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TMI Blog1984 (2) TMI 228X X X X Extracts X X X X X X X X Extracts X X X X ..... h the issue of the aforesaid Show Cause Notice came to be transferred to this Tribunal in terms of Section 35P(2) of the Central Excises Salt Act for disposal as if it were an appeal filed before it. 3. The Supreme Court, in Special Leave Petition (Civil) Nos. 1409-10/77, 10108/80 & C.A. Nos. 3195/79 and 6811/83 (The Assistant Collector of Central Excise etc. etc. v. M/s. Madras Rubber Factory, etc. etc.), passed an order dated 8-11-1983 directing the Tribunal to dispose of the question as to whether the sales effected by MRF at their depots are not retail sales as contended by the Union of India in its Review Notice dated 6-10-1980. If they are retail sales, the Tribunal was directed to also determine what are the deductions that are permissible to MRF under Rule 6(a) of the Central Excise (Valuation) Rules, 1975 (hereinafter referred to as Valuation Rules). 3a. In pursuance of the directions of the Supreme Court the appellant and the respondent have filed documents in support of their respective stands. 4. consequent on the coming into force of the new Section 4 of the Central Excises Salt Act, 1944 with effect from 1-10-1975, MRF submitted on 22-9-1975 a price list ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ence between MRF and the Department. 7. By a notice dated 17-11-1975, the Assistant Collector called upon MRF to show cause why the assessable value of their goods should not be finalised on the basis of their total sale price or billing price less actual cost on transportation from the factory to the sales depots and the element of excise duty contained therein. After considering the written and oral submissions of MRF, the Assistant Collector passed an adjudication order on 24-1 -1978 holding that - (a) Since there was no sale of goods at the factory gate, Section 4(1)(a) was not applicable; (b) The assessable value had, therefore, to be determined in terms of Section 4(2) of the Act; (c) Applying Valuation Rule 4, the assessable value was the value at which the goods were sold from the depots maintained by MRF; (d) The only permissible deduction from the said price was the transportation charges and the, duty element. The law did not permit the exclusion of the post-manufacturing expenses from the assessable value. The Assistant Collector directed that the assessable value of all the products of MRF would thus be on the basis of their total sal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s bought only one or two tyres at a time. Thus, MRF depots were in retail trade and not in whole-sale trade. If, however, the ex-depot prices were taken as whole-sale prices, then it had to be divested of the extraneous charges that had gone into the making up of the price other than the manufacturing cost and the manufacturing profit. 11. The case was heard on the 23rd, 24th and 25th January, 1984. We have heard with great interest Shri N.V. Raghavan Iyer and Shri Mahesh Kumar for the Appellants and Shri. F.S. Nariman and Shri V.J. Taraporewala, Counsel for the Respondent. We have also revised the ' records very carefully. The submissions made on behalf of the appellant may be summarised thus :- (a) A sale to a dealer is a sale in whole-sale. The quantity in a particular transaction is not necessarily relevant or conclusive of the character of the sale. In this connection Shri Iyer drew our attention to the definition of "whole-sale dealer" appearing in Section 2(k) of the Act and that of "whole-sale trade" in Section 4(4)(e). (b) The definition of "whole-sale trade" in Section 4(4)(e) was an artificial one. The natural meaning was sale to a dealer for the purp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , cannot be deducted. The Court has further held that where the sale in the course of whole-sale trade is effected by the assessee through its sale organisation at a place or places outside the factory gate, the expenses incurred, by the assessee up to the date of delivery under the aforesaid heads cannot, on the same ground, be deducted. However, deduction on account of the cost of transportation of the goods from the factory gate to the place or places where it is sold, including the cost of insurance on the freight or transportation would be deductible. The deductions being claimed are the very same deductions which were claimed all these years as post-manufacturing expenses. (e) It is the same deductions on account of post-manufacturing expenses that have been claimed all these years. (f) There are about 42 depots or distribution centres of MRF and over 4,000 individual dealers. More than 55% of the MRF sales pass through these dealers, as borne out by MRF's affidavit. Sales from the depots to individual consumers is a very rare occurrence. (g) There are no invoices for removal of goods from the factory to their depots; there are only stock-transfer challan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ities is being introduced for the first time now. This should not be permitted. MRF is apparently trying to show that these were sales in whole-sale (and, therefore, whole-sale cash prices) at the factory gate all the time. To this extent, the affidavit now filed should be ignored. (m) Assuming that the evidence regarding Defense sales is admitted, it was submitted that prices to Defense authorities were not the normal price for other classes of buyers. Defense sales (constituting 5% of the total sales) were at specially contracted prices (the difference between Defense prices and depot prices going up to even 17%), and cannot determine the true nature of the remaining 95% sales. (n) Concluding, it was submitted that, considering the totality of circumstances, MRF sales, leaving aside the 5% sales to Defense authorities, were in whole-sale and not retail. 12. The submissions on behalf of MRF by F.S. Nariman may be summarised as follows :- (a) In terms of the order of the Supreme Court dated 8-11-1983, the only questions for decision are whether MRF sales ex-depot are not retail sales and if they are retail sales, what are the permissible deductions under Valua ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xcept perhaps storage charges which MRF had, in any case, to incur. The admissible deductions could be ascertained from the Chartered Accountant's Certificate. 13. In answer to the queries from the Bench, Shri V.J. Taraporewala, the learned Counsel for MRF, inter alia stated that - (a) There is no agreement between MRF and the dealers. Even a non-dealer could go to a depot and buy his requirements on cash payment but such instances are few and far between. (b) Though dealers and other buyers are designated as "account-holders", they do not deposit any amounts with MRF. Once in 6 months, the accounts are scrutinised and 1% of the value of purchases, irrespective of the value, is given as discount by way of a credit note. However, no deductions have been claimed on this score so far perhaps because they are not discounts given at the time of sales. (c) An individual customer (in the rare instance of such sale ex-factory) would not get the above turn-over discount because he is not a registered dealer but this would be off-set by the fact that he would have to pay a higher price to the dealer. 14. The undisputed position relating to the sales pattern followed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such sales are effected by MRF at the factory gate and not from their depots away from the factory. But they constitute only a small proportion of MRF's total sales - Rs. 8.5 crores out of Rs. 185 crores in 1981-82 i.e. 4.59%. The prices are distinctly lower than those charged to other buyers. The terms are F.O.R. ex-factory unlike in the case of sale to other buyers. These are, therefore, in nature of sales to a particular class of buyers, governed by DGS&D rate contracts. These prices do not form part of the dispute before us and, therefore, our order does not concern itself with MRF sales to defense authorities and the prices charged from them. However, we have adverted to Defense sales because a submission was made before us by the learned Counsel for MRF that since these are ex-factory sales in whole-sale lots (i.e. Defense sales), the prices in such sales with appropriate adjustment should form the basis for working out the assessable values in respect of other buyers. We shall deal with this submission at the appropriate stage. However, let it be noted that there is no finding of the lower authorities on the subject of Defense sales before us. 15a. The learned Departme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it should be a building to which the public can resort for the purpose of having particular wants supplied and services rendered therein without the intervention of a 'middleman'." (Page 2381, Vol. 4). 17a. We may also note in this context the definition of "whole-sale dealer" in Section 2(k) of the Central Excises & Salt Act, as "a person who buys or sells excisable goods whole-sale for the purpose of trade or manufacture, and includes a broker or commission agent who in addition to making contracts for the sale or purchase of excisable goods for others, stocks such goods belonging to others as an agent for the purpose of sale." 17b. Though the expression "whole-sale dealer" is not directly relevant for our purpose, we have reproduced it only to note that the concept is the same as in the dictionary meanings we have referred to in the preceding paragraphs. 18. The expression with which we are concerned here is "whole-sale trade" which has been defined in Section4 (4) (e) of the Act in these terms :- "Whole-sale trade" means sales to dealers, industrial consumers, Government, local authorities and other buyers, who or which purchase their requirements otherwise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to the Priyy Council decision in Vacuum Oil Co. v. Secretary of State - 1978 E.L.T. (J 260), which is with reference to Section 30 of the erstwhile Sea Customs Act, 1878. It was held therein that the words "whole-sale...price" are used in contradistinction to a "retail price" and that only on the ground that such is a well recognised meaning of the words but because their association with the words "trade discount" indicated that sales to the trade are those in contemplation. 21. The contention of the appellant is that sales to the trade are sales in "whole-sale" as opposed to sales to the ultimate individual consumers which are sale in "retail". MRF contend that the quantities sold should determine the character of individual transactions and, on this basis, argue that the bulk of the sales of tyres and tubes are in 2s, 4s and 6s and rarely over 10s and, therefore, these are in "retail". Revenue, however, contends that it is not the quantities involved in individual transactions but the totality of the transactions that should determine the true nature of the sales. In this connection Shri Mahesh Kumar, the learned Representative of the appellant, has referred us to sev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e) of the Act. We have seen how MRF has been splitting up sales of quantities of goods which cannot be- termed small into a large number of sales involving small quantities and issuing several invoices. This aspect of the sales itself is a tell-tale indication of the true nature of such sales and purchases. Purchases of the requirements of these buyers are given the appearance of purchases of their requirements in retail. But that cannot detract from the true nature of these purchases and sales : they are otherwise than in retail. While the element of direct re-sale may not be there in the case of the institutional buyers, they have a commercial interest in the purchase of MRF's goods. Vehicle manufacturers, for instance, fit tyres and tubes as original equipment on vehicles manufactured by them for sale. Transport Undertakings fit them to their vehicles which ply on commercial basis. The fact that the element of direct re-sale (of tyres, tubes purchased from MRF) may be absent in the case of such buyers would not detract from the position that such purchases (and MRF sales to them) are not purchases (sales) in retail. 24. In the above view of the matter, we would read Govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 82. We are, therefore, inclined to consider that these are sales to a special category of buyers and the prices charged to the Defence authorities cannot form a reasonable or satisfactory basis for arriving at the assessable values in respect of the overwhelming majority of sales (adding up to more than 95% in 1981-82) to other classes of buyers in respect of whom, admittedly, there are no ex-factory sales. 26. Section 4(4)(e) takes in, besides sales to dealers, sales to industrial consumers (e.g. motor vehicle manufacturers), Government, local authorities (e.g. State Transport Undertakings) and other buyers. Therefore, sales to such buyers (other than dealers) constitute "whole-sale trade" so long 'as they purchase their requirements otherwise than in retail. 27. Having regard to the above discussion, we hold that the sales effected by MRF at their depots are not retail sales but sales in "wholesale trade" within the meaning of Section 44(e) of the Act. However, since sales at such depots do not constitute sales at the factory gate, the assessable value of the goods has to be determined in accordance with Section 4(1)(b) of the Act read with Rule 4 of the Valuation Rul ..... X X X X Extracts X X X X X X X X Extracts X X X X
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