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TMI Blog1986 (12) TMI 35X X X X Extracts X X X X X X X X Extracts X X X X ..... xpenses under the new Section 4 of the Excise Act. This relates to the Kottayam factory. (ii) Civil Appeals No. 4731-32 of 1984 are appeals filed by Union of India through the Superintendent of Central Excise, Kottayam against the Judgment dated 1st April, 1976 of the Division Bench of the High Court of Kerala allowing post manufacturing expenses under the old Section 4 of the Excise Act. (iii) SLP (Civil) No. 10108 of 1980 is another appeal of the Union of India against the Judgment of the Additional Judicial Commissioner, Goa, Daman and Diu allowing post manufacturing expenses unnder the old Section 4 of the Excise Act in respect of the factory at Goa. In respect of new Section 4, the Union of India and MRF were agreed that the decision in Writ Appeal No. 302 of 1978 being the subject matter of Civil Appeal 3195 of 1979 would be applicable to the factory at Goa. (iv) Civil Appeal No. 793 of 1984 is MRF's Appeal under Section 35L of the Central Excises and Salt Act (as amended) against the order and decision dated 1st February, 1984 of the Tribunal (CEGAT) deciding that the sale of tyres and other rubber products through their 42 Depots throughout India were not ret ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed to RCS Dealers (viii) Secondary packing cost on tread rubber (ix) Discount to Government and other Departments. 4. The Appeals further also raise the issue of whether the price to the Defence Department Ex-factory gate (ex-factory) is to be considered as the wholesale cash price under old Section 4 as this was disallowed .by the Assistant Collector, and further the issue as to the method of computation of assessable value where the selling price is a cum-duty price. This issue involves the consideration as to how Excise Duty has to be deducted, whether after deducting permissible deductions or otherwise. We propose to deal with the issues as follows. For the purpose of this Judgment we are not repeating and setting out the text of the un-amended Section 4 and the amended Section 4 as the same are extensively quoted in our judgment in Union of India v. Bombay Tyres International Ltd. [1983 (14) E.L.T. 1896]. Recapitulating our Judgment in Union of India & Others v. Bombay Tyres International Ltd. (supra) we held that : "broadly speaking both the old s. 4(a) and the new s. 4(1)(a) speak of the price for sale in the course of wholesale trade of an article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r prior to the removal of the goods and shall not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice price. 6. In relation to the first head of deduction, namely TAC/Warranty Discount, the petitioners contend that deduction on account of TAC/Warranty discount ought to be permitted as a deduction for determining the assessable value. It is submitted by them that this discount relates to the claims of the customers on account of any defect in the tyre already sold and assessed to duty. Such claims are scrutinised by a committee of technical personnel of the assessee. The committee decides as to what amount of money should be refunded to the customers on account of the defect in the manufactured tyre already sold to the customers by which defect the tyre does not get its full life tenure. Instead of refunding the amount in cash the customers are permitted to buy a new tyre, the price of which new tyre would be reduced by the amount refundable to customers as per decision of the committee. The Petitioners contend that the TAC/Warranty discount satisfies all the criteria of a trade discount stipulated in our order dated 14th/15th No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... efective tyre after it has been sold and removed from the factory gate and selling a defective tyre as a "seconds" or "defective" In our view the analogy of Rule 96 is not applicable. A tyre being sold as a "seconds" or "defective" would be sold at a discount, such discount being known before the goods were removed/cleared, thereby also satisfying the pre-condition of Section 4(4)(d)(ii) of the Excise Act. The assessable value and price list submitted would be one relating to "seconds" tyres. We, therefore, disallow the claim in respect of TAC/Warranty discount. 12. The next head of deductions arising for our consideration is in respect of product discounts. This head comprises of three types of discounts: (1) Prompt Payment discount (2) Year Ending discount (3) Compaign discount. 13. We deal with each of the heads individually as under:- (i) Under the prompt payment discount scheme MRF in relation to up-country Non-RCS Bills in the replacement market except Government and DGS&D accounts, a rate of 0.75% on the total value of the invoice including sales tax, surcharge, etc. is offered if the bill is cleared/ paid for within 26 days from the date of invoice. The Un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e point of removal. The discount is not on the wholesale cash price of the articles sold but is based on the total sales effected of a particular variety of tyre calculated after the removal. We accordingly reject this claim of MRF. 14. Interest on finished goods from the date of the stocks are cleared till the date of the sale was disallowed by the Assistant Collector, Kottayam. This head has again been urged for our consideration as a proper deduction for determination of the assessable value. As quoted in our judgment in Union of India and Ors. v. Bombay Tyres International Ltd. (supra), we have held that expenses incurred on account of several factors which have contributed to its value up to the date of sale which apparently would be the date of delivery at the factory gate are liable to be included. The interest on the finished goods until the goods are sold and delivered at the factory gate would therefore necessarily, according to the judgment in Bombay Tyres International case (supra) have to be included but interest on finished goods from the date of delivery at the factory gate up to the date of delivery from the sales depot would be an expense incurred after the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an expense subsequent to the date of sale and removal or delivery of goods and in our opinion MRF Ltd. would be eligible to claim deduction on this account. 17. The next head which was urged for our consideration relates to the cost of distribution incurred at the duty paid sales depots. In our judgment in Union of India and Others v. Duphar Interfram Ltd. (Civil Appeal No. 569 of 1981) reported in 1984 Excise and Customs Reporter at page 1443, we have held that the cost of distribution is not to be included in the assessable value in case the wholesale dealers take delivery of the goods from outside duty paid godown. The wholesale dealers having taken delivery of the goods manufactured by MRF Ltd. and there being a removal of the goods from the factory gate, the cost of distribution at duty paid sales depots cannot be taken into account for the purpose of determining the assessable value of the goods. 18. The next head of deduction disallowed to MRF relates to discount to Government and other Departments. In our view the Assistant Collector, Goa has rightly rejected the claim of MRF though the Assistant Collector, Kottayam allowed the claim of MRF. MRF Ltd. sells its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er as packed was produced before Bharucha J. He has described that the tread rubber is a strip of rubber approximately 6" wide and about 1" thick which is tightly wound into a roll. Each roll weighs between 15 Kgs and 40 Kgs. The roll is not held together by any means. The roll is inserted into a loose and open polythene bag. That bag also cannot hold the roll together. The bag is placed in a cardboard carton or a wooden case. The cardboard carton is held together by rubber bands. The wooden case is nailed together. Though, it was contended that the cardboard cartons and wooden cases were in the nature of secondary packaging whose cost was not includible in the value of tread rubber, Bharucha J. held that a roll of tread rubber cannot be sold without the cardboard carton or the wooden case. It is further stated that the secondary packing in which tread rubber is sold is in the course of wholesale trade. The secondary packing is not employed merely for the purpose of facilitating transport or smooth transit and is necessary for selling the tread rubber in the wholesale trade. Bharucha J. refused to remand the matter to the authorities as the tread rubber as packed had been produced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ory-wise break up of such claims. Having held that there is no material departure in the basic scheme for determining the value of excisable articles in the old Section 4 and the new Section 4, there is nothing in the unamended Section 4 to justify an inference that the wholesale cash price of articles of similar description sold cannot be different for different classes of buyers in wholesale. Different prices can be normal prices for the purposes of determination of the assessable value of the article. We accordingly reject the contention of the MRF. Even though the MRF has not filed a separate price list for the factory gate clearances to Defence Department under the old Section 4, in view of our now holding that there is no material schematic difference between old Section 4 and new Section 4, we permit MRF Ltd. to file revised price lists with reference to the class of buyers namely, Defence on a different basis for a different normal price and avail of all the necessary reliefs with reference to lower assessable value, if the same has not already been filed. 21. In so far as the deductions claimed towards excise duty paid on processed tyre cord, the contention of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of cost of secondary packaging or sales tax or other taxes packaging or sales tax or other taxes should hypothetically be considered at Rs. 200/-. The rate of excise duty chargeable is 60% ad valorem for automotive tyres. Assuming for the sake of argument that the value of the product is actually Rs. 2075/-. In accordance with the provisions of Section 4(4)(d) permissible deductions are made. The assessable value would be Rs. 1875/- being the difference of Rs. 2075 and Rs. 200/-. The excise duty at the rate of 60% would thereafter be computed on the sum of Rs. 1875/- and would aggregate Rs. 1125/-. The selling price which is a cum-duty price would be the sum total of the assessable value, the permissible deductions and the excise duty. Putting this as a mathematical formula the selling price (cum-duty price) is equal to assessable value plus permissible deductions plus excise duty. Cum-duty Paid Selling price - Assessable value + Excise Duty Permissible deductions. Again Excise duty is a computed as a ratio of the assessable value where duty is ad valorem. For the purposes of ascertaining of the assessable value, if three of the components namely, the cum-duty selling price, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... matical basis. If the predetermined amount of excise duty as per the illustration given by MRF Ltd. is first deducted, the equation will not tally. For example, if from a hypothetical cum-duty price of Rs. 150/- (comprised of the value of the product at Rs. 100/- and ad valorem excise duty (@ 50% at Rs. 50) if the excise duty of Rs. 50/- is first deducted and thereafter the permissible deduction of Rs. 5/- is deducted, the assessable value arrived at would be Rs. 95/-. The rate of excise duty is 50% and the excise duty @ 50% of the assessable value of Rs. 95/- would be Rs. 47.50 and not Rs. 50/- as earlier deducted. There would be a constant difference of Rs. 2.50 in the computation. It is, therefore, an incorrect method of evaluating the assessable value in instances of cum-duty selling price. This interpretation is borne out by the definition contained in Section 4(4)(d) of the Excise Act. MRF's contention that the excise duty should be deducted first and then the permissible deductions is incorrect. In ordinary cases where the factory price is not a cum-duty price, the first step in arriving at the assessable value is to deduct the permissible deductions and thereafter to comput ..... X X X X Extracts X X X X X X X X Extracts X X X X
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