TMI Blog1994 (7) TMI 92X X X X Extracts X X X X X X X X Extracts X X X X ..... ifferent States/Union Territories. The petitioner was informed that the Board had issued the impugned circular clarifying that "wholesale dealers cannot be considered as belonging to different classes simply because they are located in different towns or cities or regions" and that such discounts were not permissible to be deducted to arrive at the assessable value for excise purposes. The petitioner was, therefore, directed that from the date of issue of order, it shall clear the goods on one value, i.e., which was applicable for the State of Rajasthan as claimed by it in its price lists filed, and that clearances for other States/Union Territories would be done at that value. 2.There is a preface to the impugned circular and the relevant portion of the impugned circular with which we are concerned is as under :- "F. No. 6/25/93-CX. I (CENTRAL BOARD OF EXCISE CUSTOMS) New Delhi , Dated the 31st December, 1993 SECTION 37-B/ORDER NO. 24/14/93 The trade has represented on the issue of lack of uniformity in the addition/deduction of certain items of expenses in arriving at the assessable value. 2. The Supreme Court of India decided vide their judgments dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven of the bill is cleared/paid within a specified number of day of the date of invoice. DECISION When such prompt payment discount is allowed in respect of all varieties of products cleared by an assessee, the same is permitted to be deducted for the purpose of arriving at the assessable value. However, such prompt payment discount, if allowed in respect of only certain variety of products, the same is not admissible. ISSUEIII. YEAR ENDING DISCOUNT in respect of certain varieties of goods when the payments are actually received within a specified number of days from the date of invoice, a bonus at the end of the year is given on the basis of declaration received dealer-wise, the allowance of such discount is not known at the time of or prior to the removal of goods. The collections are made at the end of the year and the bonus at the specified rate is granted only to a particular class or dealers. It is not in the nature of discount but in the nature of bonus or an incentives much after the invoice is raised and the removal of the goods is complete. DECISION Such an year-ending discount is not deductible for the purpose of arriving at the assessable value. ISSUEIV. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It has four units for the manufacture of white cement three of which are located in the State of Rajasthan and one in the State of Kerala. By the impugned circular the petitioner has been directed to clear its goods on one value, i.e. by making uniform regional discount for clearances to all other States and Union Territories as per the rate of discount applicable for the State of Rajasthan. One of the contentions also raised was that price list had already been approved and the petitioner was clearing its goods only as per such approved list. However, Mr. Lahoty confined his attack to the validity of the impugned circular itself. Petitioner contends that the exigency of trade requires distinct and different rates of discount applicable to the class of buyers located regionwise, and because of the geographical, regional and commercial considerations of the particular region, the discount applicable to that region is normally ascertained, and that the factors like the local rates of sales tax, octroi, toll tax and other charges the freight and transport expenses depending upon the distance of the region from the factory, the local consumption and the requirements of market promotio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the usual course of business. The court noted that it was an admitted position that the regional discount was not uniformally given by the petitioner in that case to all wholesale purchasers and that the extent of regional discount depends upon the distance between the petitioner's factory and the region in which the wholesale purchaser carried on his business, and that the regional discount was given on different basis to wholesale purchasers carrying on business in different States or group of States. The court further noted that "unlike quantitative discount which the petitioner gives to all its wholesale purchasers depending upon the bulk of purchases irrespective of the place at which such purchasers carry on their business, regional discount is essentially a discount which might vary as between one purchaser and another or one group of purchasers and another such group of purchasers depending upon the region in which they carry on business." Then the court proceeded to record as under :- "The basis of both the impugned orders, Exhibits `E' and `L', whereunder the claim of the assessee that the net assessable value of the articles in question should be arrived at after ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its own merit irrespective of the fact that the quantum of discount varies from region to region and also within the same region from dealer to dealer. The Assistant Collector was not justified in rejecting the said claim on that ground." 6.Mr. Lahoty also said that the Supreme Court in the cases mentioned in the impugned circular did not lay down any law or made any such observation which led the issue of the impugned circular. This was disputed by Mr. Madan Lokur, Senior Central Government Standing Counsel. We do not think we need go into that question as the only issue before us is if the impugned circular is in accordance with the Act or violative of Section 4 of the Act as contended by the petitioner. Mr. Lokur submitted that the impugned circular was valid inasmuch as the wholesale buyers constituted one class and that there was nothing unusual or unorthodox in the impugned circular which the petitioner could not comply. He said there have been considerable uncertainty in the manner of arriving at the assessable value of the manufactured goods pursuant to the decision of the Supreme Court and even the Supreme Court felt it necessary to review the matter and give a definiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t, may be quoted as under :- "119. Instructions to subordinate authorities. - (1) The Board may, from time to time, issue such orders, instructions and directions to other income-tax authorities as it may deem fit for the proper administration of this Act, and such authorities and all other persons employed in the execution of this Act shall observe and follow such orders, instructions and directions of the Board : Provided that no such orders, instructions or directions shall be issued - (a) so as to require any income-tax authority to make a particular assessment or to dispose of a particular case in a particular manner; or (b) so as to interfere with the discretion of the Deputy Commissioner (Appeals) or the Commissioner (Appeals) in the exercise of his appellate functions. xxxxxxxx Section 119 of the Income-tax Act has been subject-matter of interpretation by the Supreme Court as well as the High Courts. It is not necessary to refer to all these decisions except to note one or two cases. In K.P. Varghese v. Income-tax Officer, Ernakulam and Another, (1981) 131 I.T.R. 597, the court said that the circular issued by the C.B.D.T. was binding on the tax department in ad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in arriving at normal price of the goods the assessee could give different discounts to different classes of buyers "in accordance with the normal practice of wholesale trade in such goods", the Board could not say that discount should be uniform in all circumstances for all categories of buyers all over the country. We have referred to the decisions of the Gujarat and Bombay High Courts which recognised discounts on the basis of regions or other factors under the provisions of Section 4(1)(a) of the Act. Of course, these discounts have to be as per the normal practice of the wholesale trade in such goods and discounts cannot be given on extraneous considerations. In this view of the matter, the impugned circular dealing with regional discounts is contrary to the provisions of Section 4(1)(a) proviso (i) of the Act and is, thus, not valid. The issue before us is limited to the regional discounts and we are not concerned with other decisions given in the impugned circular. To the above extent, therefore, the impugned circular disallowing discounts on the basis of regions as given in para V of Item `F' of the impugned circular is set aside. This petition is, therefore, allowed. Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X
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