Customs, Excise and Gold Tribunal - Delhi
R.R. Paints vs Collector Of Central Excise on 3 February, 1987
Equivalent citations: 1987(11)ECR684(TRI.-DELHI), 1987(28)ELT478(TRI-DEL)
ORDER P.C. Jain, Member (T)
1. These batches of appeals involve the issues whether the following discounts or deductions claimed by the appellants from their FOR destination prices of various products manufactured by them are permissible or not :-
(i) Average Freight
(ii) Cash/Regular Payment Discount (R.P.D.)
(iii) Turn-over Discount and
(iv) Central Sales Tax First three deductions referred to above are common to all the 13 appeals. The last deduction claimed on account of Central Sales Tax is common to the last mentioned batch of 11 appeals.
2. It is apparent from the impugned order passed by the Collector (Appeals), Bombay that he has merely endorsed the order passed by the lower authority, namely the Assistant Collector. Therefore, in order to examine the reasons as to why the various deductions as claimed by the appellants have been disallowed, we shall have to examine the reasons given by the Assistant Collector of Customs.
3. Before a detailed examination of the various claims made by the appellants is made it is necessary to set out in brief the sale pattern of the appellants as narrated by them and not controverted by the respondent. Under the provisions of Rule 173-C of the Central Excise Rules, 1944 price lists were submitted by the appellants enclosing therewith their pattern of sales declaring the prices of their various products and claiming deductions therefrom of the amount of trade discount allowed to their buyers in accordance with the normal trade practice of the wholesale trade at the time of removal of the goods. Following features emerge regarding their sales pattern as observed from one of their price lists (Exhibit 'A' to the paper book filed by the appellants.
(1) Price is the sole consideration for sale of their products and there is no relationship between their buyers and the appellants.
(2) Prices are inclusive of central excise duty for delivery at destination but exclusive of sales tax and other taxes.
(3) Trade discount is allowed as detailed in relevant columns of the price list in respect of the products.
(4) Certain Post Manufacturing Expenses (PME) namely average freight and average discount of any sort actually being passed on to the customers under any name are permissible. These expenses have been worked out at 7.64% on the basis of actual percentage of such average freight and discounts worked out for accounting year ending 30.6.1983. These are under the following heads -
(a) Average Freight - 1.90%
(b) Average Turn Over
Discount - 4.14%
(c) Average Cash
Discount - 1.06%
Chartered Accountant's certificate has also been enclosed.
4. It is also the further contention of the appellant that their aforesaid deductions are based on circulars given out to all the buyers and it cannot, therefore, be stated that the nature of deduction claimed is not known at or prior to the removal of the goods.
5. With regard to the various deductions claimed by the appellants, learned representative Shri M.S. Dave for the appellants has submitted that there can be no dispute regarding permissibility of these duductions in view of the Supreme Court's pronouncement in the case of Bombay Tyre International Ltd. v. Union of India 1983 E.L.T. 1896 in so far as the deduction of average freight is concerned and a subsequent clarification dated 14/15.11.1983 by the Hon'ble Supreme Court in the said case in so far as the other deductions claimed are concerned.
6. Learned JCDR, on the other hand, has relied on the latest judgement of the Supreme Court in Civil A. No. 395 of 1979 in the case of Assistant Collector of Central Excise and Ors. v. Madras Rubber Factory Civil A.No. 4731-4732m SLP (Civil) No. 10108 of 1980 and Civil A.No. 793 of 1984 in the case of Madras Rubber Factory v. Collector of Central Excise, Madras, delivered on 20th December, 1986. [1987 (27)-E.L.T. 553 (S.C.). This latest judgement of S.C., according to the learned JCDR goes into the various types of discounts claimed by M/s. Madras Rubber Factory and decisions have been given by the Hon'ble Court thereon. Ratio of this decision in respect of the various specific trade discounts would apply more appropriately according to the learned JCDR, rather than the general observations of the Hon'ble Supreme Court in its clarificatory order dated 14/15.11.1983. Supreme Court's latest judgement dated 20th December, 1986 mentioned supra duly takes into account its observation in its clarificatory order dated 14/15.11.1983. Going by the latest decision, learned JCDR states that cash discount is permissible to the appellants, turnover bonus discount should not be permissible to the appellants. He also conceded that in view of the clear provisions of law Central Sales Tax would not form part of the assessable value. Regarding the deduction on average freight, learned JCDR stated that this should not be allowed to the appellants, apart from the grounds taken by the lower authorities, on the ground that actual freight had been charged by the appallants from the customer and would, therefore, form part of the value of the goods.
7. We now consider each of the deductions claimed by the appellants after taking into account the pleas advanced on both sides :-
(i) Average Freight - Deduction of this claim has been denied by the learned Assistant Collector on the ground that it has been claimed as average whereas it is actually charged on weight basis. There is nothing to indicate from the records that the prices have been charged on the basis of destination prices. There is no documentary evidence regarding equalisation or averaging of freight. The deductions claimed, according to the learned Assistant Collector, are not in line with the guidelines laid down by the Hon'ble Supreme Court in 1983 E.L.T. 1896. The appellants, on the other hand, have drawn attention to their invoices (Exhibitis L1 ot L3 ) which clearly indicate that the actual freight has been reduced from the invoices which shows that the prices are clearly FOR destination. This freight given in the aforesaid exhibits is the actual freight paid to the transporter in the town where the factory is located for transporting goods to the destination. Apart from this, there is expense on cartage of the goods from the factory to the transporter's place. All these expenses on cartage and transportation had been claimed by the appellants on average basis on the basis of previous years actual expenses and in this respect they had duly enclosed the certificate of Chartered Accountant as mentioned earlier. The appellants' learned representative pointed out that if the learned Assistant Collector had any doubt about the calculation or if he required to verify further any document he was at liberty to call for those documents so that the appellants could satisfy him appropriately. Learned representative of the appellants read out the observations of the Supreme Court in 1983 E.L.T. 1896 on the question of average freight which is quoted below :-
"We may make it clear that where freight is average and the averaged freight is included in the wholesale cash price so that the wholesale cash price at any place or places outside the factory gate is the same as the wholesale cash price at the factory gate, the averaged freight included in such wholesale cash price must be deducted in order to arrive at the real wholesale cash price at the factory gate and no excise duty can be charged upon."
The Bench observes that in view of the aforesaid observation and the clear evidence on record that the prices of the appellants goods are FOR destination, there is no doubt that expenses on transportation of the goods from the factory to the destination have got to be allowed whether they are actual or an average basis it should be ensured that the total expenses on transportation claimed on such averages do not finally exceed the actual expenses incurred on transportation in respect of such goods.
(ii) Cash Discount/R.P.D. - This discount has been disallowed by the lower authorities on the ground that this is not available to all the buyers against cash but is available to certain customers depending upon the mode of their payment and the time taken for such payments. This discount could be admissible only if it was backed by agreement on price list in Part-II and that it is not know prior to the removal of the goods and that nothing is certain even to the customers till their accounts are settled or finalised by the seller. The appellants, on the other hand stress that Cash/R.P.D. is given uniformly to each and every buyer who pays within the stipulated time as per terms known prior to and at the time of removal. This was claimed on average basis of last years actual expenses on this account as mentioned earlier and a certificate of Chartered Accountant was enclosed in that respect. In this connection the learned representative of the appellants again invited attention to Exhibits L1 to L3 which show giving of R.P., discount at the rate of 5%. He also drew attention to Exhibit 'K' of circular dated 1.1.1984. This circular indicates terms of cash payments subject to discounts. It indicates that 5% discount will be given if payment is made within 15 days, 2-1/2% if within 30 days and 1-1/2% if within 45 days.
The Bench has considered the pleas advanced on both sides. We observe that based on the judgement of Supreme Court in the case of Madras Rubber Factory mentioned supra, learned JCDR has conceded the admissibility of cash discount. We need not further elaborate this point and accept the claim of the appellants that cash discount is a permissible deduction from the price of the goods so long as these have been actually passed on to the customers. There is no doubt that this discount is known at or prior to the removal of the goods as is apparent from the Exhibit 'K' to the paper book, namely circular dated 1.1.1984. There is, however, no question in accepting the claim of averaging this discount. This discount should be allowed on actual basis wherever it has been given to customers.
(iii) Annual Turnover Bonus Discount. - The appellants have laid claim to this deduction in view of Supreme Court's observation in its clarificatory order dated 14/15.11.1983 - 1984 (17)- E.L.T. 329 inasmuch as, according to the appellants, nature and extent of this allowance is clearly known at or prior to the removal of the goods as is apparent from their circular dated 1.1.1984. This contention of the appellants, however, is no longer sustainable in view of Supreme Court's judgement dated 26th December, 1986 in the case of Madras Rubber Factory (MRF). This judgement has disallowed "special year-end bonus" to dealers claimed by the MRF. Reasons for disallowing this claim of MRF have been given by the Hon'ble Supreme Court that "the calculations are made at the end of the year and the bonus at the said rate is granted only to a particular class of dealers. This is computed after taking stock of the account between MRF and dealers. It is not in the nature of discount but in the nature of bonus or an incentive much after the invoice is raised and the removal of the goods is complete". This reasoning would apply to the facts of the annual turnover bonus claimed by the appellants in the instant case. Although the scheme of turnover bonus discount has been spelt out in the circular it can only be computed at the end of the year i.e. much after the removal of the goods or raising of the invoice. Accordingly, this discount would not be permissible to the appellants. Appellants' further plea that such a discount was allowed to their sister concern at Bombay by Assistant Collector of Central Excise, Bombay is of no consequence in view of the applicability of Supreme Court's observation referred to above.
(iv) Central Sales Tax. - Regarding deduction of Central Sales Tax there car hardly be any dispute in view of the clear provisions of Section 4(4)(d)(ii) of the Central Excises and Salt Act, 1944. This has been fairly conceded by the learned JCDR. No apparent reasons have been given by the authority below to disallow deduction of Central Sales Tax from the value of the goods. In view of the clear provisions of law, we allow the deduction on this account.
8. Appeals are, therefore, partly allowed in above terms. Liability of the appellants should be refixed accordingly.