2019 (4) TMI 587 - SC - Central Excise

Valuation - inclusion of Dharmada Charges (Charitable donation received from the customers) in the assessable value - Held that - The receipts on account of Dharmada were voluntary earmarked for charity and in fact credited as such. Though the payment as Dharmada has been found to be voluntary it would make no difference to the true character and nature of the receipts even if there were found to be paid compulsorily because the purchaser purchased the goods out of their own volition. The purchase of the goods is the occasion and not consideration for the Dharmada paid by the customer. When an amount is paid as Dharmada along with the sale price of goods such payment is not made in consideration of the transfer of goods. Such payment is meant for charity and is received and held in trust by the seller. If such amounts are meant to be credited to charity and do not form part of the income of the assessee they cannot be included in the transaction value or assessable value of the goods. The Dharmada collected by the appellant which is clearly an optional payment made by the buyer cannot be regarded as part of the transaction value for the sale of goods - appeal allowed - decided in favor of appellant.

Summary

Issues Presented and Considered

The core legal questions considered by the Court were:

1. Whether the amount collected as "Dharmada," a charitable donation paid voluntarily by customers along with the sale price of manufactured goods, can be included in the assessable value of the goods for the purpose of levying excise duty under the Central Excise Act, 1944.

2. Whether the Dharmada, despite being paid along with the sale price and credited to charity, constitutes part of the "transaction value" or "price" under the Act, or is a separate voluntary payment not liable to excise duty.

3. The applicability and precedential value of earlier Supreme Court decisions, notably the rulings in Tata Iron & Steel Co. Ltd. and Collector vs. Panchmukhi Engineering Works, in determining the character of Dharmada for excise valuation.

4. The relevance of income tax jurisprudence, particularly the decision in Commissioner of Income Tax vs. Bijli Cotton Mills, regarding the nature of Dharmada as a charitable receipt and whether it can be treated as trading income or part of the sale consideration.

Issue-wise Detailed Analysis

Issue 1 and 2: Inclusion of Dharmada in Assessable Value

Legal Framework and Precedents: The Central Excise Act, 1944, specifically Section 4, governs valuation of excisable goods for charging duty. Section 4(3)(d) defines "transaction value" as the price actually paid or payable for the goods and includes any additional amount payable by the buyer in connection with the sale, but excludes excise duty, sales tax, and other taxes. Rule 6 of the Central Excise Valuation Rules further clarifies that the value of goods shall be deemed to be the transaction value plus any additional consideration flowing from the buyer to the assessee.

The Sale of Goods Act, 1930, Section 4 defines a contract of sale as one where the seller transfers or agrees to transfer property in goods to the buyer for a price. "Consideration" is interpreted as the act or promise by which one party induces the other to contract, having economic value.

In income tax jurisprudence, the Supreme Court in Commissioner of Income Tax vs. Bijli Cotton Mills held that Dharmada amounts received from customers and earmarked for charitable purposes do not constitute income of the assessee but are held in trust for charity. The Court recognized Dharmada as a customary voluntary charitable donation, distinct from commercial receipts.

Court's Interpretation and Reasoning: The Court emphasized that the transaction involved was the sale of chewing tobacco for a price representing the consideration for transfer of property. The Dharmada was paid voluntarily by customers and credited to charity, with no dispute on its voluntary nature or its separate accounting.

The Court analyzed the definition of "transaction value" and concluded that only amounts paid as consideration for the goods or additional amounts flowing from the buyer in connection with the sale can form part of the assessable value. Payments not made as consideration for the goods cannot be included.

Applying this principle, the Court held that Dharmada, being a voluntary charitable donation, is not paid as consideration for the goods and does not form part of the transaction value. It is a separate payment made for charitable purposes, received and held in trust by the seller acting as a conduit.

Key Evidence and Findings: The record included certificates from a chartered accountant confirming that Dharmada collections were credited to a separate account and donated to charity during the relevant period. There was no challenge to the voluntary nature of Dharmada payments.

Application of Law to Facts: Since Dharmada was voluntary, earmarked for charity, and not part of the trading receipts or price for goods, it could not be included in the assessable value for excise duty. The Court relied heavily on the reasoning in Bijli Cotton Mills to affirm that such receipts do not constitute trading income or price consideration.

Treatment of Competing Arguments: The Revenue relied on the decision in Collector vs. Panchmukhi Engineering Works, which held Dharmada liable to be included in assessable value. However, the Court observed that Panchmukhi was decided without detailed argument and merely followed Tata Iron & Steel Co. Ltd., which involved a compulsory surcharge added to steel prices under a statutory committee's directive.

The Court distinguished the Tata Iron & Steel case, where the surcharge was a compulsory element of the price fixed by law and ultimately benefited the steel plants themselves, from the present case where Dharmada was voluntary and for charitable purposes unrelated to the price of goods.

The Court held that the precedential value of Panchmukhi was limited, and Tata Iron & Steel was inapposite due to the fundamentally different nature of the surcharge involved.

Issue 3: Applicability of Precedents (Tata Iron & Steel and Panchmukhi)

Legal Framework and Precedents: Tata Iron & Steel Co. Ltd. involved a surcharge added as an element of price under statutory authority to create a development fund. The surcharge was compulsory, added to the ex-works price, and formed part of the consideration.

Panchmukhi Engineering Works followed Tata Iron & Steel without detailed discussion, holding Dharmada liable to be included in assessable value.

Court's Interpretation and Reasoning: The Court noted that Tata Iron & Steel dealt with a compulsory surcharge fixed by a statutory committee, which was part of the price and thus assessable. In contrast, Dharmada was voluntary, for charity, and not a price element.

The Court cited jurisprudential authority that decisions rendered sub silentio and without argument lack binding precedent value, applying this to Panchmukhi.

Application of Law to Facts: The Court rejected the Revenue's reliance on these precedents, finding them factually and legally distinguishable. Tata Iron & Steel's surcharge was a compulsory price component, whereas Dharmada was a voluntary charitable donation.

Issue 4: Income Tax Jurisprudence on Dharmada

Legal Framework and Precedents: The Supreme Court in Commissioner of Income Tax vs. Bijli Cotton Mills held that Dharmada receipts are not income but are held in trust for charity, reflecting their nature as voluntary donations, not trading receipts.

Court's Interpretation and Reasoning: The Court extensively relied on Bijli Cotton Mills, emphasizing that Dharmada is a customary charitable gift, not consideration for goods. It noted that even if Dharmada payments were compulsory, the voluntary nature of the purchase transaction means the payment is not involuntary and does not convert Dharmada into price consideration.

Application of Law to Facts: The Court found that Dharmada payments were voluntary and credited to charity, consistent with the principles in Bijli Cotton Mills, thereby excluding Dharmada from assessable value.

Significant Holdings

"The Dharmada collected by the appellant which is clearly an optional payment made by the buyer cannot be regarded as part of the transaction value for the sale of goods."

"When an amount is paid as Dharmada along with the sale price of goods, such payment is not made in consideration of the transfer of goods. Such payment is meant for charity and is received and held in trust by the seller."

"The transaction value must be construed as the price actually paid or payable for the goods and any additional amount flowing directly or indirectly from the buyer in connection with the sale, but not any amount paid for purposes other than the transfer of goods."

"The decision in Panchmukhi Engineering Works is not binding precedent as it was decided sub silentio, without argument and without citation of authority."

"The surcharge in Tata Iron & Steel Co. Ltd. was a compulsory element of price fixed under statutory provisions and is distinguishable from voluntary Dharmada payments."

The Court set aside the CESTAT judgment which had included Dharmada in the assessable value and allowed the appeal, holding that Dharmada is not liable to be included in the transaction value for excise duty purposes.