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TMI Blog1992 (3) TMI 64X X X X Extracts X X X X X X X X Extracts X X X X ..... against various orders passed by the Assistant Collector, Central Excise, Indore. 3. The material facts giving rise to this litigation are as follows :- 4. The appellant carries on business of manufacturing power-driven pumps and monoblock pumps at Dewas. For manufacturing monoblock type P.D. pump sets and power driven pumps, the appellant purchases electric motors from another company M/s. Kirloskar Electric Co. Ltd. The Superintendent Central Excise issued eight show cause notices to the appellant calling upon them to show cause why the short levy as mentioned in the notices should not be recovered from the appellant. The period to which the alleged short levy related was from 17th March, 1972 to 31st March, 1973. 5. The grounds on which the amount referred to in the notices issued was proposed to be recovered were - (i) less determination of the assessable value of pumps due to non-inclusion of Central Excise duty paid on electric motors used in the manufacture of pumps and (ii) deduction of irregular trade discount on wholesale cash price while determining the assessable value of the articles in question. 6. The Assistant Collector of Central Excise held that the excise du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealers, would represent the assessable value for assessment purposes. Accordingly the Assistant Collector directed that duties short levied, as pointed out in the show cause notices, should be paid by the appellant. 9. Aggrieved by the orders of the Assistant Collector the appellant preferred an appeal before the Appellate Collector who held that the assessable value of the pumps had to be arrived at after deduction from the wholesale cash price of the excise duty payable not only on the pumps which are manufactured but also the excise duty paid on the electric motors which were used as a component of the pumps. The Appellate Collector further held that in determining the assessable value of PD pumps a discount of 30 per cent declared by the appellant and allowed to wholesale dealers was liable to be deducted from the wholesale cash price of the pumps under the provisions of Section 4 of the Act. In this view of the matter the Appellate Collector allowed the appeals and quashed the demand notices. While allowing the appeals the Appellate Collector, dealing with the deduction of trade discount observed as follows :- "With regard to the second issue i.e. admissibility of trade di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xplanation to Section 4 of the Central Excises and Salt Act, 1944 in determining the price of any article under that section a deduction is admissible from the wholesale cash price towards the amount of duty payable at the time of the removal of the article chargeable with duty from the factory or other premises. It appears to the Central Government that the deduction contemplated therein is in respect of the duty leviable on the article which is being cleared from the factory and not the duty paid or leviable on the raw materials or component which went into the manufacture of that excisable article. In other words what is allowed deduction is only that duty leviable on the finished excisable article and not the total duty incidence. To hold otherwise appears to be repugnant to the correct construction of the expression "amount of duty payable at the time of removal of the article chargeable with duty from the factory". 7. It, therefore, appears to the Central Government that in holding that the deduction was admissible not only in respect of the duty leviable on the PD Pumps but also in respect of the duty paid on the electric motor the Appellate Collector has erred in his decis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stablish that the transaction was at arm's length. It accordingly appears to the Central Government that the wholesale cash price charged to the independent dealers and discount given to them is alone a genuine wholesale cash price and that the genuine wholesale cash price is ascertainable the quantum of sale however meagre is irrelevant. By holding that the discount given to the area dealers was admissible and that sales to independent dealers being meagre could be treated as retail sales and thus ignored, it appears to the Central Government that the Appellate Collector has erred in his decision." 11. The appellant filed a reply dated 30th August, 1976 and inter alia contended :- "We deal with these two points separately as below :- (i) ASSESSABLE VALUE OF MONOBLOCK PUMPS ; At the outright we wish to state that the grounds of appeal advanced, against the various orders in appeal issued by the Assistant Collector, Central Excise, Indore before Appellate Collector, Central Excise and Customs, New Delhi, will form part of our reply and we would rely on them. We presume that the records of the case are already with you and there is no need of reproduce here our arguments. Howeve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to be included in the cost or the balance available from the said duty amount after availing of the set off admissible under Notification No. 84/72 as amended by No. 113/72; Under these circumstances, we would request you not to force us to include the element of Central Excise duty paid on Electric motors, in the value of our Monoblock Pumps for purposes of assessments. (ii) WHOLESALE CASH PRICE AND QUANTUM OF DISCOUNT At the outsight we wish to state that the grounds of appeal advanced against the various orders in appeal issued by the Assistant Collector, Central Excise, Indore before the Appellate Collector, Central Excise and Customs, New Delhi will form part of our reply and we would rely on them. We presume that the records of the case are already with you and there is no need to reproduce there our arguments. However, without prejudice to whatever stated in above referred appeal memos we would like to state as follows: ii (A) It is contended in the Show Cause Notice that the wholesale cash price, charged to the independent dealers and the discount given to them is alone a genuine wholesale cash price and that once the wholesale cash price is ascertainable the quantum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the so-called independent dealers represents the selling profits and cannot be attributed to the manufacturing activity. Under these circumstances the value that could be approved for our assessment would be the list price less maximum discount and this will represent the manufacturing cost plus the manufacturing profit. ii (I) Under the circumstances it is abundantly clear that the price cannot be loaded with any kind of selling cost or selling profit irrespective of whether the same is of the wholesalers or of the manufacturer, the reason being that neither it is attributable to manufacturing activity. ii (J) After the decision in Voltas case there have been a number of cases both the Supreme Court and various High Courts, wherein the decision in Voltas case have been followed meticulously. Under these circumstances there are no reason to reopen the matter and give an adverse decision." 12. An opportunity of personal hearing was also granted. It is noticed in the order of the Central Government that: "During the course of personal hearing on 19-10-1976 various contentions were reiterated and it was emphasised that the manufacturers had two patterns of sales, namely - (i) thr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d all the orders passed by the Assistant Collector of Central Excise. 14. Before the High Court the above referred order of the Central Government was impugned in the aforesaid circumstances. It was contended on behalf of appellant before the High Court that the Government of India erred in holding that the duty paid on the electric motors was not deductible in computing the wholesale cash price under the provisions of Section 4 of the Act. It was also contended that the Government of India erred in restoring the orders of the Assistant Collector whereby only 25 per cent discount was held to be deductible by way of trade discount in computing the wholesale cash price of the pumps in question. The High Court held that the explanation to Section 4 of the Act provides for deduction of trade discount and the amount of duty payable at the time of removal of the article from the factory. The 'duty' referred to in the explanation is the duty payable on the product which is manufactured and does not refer to the duty paid on the raw material or the component of the product manufactured. Faced with this difficulty before the High Court the counsel for the appellant stated that he was not r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consideration for also providing after sales service which is not required to be taken into account while dealing with trade discount within the meaning of explanation to Section 4(a) of the Act. Therefore the Central Government rightly did not take into account such area distributors who may have to provide after sales service. The trade discount given to such wholesalers who were under no obligation to provide after sales service is the relevant trade discount given to the wholesalers. 18. In view of our conclusion on the first point itself no useful purpose would be served in examining the second question as the appellant himself had given the reasons before the Central Government as to why they gave higher trade discount to their depots and other area distributors. 19. We may take point Nos. 3 and 4 together. In M/s. Name Tulaman Manufacturers Pvt. Ltd., Hyderabad v. Collector of Central Excise, Hyderabad [(1989) 1 SCC 172 = 1988 (38) E.L.T. 566 (SC)], the Supreme Court had the occasion to deal with somewhat similar situation as in the present case. Sabyasachi Mukharji, J. (as His Lordship then was) speaking for the Court observed :- "The activity carried out by the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid on the electric motor which was merely a component. 22. The relevant part of the Notification No. 84/72-C.E., dated 17-3-1972 as amended by Notification No. 113/72 dated 22-3-1972 reads as follows :- "In exercise of the powers conferred by Rule 8(1) of the Central Excise Rules, the Central Government hereby exempts power driven pumps falling under Tariff Item No. 30A of the First Schedule to the Central Excises and Salt Act, 1944 (1 of 1944) and specified in column (2) of the table annexed hereto from so much of duty of the excise leviable thereon as is in excess of the duty specified in the corresponding entry in column (3) of the said table. TABLE S. No. Description Duty (1) (2) (3) 1. Power Driven Pumps Primarily designed for handling water namely (i) Centrifugal Pumps (Horizontal or vertical pumps) (ii) Deep well turbine pumps (iii) Submersible pumps and (iv) Axial flow and mixed flow vertical pumps 10% ad valorem Nil 2. Others Nil Provided that :- (i) Where the aforesaid pumps on which the duty of excise is leviable are fitted with duty paid internal combustion engine falling under sub-item (ii) of Item No. 29 or Electric motors falling ..... X X X X Extracts X X X X X X X X Extracts X X X X
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