TMI Blog1986 (12) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... io of the assessable value. Ad valorem excise duty is computed only on assessable value after arriving at such assessable value by making proper permissible deductions. Excise duty cannot be computed without proper determination of the assessable value, namely assessable value exclusive of permissible deductions. Even in the cum-duty sale price, the same principle must be followed to arrive at the assessable value. To compute an excise duty as a pre-determined amount without making the permissible deductions for reducing the cum-duty selling price is a fallacy both legally and mathematically as demonstrated above. The ad valorem excise duty can only be computed after reducing the assessable value by permissible deductions and then applying the tariff rate to the assessable value. To reverse this sequence is to mis-interpret the scheme and mode of levy of excise duty on the assessable value. In the light of our aforesaid discussions and keeping in line with our previous format orders, we direct the assessing authorities to quantify and re-determine the permissible deductions - 3195 of 1979 and 793 of 1984 - - - Dated:- 20-12-1986 - P.N. Bhagwati, C.J. and V. Khalid, J. [J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es 1896] decided on the 7th October 1983 and the clarificatory order passed by this Court in the same case of Union of India Others v. Bombay Tyres International Ltd. reported in 1984 (17) E.L.T. 329. This clarification was given by the Supreme Court on 14th and 15th November, 1983. Pursuant to hearings held in this Court in several cases relating to post manufacturing expenses and after the latter clarificatory order in the case of Union of India Others v. Bombay Tyres International Ltd. (supra), the. Tribunal (CEGAT) decided the Review Notice and set aside the order of the Appellate Collector on 1st February, 1984 and on 9th February 1984 the Civil Appeal No. 793 of 1984 was admitted. Format orders were passed by this Court in the pending appeals relating to post manufacturing expenses. Even in the present matters format orders were passed on or around 3rd May, 1984. Format orders were also passed in the pending Writ Appeal No. 590 of 1979 pending before the High Court at Madras. In accordance with the format orders and within the time-frame stipulated, amendments to price lists were to be filed by MRF Ltd. The present Appeals are now to consider the various deductions claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses incurred on account of the several factors which have contributed to its value up to the date of sale, which apparently would be the date of delivery, are liable to be included. Consequently, where the sale is effected at the factory gate, expenses incurred by the assessee up to the date of delivery on account of storage charges, outward handling charges, interest on inventories (stocks carried by the manufacturer after clearance), charges for other services after delivery to the buyer, namely after-sales service and marketing and selling organisation expenses including advertisement expenses cannot be deducted. It will be noted that advertisement expenses, marketing and selling organisation expenses and after-sales service promote the marketability of the article and enter its value in the trade. Where the sale in the course of wholesale trade is effected by the assessee through its sales 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 grounds, be deducted. But the assessee will be entitled to a deduction on account of the cost of transportation of the exc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e time of removal of the goods in respect to which the claim is made and also on the ground that this is not normally claimable as trade discount. 8. We are inclined to accept the contention of the department. Even though the giving of TAC/Warranty is established by practice or capable of being decided, what is really relevant is the nature of the transaction. The warranty is not a discount on the tyre already sold, but relate to the goods which are being subsequently sold to the same customers. It cannot be strictly called as discount on the tyre being sold. It is in the nature of a benefit given to the customers by way of compensation for the loss suffered by them in the previous sale. 9. In our order dated 14th/15th November, 1983 we have said that trade discounts of any nature should be allowed to be deducted provided, however, the discount is known at or prior to the removal of the goods. In the present case this condition precedent is not satisfied as the Committee decides the claim subsequent to the removal of the tyre. 10. The Petitioners have further contended that the Excise Act and the Rules framed thereunder contemplate such an allowance and an abatement of duty ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Union of India Ors. v. Bombay Tyres International Ltd. (supra). The MRF is entitled to deduction on this account. (ii) In the Special year-end Bonus to Dealers MRF proposes and claims this deduction as a year end discount. This Bonus of Rs. 50 per tyre is for certain specific tyres and is receivable only on those invoice where payments are actually receivable within 45 days from the date of the invoice. Under this scheme 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 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 removal of the goods is complete. In the circumstances, we are of the opinion that MRF is not entitled to deduction under this head. (iii) MRF proposed "Superlug Piggy-back compaign Bonus" in March/April, 1983 for i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale of their products through HPC dealer network. An over-riding commission was agreed to, in consideration of HPC not agreeing to entering upon agreement with any other tyre manufacturing company vis-a-vis by reason by MRF undertaking not to enter upon any agreement with any other oil company. The discount proposed was as a percentage of sale effected through the HPC dealers on a half yearly basis. On the face of it, the over-riding commission payable to HPC is a commission for sales. It is a compensation granted for the sale of MRF products through HPC dealers and is a commission for services rendered by the agent. It is not a discount known at or prior to the removal of the goods and we accordingly reject this claim of MRF Ltd. 16. Another head of deduction disallowed to MRF relates to interest on receivables (sundry debtors for sales). MRF has represented that this cost is inbuilt in the price and is incurred on account of the time factor between the time the goods are delivered and the time the moneys are realised. The cost is incurred only where credit terms are given in case of up-country and other buyers where payment is made much after the sales are effected. They conte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of such goods. In this view of the matter, merely because the product is sold at a lower price to the Government and its Departments does not enable the MRF to contend that the difference in price with reference to an ordinary dealer and the Government is a discount to the Government. The difference in price is not a discount but constitutes a normal price for the Government as a class of buyer and no deduction on this head is liable to MRF Ltd. 19. The next question which arises for our consideration relates to special secondary packaging charges for tread rubber. It has been the contention of the MRF that their case is covered by the judgment in Union of India Ors. v. Godfrey Phillips India Ltd. reported in 1985 (Vol. 22) E.L.T. 306. The majority judgment in Godfrey Phillips India Ltd. (supra) holds that "on a proper construction of Sec. 4(4)(d)(i) of the Act read with the explanation, the secondary packaging done for the purpose of facilitating transport and smooth transit of the goods to be delivered to the buyer in the wholesale trade cannot be included in the value for the purpose of assessment of Excise Duty. If a packaging is not necessary for the sale of the product i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondary packing charges incurred by the MRF on tread rubber should not be excluded from the assessable value. Tread rubber is a product which if even slightly damaged becomes unfit or un-usable. The vital element "cushion compound" which is applied to the bottom of the tread rubber and which helps the tread rubber to stick to the buffed surface of the old tyre which is to be re-treaded is very delicate. A polythene sheet is put over the layer of the compound before the same is rolled and put into another polythene bag to avoid sticking to the outer side of the tread rubber and getting contaminated by dust. It is stated that such production cannot be marketed without the polythene bags and/or cardboard boxes. These are the findings of the Assistant Collector, Goa and in the light of the cumulative decisions of the Assistant Collector, Goa and of the Bombay High Court, we are of the view that the secondary special packing charges for tread rubber cannot be deducted from the assessable value of tread rubber. 20. In relation to the determination of wholesale price of tyres on the basis of the ex-factory price for Defence supplies, with reference to the old Section 4 in view of our ju ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first deducted from the selling price for the re-assessments before the Assistant Collectors. The assessment of excise duty both in relation to Section 4 and in relation to the Valuation Rules is now subject to the definition contained in Section 4(4)(d) of the Excise Act. The value as defined thereunder is to be arrived at after the cost of packaging of a durable nature or a returnable nature as also amounts of duty of excise, sales tax and other taxes and trade discount allowed in accordance with the normal practice of wholesale trade is determined. It is thus implicit that no excise duty is payable on an element of excise duty in the price. The value as contemplated under Section 4 cannot include a component of excise duty. In the circumstances, where the computation of an assessable value has to be made from the factory gate sale price which is a cum-duty price, the first question which will have to be addressed is what are the exclusions and permissible deductions from such a sale price. The petitioners have contended that their cum-duty price was arrived at after calculating and adding excise duty payable i.e., before actual duty was paid. They contend that their price lists ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le deductions = 3200 - Rs. 200 = Rs. 3000. Assessable value is equal to difference in selling price and permissible deductions divided by 1 plus 60/1000 which is equal to 3000/1.6 which is equal to Rs. 1875/-. The excise duty at 60% ad valorem rate would be Rs. 1125/- on the assessable value of Rs. 1875/-. The mathematical formula enumerated above balances. For example, if the cum-duty paid selling price is equal to Rs. 3200/-, the assessable value is Rs. 1875 excise duty is Rs. 1125 and permissible deductions is Rs. 200, the aggregate of the assessable value, the permissible deduction and the excise duty is equal to the selling price (cum-duty paid). Any other method of computation of excise duty or assessable value is erroneous. The Petitioner's basis that the assessable value is to be arrived at by taking into consideration the same amount of excise duty which was hypothetically pre-determined and added to the factory price and that this element in an attempt to compute the assessable value should naturally be deducted first, is putting the cart before the horse. The excise duty is only known as a ratio of the assessable value when an ad valorem duty is included in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duty sale price, the same principle must be followed to arrive at the assessable value. To compute an excise duty as a pre-determined amount without making the permissible deductions for reducing the cum-duty selling price is a fallacy both legally and mathematically as demonstrated above. The ad valorem excise duty can only be computed after reducing the assessable value by permissible deductions and then applying the tariff rate to the assessable value. To reverse this sequence is to mis-interpret the scheme and mode of levy of excise duty on the assessable value. 23. In the light of our aforesaid discussions and keeping in line with our previous format orders, we direct the assessing authorities to quantify and re-determine the permissible deductions in accordance with our present Judgment. The assessee, MRF Ltd. already having been required to file the permissible deductions/amendments to the price lists within a period of one month in the last instance in May, 1984 is once again required by us to file fresh price lists in the light of our present Judgment within one month for all the periods under consideration. The assessing authorities after hearing the assessee would qua ..... X X X X Extracts X X X X X X X X Extracts X X X X
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