) By show cause notice dated 20th May, 1980, issued by the Assistant Collector it was alleged that no post-manufacturing expenses could be allowed when normal wholesale cash price is available. In reply to the said show cause notice, the petitioners repeated their claim for deduction vide letter dated 27th May, 1980. By Order dated 9th July, 1980, the Assistant Collector rejected the claim for deduction.
(d) On 5th May, 1983, the Supreme Court delivered its judgment in the case of Bombay Tyres International Ltd. v. Union of India [1979 (4) E. L. T. (J 625)] in the matter of post-manufacturing expenses.
(e) Pursuant to the Order of the Supreme Court delivered its judgment in the case of Bombay tyres (supra), a format Order came to be passed in the present Writ Petition on 13th December, 1983. By the said Order, the Assistant Collector was directed to permit the Petitioners to submit their revised Price Lists in respect of deductions claimed and permissible in view of the judgment of the Supreme Court in the case of Bombay Tyres (supra) under the Heads trade discounts, marketing and distributors expenses, interest on bank facilities etc. A time-bound programme was also given by the format Order to decide the claims on merit.
(f) Pursuant to the said format Order dated 13th December, 1983, the Assistant Collector of Central Excise, Division Thane, passed an Order no. 1933 dated 19th March, 1984, rejecting all eight refund applications for the period 1st July, 1977 to 10th February, 1981, amounting to Rs. 90,17,762.05 on the ground that the said claims were barred by limitation under Rule 11 read with Rule 173J of the Central Excise Rules, 1944 as also under Section 11B of the Act, 1944.
(g) By another Order No. 1941, dated 19th March, 1984, the Assistant Collector, while dealing with the refund applications filed by the petitioners for the period 11th February, 1981 to 30th March, 1983 came to the conclusion that the petitioners were not entitled to claim deductions on account of post manufacturing expenses, inter alia, in respect of interest on Bank facilities, trade discounts, marketing and distribution expenses and cash discounts which was partially granted at the rates varying between 1.25% to 1.525 of the turnover and not at the rate of 5%, as claimed.
(h) Being aggrieved by the aforementioned two Orders, the petitioners amended the Petition and they have challenged both the above Orders passed by the Assistant Collector of Central Excise.
3. For the sake of convenience, at the very outset, we propose to deal with the second impugned Order No. 1941, dated 19th March, 1984, passed by the Assistant Collector, item wise.
4. (a) Trade Discounts : These are in the form of Quantity discount, Festival discounts, Incentive discounts and over-riding discount. The said discounts were refused as the claims were not supported by agreements or contracts and nor were these discounts clarified by the assessee. We are in agreement with the findings of the Assistant Collector. To take the case of Quantity discounts, it was claimed that the said discount was allowed by the Petitioners at the end of the year. In this connection Mr. Berarwalla, on behalf of the petitioners, placed reliance on the letters dated 2nd February, 1984, 8th March, 1984 and 13th March, 1984, and submitted that if one goes through the said correspondence, it was clear that all the relevant documents and particulars were furnished to the Assistant Collector and the Assistant collector erred in coming to the conclusion that no particulars have been given in the matter of Quantity discount. We are afraid that we cannot accept the said contention of Mr. Berawalla. In this connection it may be noted that by letter dated 26th February, 1984, addressed by the Assistant Collector to the Petitions, the Assistant Collector has sought details and clarification with regard to Quantity discount. By the said letter, the Assistant Collector specifically sought clarification whether the trade discounts were uniformaly given or otherwise known at the time of removal of the goods from the factory and whether they are supported by contracts or agreements. We find that despite opportunity being given to the Petitioners to give clarification and particulars regarding the various trade discount, the said particulars were not given. Secondly, it is now well settled by a catena of decisions that the nature of the trade discount is required to be examined by the Assessing Authority and for that reason, the percentage of the discount given, the person to whom such a discount is given and eligibility of the person to get the discount and the quantity for which a Quantity discount is give are relevant particulars which were required to be submitted by the Petitioners. In the absence of the said particulars, the Assistant Collector was right in coming to the conclusion that the Petitioners were not entitled to the quantity discount. Mr. Berawalla has also taken us through the various statements annexed to the Petition. However, the said statements do not indicate the nature of the Quantity discount. The statements merely indicate the claim made by the Petitioner and the said claim is required to be substantiated by indicating the nature of the trade discount. In the absence of the said particulars, the Assistant Collector was right in coming to the conclusion that the petitioners were not entitled to Quantity discount. Thirdly, the Petitioners have placed reliance on their Circular dated 23rd June, 1981 (which was also not submitted before the Assistant Collector). The Circular provides for certain guidelines in the matter of Quantity discount. Clause 9 of the said guidelines, inter alia, lays down that Quantity discount will be declared as and when necessary, depending upon the market conditions and they will be paid to the stockists by credit notes. The said credit notes will be issued at the end of six months and they will be signed after they are duly approved by the General Manager (Marketing). These guidelines themselves indicate that the Quantity discount was not known either prior to or at the time of removal of the goods and in the circumstances, this is one more additional ground for coming to the conclusion that the Petitioners were not entitled to Quantity discount. Same is the case with regard to Festival discount, Incentive discount, Over-riding discount which are Trade discounts. However, we find that particulars have been given regarding Cash Discounts. As regards the said item, the Assistant Collector has granted Cash discount at varying percentage from 1.25% to 1.52% as against the claim of 5% for down payment. The Assistant Collector came to the conclusion that on close scrutiny of the invoices submitted by the petitioners, very few cases of cash down payments have been proved and, therefore, the Petitioners were not entitled to claim Cash discount at 5%. In this connection, we find that the Petitioners submitted approximately 800 invoiced wherein cash relied upon credit notes in support of their submissions. In view of the Petitioners furnishing 800 invoices, it is clear that the Assistant Collector erred in coming to the conclusion that very view cases of cash discount at 5% were shown and, therefore, the Petitioners were not entitled to rebate calculated at the rate of 5%. We find considerable merit in the contention of Mr. Berarwalla on behalf of the petitioners that the assessee was entitled to claim cash discount at the rate of 5% for down payment. The view taken by us is supported by the judgment of this Court in the case of Jenson & Nickolson v. Union of India, reported in [1984 (17) E. L. T. 4]. In the said judgment, it has been laid down that Cash discount, as mentioned in the Price List, must be allowed irrespective of whether it was actually availed of by the customers. In view of the judgment of this Court in Jenson & Nickolson's case (supra) and also in view of the number of invoices shown to the Assessing Officer, the Petitioners were entitled to claim deduction at the rate of 5% in the matter of Cash discount. Accordingly, we direct the Assistant Collector of Central Excise to grant rebate at the rate of 5% in the matter of Cash discount.
(b) Interest on Bank Facilities :
(c) Marketing & Distribution Expenses :
For the sake of convenience, both the Heads have been taken together. By the impugned Order, the Assistant Collector came to the conclusion that the Petitioners were not entitled to said deductions under the above two Heads in view of the judgment of the Supreme Court in the case of Bombay Tyres (supra). Mr. Berawalla, the learned counsel appearing on behalf of the Petitioners urged that the deductions under the Head viz. Interest on Bank facilities was not the subject matter of the judgment of the Supreme Court and in that connection, he relied upon paragraph 50 of the said judgment of the Supreme Court in the case of Bombay Tyres (supra). In the alternative, he submitted that by implication the aforesaid two heads of deduction could be claimed by the Petitioners in view of the observations made by the Supreme Court in the said judgment (vide paragraph 50). We do not find any merit in the said submission of the learned counsel for the Petitioners. Firstly, as indicated hereinabove, in the context of the interest on Bank facilities, no particulars have been given by the Petitioners as to the type of Bank facilities enjoyed by the petitioner-Company. The nature of the said Bank facilities have to been indicated by any of the letters despite opportunity being given to the Petitioners. This also is borne out by the affidavit in reply filed by the respondents. The same applies to marketing and distribution expenses. In the circumstances, the Assistant collector was right in coming to the conclusion that Petitioners have failed to furnish any particulars with regard to the said two Heads. Secondly, the judgment of the Supreme Court in the case of Bombay Tyres (supra) has clearly laid down that where a sale in the court of wholesale trade is effected by the assessee through its sales organization at a place or places outside the factory gate, the expenses incurred by the assessee upto the date of delivery under the Heads (which include interest in inventories, stocks carried by the manufactures after clearance as also marketing and selling organization expenses) cannot be claimed as an item of deduction. In view of the clear ratio of the Supreme Court in the case of Bombay Tyres (supra) (vide paragraph 50 of the said judgment,) the Assistant Collector was right in coming to the conclusion that the Petitioners were not entitled to claim deduction under the above two Heads. In the circumstances, the Petitioners are not entitled to claim the said deductions as rightly held by the Assistant Collector. The only relief, therefore, which the Petitioners are entitled to is in the matter of Cash discount. The Assistant Collector is directed to calculate the rebate in the matter of Cash discount at the rate of 5%. It is also made clear that the Assistant Collector will pass refund orders in respect of Cash discount calculated at the rate of 5% within a period of 12 weeks from today in accordance with law. The Assistant Collector is also at liberty to call upon the Petitioners to furnish relevant documents and/or particulars in addition to the documents and/or particulars already furnished by them.
5. Now, coming to the first Order under challenge being Order No. V(68) 18-154/80/1933 dated 19th March, 1984, Mr. Berawalla submitted that the Petition was filed in the year 1981, inter alia, seeking to challenge the Order of Adjudication dated 9th July, 1980, on the ground that the Assistant Collector erred in refusing refund for the aforementioned period commencing from 1st July, 1977 upto 31st July, 1980. As indicated hereinabove, pursuant to the Order of the Supreme Court in Bombay Tyres case (supra) the format Order was passed by this Court on 13th December, 1983, pursuant to which revised Price Lists came to be filed by the Petitioners. By the above Order No. 1933 dated 19th March, 1984, however, the Assistant Collector rejected the eight refund applications only on the ground that the said applications were barred by limitation as they were filed after a lapse of six months. Mr. Berarwalla submitted that in view of the format Order dated 13th December, 1983, the Assistant Collector erred in rejecting the refund applications only on the ground that they were barred by limitation. He further submitted that by the said format Order, the Assistant Collector was directed to decide the claims on merits in the light of the judgment of the Supreme Court in the case of Bombay Tyres (supra) and not on the ground of limitation. We find considerable merit in the contention raised on behalf of the Petitioners. In view of the format Order dated 13th December, 1983, the Assessing Authorities were bound to decide the eight refund applications on merits which has not been done in the present case. In the circumstances, we direct the Assistant Collector of Central Excise, Division Thane, to decide on merits and in accordance with law, the refund claims filed by the Petitioners for the period 1st July, 1977 to 10th February, 1981. The Assistant Collector is also at liberty to call upon the Petitioners to furnish any further details or particulars and accordingly decide the matter as per the provisions of law. In the circumstances, the said Order No. V(68) 18-154/80/1933 dated 19th March, 1984, is set aside and the matter is remanded back to the Assistant Collector to dispose of the above refund applications filed by the Petitioners in accordance with law.
6. To summarise out conclusion;-
(i) the Order No. V(68) 18- 154/80/1933 dated 19th March, 1984, is set aside and the Assistant Collector of Central Excise, Division Thane is directed to dispose of the eight refund applications for the period 1st July, 1977 to 10th February, 1981, in accordance with law within a period of 12 weeks as indicated hereinabove. The Assistant Collector would be entitled to call upon the petitioners for further particulars or documents in addition to documents already furnished.
(ii) As regards the Order of the Assistant Collector bearing No. C. Ex. 6/WP/59/91/PL/1941 dated 19th March, 1984, the only relief which the Petitioners are entitled to is the deduction at the rate of 5% in respect of Cash discount. Consequently, to that extent only, the Petitioners would be entitled to refund to be decided by the Assistant Collector within a period of 12 weeks from today and in accordance with law.
7. In the light of the above directions, the Writ Petition is disposed of with no order as to costs.