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M/s. Purolator India Ltd. Versus Commissioner of Central Excise, Delhi – III

2015 (8) TMI 1014 - SUPREME COURT

Valuation of goods - Section 4 - deduction towards Sales Tax, Cash Discount and Volume Discount on excise duty payable - Held that:- Section 4 as amended introduces the concept of “transaction value” so that on each removal of excisable goods, the “transaction value” of such goods becomes determinable. Whereas previously, the value of such excisable goods was the price at which such goods were ordinarily sold in the course of wholesale trade, post amendment each transaction is looked at by itsel .....

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42 - SUPREME COURT] was concerned with sales tax incentives that were given under the Rajasthan Sales Tax Incentives Scheme. On the facts of that case, 25% of the sales tax was paid to the Government, and 75% of the said amount of sales tax was retained by the assessee and became the assessee’s profit. - Court did not deal with Section 4(1)(a) as amended in the year 2000 insofar as it speaks of delivery of goods at the time and place of removal. - This judgment does not in any manner deviate fr .....

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of assessee. - Civil Appeal No. 1959 of 2006 - Dated:- 25-8-2015 - A. K. Sikri And R. F. Nariman,JJ. For the Appellant : Mr. Rajesh Kumar, Adv. For the Respondent : Ms. Pinky Anand, ASG, Ms. Nisha Bagchi, Adv., Ms. Snidha Mehra, Adv., Ms. Aruna Gupta, Adv., Mr. B. Krishna Prasad, Adv. JUDGMENT R. F. Nariman, J. 1. M/s Purolator India Limited (hereinafter referred to as the appellant) is engaged in the manufacture of excisable goods, namely Filter Elements, Inserts, and Cartridges and Components .....

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l Excise and Salt Act, 1944. 3. Apart from undertaking manufacturing activities, the appellant at times also receives goods from customers for repair in case of defects noticed by the customers. The customers either reject the entire lot or a particular box etc. if they notice any defect, so that their time is not wasted in checking each and every item and thus, goods are sent back to the appellant. On receipt of such consignments, the appellant checks the same for defects indicated and undertak .....

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aimed on account of volume discount, sales tax and cash discount. Besides this it was also alleged that the appellant has removed new finished excisable goods instead of old/repaired goods. 5. The appellant filed a detailed reply to the show cause notice countering each and every allegation. The Commissioner of Central Excise, Delhi-III passed an Order dated 31.12.2003 dropping the duty demands on all the issues for the period April 1996 to February 1997, being more than five years old. Further, .....

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provisions of Section 11A and direct the assessee to pay the same forthwith. (a) ₹ 13,43,046/- towards duty involved on replaced goods cleared between March 1997 to March 2001. (b) ₹ 14,27,483/- towards duty computed for the period of March 1997 to March, 2001 on volume discount. (c) Rs, 11,96,601/- towards duty computed for the period of March 97 to March, 2001 on Sales Tax deduction and (d) ₹ 4,99,117/- towards duty on cash discount for the period of July 2000 to March, 2001 .....

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ts of ₹ 29,140/-, ₹ 38,896/-, ₹ 42,728/- and ₹ 19,443/- which were voluntarily paid by the assessee on account of duty on handling charges and differential duty. It is clarified that the amount of penalty in (iii) above shall be reduced to 25% thereof if the assessee deposits the amounts of the duty, interest and penalty, determined vide this order within 30 days from the date of communication of this order; and that if the assessee has already deposited /paid some amount .....

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al that cash discount is a discount allowed for prompt payment for the goods and when this discount is reduced from the invoice price, transaction value at the time of delivery of goods is obtained, otherwise, the invoice price is a future price and as the assessable value is to be determined with regard to time of removal financing and other cost cannot form part of the assessable value. With due regard, we find ourselves unable to agree with this view. The measure for valuation under New Secti .....

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Court in the case of Jenson & Nicholson (India) Ltd. Vs. Union of India, 1984 (17) ELT 4 (Bom.) has filed that the wholesale cash price on which the excisable duty is assessable will naturally be the price minus the cash discount allowed in the invoice. The Hon'ble High Court has proceeded on the basis that the sales are effected on the basis of the price basis which themselves mention the various terms subject to which the sales are effected. The Tribunal followed the said Judgment in C .....

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all be the transaction value which has been defined in clause (d) of sub-section(3) of Section 4 of the Act as under:- ''transaction value" means the price actually paid or payable for the goods, when sold, and includes in addition to amount charged as priced, any amount that they buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of sale or at any other time, including , but not limited to, any amount .....

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n value" of the goods that is "the price actually paid or payable for the goods when sold." Contrary to these provisions, under the old Section 4 the value was a deemed one, that is to say, the price at which goods a ordinarily sold in the course of wholesale trade. Now under New Section 4, one has not to look as to what is the price at which goods are ordinarily sold in the course of wholesale trade. The price actually paid or payable is to be taken up as the assessable value. In .....

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d to the jurisdictional Adjudicating Authority for re-adjudication in terms of our direction. We leave the issue regarding imposition of penalty open to be decided by the Adjudicating Authority. 7. Shri Lakshmikumaran, learned counsel for the appellant, has argued that Section 4 of the Central Excise and Salt Act, 1944 as amended in 2000, has made no change in the situation qua cash discount as it obtained under the old Section 4. According to him, what has to be seen in order to arrive at the c .....

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make any change with regard to the fact that such transaction value is only at the time of removal from the factory or depot, being the time of clearance of excisable goods from the factory premises or depot as the case may be. According to him, every agreement of sale entered into by the assessee with its buyers makes it known before the goods are cleared that there is to be a cash discount insofar as the appellant s goods are concerned. Therefore, this being the case, it is clear that at the t .....

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appellant s goods. If it is found that what is actually paid is not the discounted price, then the transaction value cannot possibly include cash discount. For this purpose, she relied upon the decision in Commissioner of Central Excise, Jaipur-II v. Super Synotex (India) Ltd. and Ors., 2014 (301) ELT 273 (SC). 10. We have heard learned counsel for the parties. In order to better appreciate the arguments on both the sides, it is necessary to set out Section 4 of the Central Excise and Salt Act .....

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th duty from the factory or any other premises of manufacture or production, or if a whole the place of manufacture or production, or if a wholesale market does not exist for such article at such place, at the nearest place where such market exists, or (b) Where such price is not ascertainable, the price at which an article of the like kind and quality is sold or is capable of being sold by the manufacturer or producer, or his agent, at the time of the removal of the article chargeable with duty .....

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r the amendment of 1973, Section 4 reads as follows:- 4. Valuation of excisable goods for purposes of charging of duty of excise.- (1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value, shall, subject to the other provisions of this section, be deemed to be - (a) the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the .....

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o each such class of buyers; (ia) where the price at which such goods are ordinarily sold by the assessee is different for different places of removal, each such price shall, subject to the existence of other circumstances specified in clause (a), be deemed to be the normal price of such goods in relation to each such place of removal; (ii) where such goods are sold by the assessee in the course of wholesale trade for delivery at the time and place of removal at a price fixed under any law for t .....

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sessee to or through such related person shall be deemed to be the price at which they are ordinarily sold by the related person in the course of wholesale trade at the time of removal, to dealers (not being related persons) or where such goods are not sold to such dealers, to dealers (being related persons), who sell such goods in retail; (b) where the normal price of such goods is not ascertainable for the reason, that such goods are not sold or for any other reason, the nearest ascertainable .....

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for which a tariff value has been fixed under sub-section (2) of section 3. (4) For the purposes of this section, - (a) "assessee" means the person who is liable to pay the duty of excise under this Act and includes his agent; (b) "place of removal" means- (i) a factory or any other place or premises of production or manufacture of the excisable goods; (ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payme .....

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th the assessee that they have interest, directly or indirectly, in the business of each other and includes a holding company, a subsidiary company, a relative and a distributor of the assessee, and any sub-distributor of such distributor. Explanation. - In this clause "holding company", "subsidiary company" and "relative have the same meanings as in the Companies Act, 1956 (1 of 1956); (d) "value", in relation to any excisable goods,- (i) where the goods are d .....

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on such goods and, subject to such rules as may be made, the trade discount (such discount not being refundable on any account whatsoever) allowed in accordance with the normal practice of the wholesale trade at the time of removal in respect of such goods sold or contracted for sale. Explanation. - For the purposes of this sub-clause, the amount of the duty of excise payable on any excisable goods shall be the sum total of - (a) the effective duty of excise payable on such goods under this Act .....

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h Act, or the additional duty under section 3 of the Customs Tariff Act, 1975 (51 of 1975), already paid on the raw material or component parts used in the production or manufacture of such goods) from the duty of excise under such Act is for the time being in force, the duty of excise computed with reference to the rate specified in such Act, in respect of such goods as reduced so as to give full and complete effect to such exemption; and (ii) in any other case, the duty of excise computed with .....

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reference to their value, then on each removal of the goods, such value shall - (a) in a case where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, be the transaction value; (b) in any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed. (2) The provisions of this section shall not .....

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(iv) they are so associated that they have interest, directly or indirectly, in the business of each other. Explanation. - In this clause - (i) inter-connected undertakings shall have the meaning assigned to it in clause (g) of section 2 of the Monopolies and Restrictive Trade Practices Act, 1969 (64 of 1969); and (ii) relative shall have the meaning assigned to it in clause (41) of section 2 of the Companies Act, 1956 ( 1 of 1956); (c) place of removal means - (i) a factory or any other place .....

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on with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling, organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods. 14. It can be seen that the common thread running th .....

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to be deposited either with payment of duty, or from which such excisable goods are to be sold after clearance from a factory. In fact, Section 4(2) pre- 2000 made it clear that where the price of excisable goods for delivery at the place of removal is not known, and the value thereof is determined with reference to the price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery is to be excluded from such price. Th .....

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- Trade Discounts. - 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 the discount being known at or prior to the removal of the goods. Such Trade Discounts shall not be disallowed only because they are not payable at the time of each invoice or deducted from th .....

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te of the invoice. Under this scheme, it appears that a declaration is to be received dealer-wise and thereafter provision is to be made at the head office of MRF for the bonus. The Assistant Collector has found that this discount was allowed by the assessee not out of any extra-commercial considerations but that they were meant only to boost the sales particularly in the year 1981-82 in respect of Leader Tyre in order to achieve the target of sales for that year. He has recorded a finding that .....

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se v. Madras Rubber Factory.) The reasoning in the said order runs thus: The allowance of the discount is not known at or prior to the removal of the goods. 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 accounts between MRF and its dealers. It is not in the nature of a discount but is in the nature of a Bonus or an incentive much after the invoice is raised and the remov .....

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clarificatory Order in Bombay Tyre International, we hold that this claim has been rightly allowed by the Assistant Collector. So far as the prompt payment discount is concerned, it is payable under a scheme called 'prompt payment discount scheme' which is applicable only to up-country non-RCS dealers (except, of course, the Government and DGS&D accounts). The discount is @ 0.75% on the total value of the invoice including sales tax, surcharge etc. provided the bill is cleared/paid w .....

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nternational this claim too must be held to have been rightly allowed by the Assistant Collector. (at paras 59 to 62) 17. The only question that falls for our determination is whether Section 4 as amended in the year 2000 makes no change to the aforesaid position. 18. It can be seen that Section 4 as amended introduces the concept of transaction value so that on each removal of excisable goods, the transaction value of such goods becomes determinable. Whereas previously, the value of such excisa .....

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of clearance of the goods from the appellant s factory or depot as the case may be. The expression actually paid or payable for the goods, when sold only means that whatever is agreed to as the price for the goods forms the basis of value, whether such price has been paid, has been paid in part, or has not been paid at all. The basis of transaction value is therefore the agreed contractual price. Further, the expression when sold is not meant to indicate the time at which such goods are sold, bu .....

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re referred to the Central Board of Excise and Customs Bulletin for the period January-March, 1975 in which the Board laid down:- Cash Discounts That is, discounts for prompt payment of price of goods on delivery, are admissible in arriving at the assessable value if they are available to all buyers. This aspect has been dealt with in detail under the heading price . …Some assessee may give to all his buyers cash discount, that is a discount for prompt payment. In other words, they charge .....

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pecified period. Such cash discount will be admissible and the price will be ₹ 100 per unit minus 2%. 20. This understanding of the Board would necessarily continue in view of what is said above as regards cash discounts even after the amendment of Section 4 in the year 2000. 21. We were referred to the judgment of this Court in Deputy Commissioner of Sales Tax (Law) Board of Revenue (Taxes), Ernakulam v. Advani Oorlikon (P) Ltd., 1981 (8) ELT 801 (S.C.), in which it was stated:- … .....

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ale dealer to a retailer shows the catalogue price and against that a deduction of the trade discount is shown. The net amount is the sale price, and it is that net amount which is entered in the books of the respective parties as the amount realisable. (at para 5) 22. This judgment arose in the context of the Central Sales Tax Act, but it is instructive only in that it makes it clear that a cash discount is the discount granted in consideration of expeditious payment, and is therefore directly .....

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ssee s profit. Under the earlier Board s circulars that were issued by the Central Board of Excise and Customs, the amount of 75% of sales tax that was never paid to the Government but retained by the assessee was also liable to be deducted from price under the old Section 4, that is, Section 4 before its amendment in the year 2000. This Court held that the amended Section 4 would require that such amount of 75% is not deductible as sales tax because, according to this Court, only sales tax that .....

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sales tax was not paid on the input, full amount is payable and has to be excluded for arriving at the "transaction value". That is not the factual matrix in the present case. The assessee in the present case has paid only 25% and retained 75% of the amount which was collected as sales tax. 75% of the amount collected was retained and became the profit or the effective cost paid to the assessee by the purchaser. The amount payable as sales tax was only 25% of the normal sales tax. Pur .....

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in the manufactured goods. The amount paid or payable to the State Government towards sales tax, VAT, etc. is excluded because it is not an amount paid to the manufacturer towards the price, but an amount paid or payable to the State Government for the sale transaction, i.e., transfer of title from the manufacturer to a third party. Accordingly, the amount paid to the State Government is only excludible from the transaction value. What is not payable or to be paid as sales tax/VAT, should not b .....

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d 12.3.1998. Be that as it may, the clear legislative intent, as it seems to us, is on "actually paid". The question of "actually payable" does not arise in this case. (at para 22) 24. It will be noticed that this Court did not deal with Section 4(1)(a) as amended in the year 2000 insofar as it speaks of delivery of goods at the time and place of removal. This Court was only concerned with whether sales tax is to be deducted from transaction value as newly defined. We have al .....

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the State Government as sales tax can be deducted. This was so held on an interpretation of the last part of the definition of transaction value . The facts of the present case are concerned with the first part of the definition of transaction value which has to be read with Section 4(1)(a) as has been stated above. 25. This judgment does not in any manner deviate from the settled legal position so far as cash discounts are concerned as has been laid down in Union of India v. Bombay Tyre Interna .....

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is clear that cash discount has therefore to be taken into account in arriving at price even under Section 4 as amended in 2000. 27. Insofar as the other point of defective goods and volume discount on sales tax is concerned, the Tribunal has stated:- 8. We have considered the submissions of both the sides. Regarding defective goods, we observe from the statement dated 9.10.2000 of Shri R.K. Gulati that he has clearly deposed therein that "the goods so received from various customers under .....

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before us and cannot overcome the clear admission by the authorized signatory of the Appellant company. We also do not find any force in the submission that Shri Gulati's statement can be relied upon only in respect of Khandsa factory not in respect of factory at Mehrauli Road since no such qualification has been attached by Shri Gulati in his statement. Further, if the defective goods were substituted by new goods at one factory, it is reasonable to include that the same practice would be p .....

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