Full Judgment Text
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PETITIONER:
METAL BOX INDIA LTD.
Vs.
RESPONDENT:
C.C.E.
DATE OF JUDGMENT10/01/1995
BENCH:
MAJMUDAR S.B. (J)
BENCH:
MAJMUDAR S.B. (J)
JEEVAN REDDY, B.P. (J)
CITATION:
1995 AIR 750 1995 SCC (2) 90
JT 1995 (1) 479 1995 SCALE (1)109
ACT:
HEADNOTE:
JUDGMENT:
The Judgment of the Court was delivered by
MAJMUDAR, J.- These two appeals are filed by the
assessee, Metal Box India Limited, under Section 35-L of the
Central Excises and Salt Act, 1944 read with Order XX-A and
B of the Supreme Court Rules, 1966, challenging the order of
the Customs, Excise & Gold (Control) Appellate Tribunal, New
Delhi, in two appeals filed by the appellant-assessee on the
one hand and the Collector of Central Excise, Madras, on the
other. The appellant is aggrieved by the aforesaid decision
of the Tribunal by which it was held that the Department was
entitled to reload the price of the goods concerned
manufactured by the assessee and sold to M/s Ponds (1)
Limited by ignoring the deduction claimed by the assessee by
way of trade discount and also by adding the interest
accruing on advances made by the said buyer, Ponds (1)
Limited to the assessee during the relevant years of
assessment. A few relevant facts may be stated at the
outset. The appellant is a Public Limited Company carrying
on the business of manufacturing and marketing metal
containers which were classified under Tariff Item No. 46 of
the erstwhile
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schedule to the Central Excises and Salt Act, 1944 and
liable to excise duty ad valorem. The Company for the
purpose of its aforesaid business has factories in several
parts of the country including Madras. The present appeals
relate to the Madras factory.
2. That the appellant is manufacturing goods as per the
individual customer’s requirements and supplies to the
customers against negotiated prices which are printed in the
contract. It is the case of the appellant that one such
customer is Ponds (1) Limited, an independent corporate
body, which is neither related to the appellant nor has it
any interest either directly or indirectly in the business
of the appellant. The said Ponds (1) Limited which is
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engaged in the business, inter alia, of marketing cosmetic
products being in need of steady supply of containers for
its aforesaid business approached the appellant by way of an
arrangement under which the appellant was to manufacture
containers as per the specification supplied by Ponds (1)
Limited and in consideration of the appellant’s maintaining
a steady and regular supply of the containers, the Ponds (1)
Limited agreed to pay as advance certain amounts with a view
to seeing that ready stocks of raw materials and components
were made available by the appellant to meet the demands of
containers as put forward by Ponds (1) Limited. An
agreement was entered into between the parties about certain
discounts to be given to Ponds (1) Limited which were to be
deducted from the gross price which reflected various
factors that went into the determination of a negotiated
contract price.
3. The appellant submitted the price list in Part 11 in
respect of its sales to Ponds (1) Limited in which the
contract price of the goods sold was shown as net price
after deducting discounts and rebates as appearing in
Schedule 11. Earlier these price lists were approved by the
appropriate officer. However, a show-cause notice was
issued by the Assistant Collector of Central Excise, Madras,
on 27-6-1984, calling upon the appellant to show cause:
(1) Why the gross price indicated in the
aforesaid agreements should not be treated as
the true price for the purpose of arriving at
the assessable value and why the additional
consideration by way of interest accruing on
the advances made by Ponds (1) Limited should
not be added to arrive at the assessable value
for the period of 1-7-1983 onwards?
(2) Why the gross prices should not be
arrived at after adding the interest accruing
on the advances and the assessable value
arrived at on this basis for the period from
1-7-1983?
(3) Why the consequential duty should not be
demanded from the appellant under the proviso
to sub-rule (1) of Rule 10 of the Central
Excise Rules, 1944, and under the proviso to
Section 11-A of the Central Excises and Salt
Act?
4. The appellant replied to said show-cause notice.
Another notice was issued on 18-1-1985 in the nature of a
demand-cum-show-cause notice
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whereby the appellant was called upon to show cause as to
why basic excise duty in the sum of Rs 23,50,013.40 paise
and special excise duty in the sum of Rs 1, 17,500.68 paise
for the period 1-7-1980 to 30-11-1984 should not be demanded
from the appellant. The appellant replied to the said
notice on 18-1-1985.
5. After hearing the appellant, the Assistant Collector,
Central Excise, Madras, by his decision dated 27-5-1985,
held against the appellant on all counts. The Assistant
Collector held that the appellant suppressed material facts
in order to evade payment of duty and consequently held that
the, extended period of limitation was available to the
Department. The Assistant Collector also added the rebates
and discounts mentioned in the agreements between Ponds (1)
Limited to the contract price between the appellant and
Ponds (1) Limited to arrive at the assessable value. The
Assistant Collector also added ad hoc interest on the
advances received by the appellant and added the same to the
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gross price for arriving at the assessable value.
Accordingly, the demand of duty and special excise duty was
confirmed.
6. The appellant preferred an appeal to the Collector of
Central Excise (Appeals), Madras. The Collector of Central
Excise (Appeals), Madras after hearing, partly allowed the
appeal by accepting the contention of the appellant relating
to loading of ad hoc interest on the advances made by Ponds
(1) Limited but rejected the appellant’s contention relating
to the inclusion of rebates and discounts given to Ponds (1)
Limited. The appellant, thereafter, preferred appeals to
the Tribunal, as stated above. The Department also filed
cross-appeal against that portion of the order of the
Collector of Central Excise (Appeals), Madras, whereby he
had accepted the appellant’s contention relating to the
loading of ad hoc interest.
7. The Tribunal heard both the sides, allowed the
Department’s appeal and dismissed two appeals of the
appellant and consequently the entire order of the Assistant
Collector was confirmed. That is how the appellant is
before this Court in the present appeals.
8. We have heard learned counsel for the parties in
support of their respective cases. Mr Sorabjee assisted by
Mr D.A. Dave, learned counsel, raised the following
contentions in support of the appeals.
(1) That the proceedings consequent to the
show-cause notice inasmuch as they sought to
invoke the period of five years under the
proviso to Section 11-A of the, Act were
misconceived and only shorter period of
limitation was available to the Department to
raise such a demand.
(2) In any case even on merits the Tribunal
had patently erred in law in allowing the
Department’s appeal and in restoring the
loading of purchase price by the ad hoc
interest on advances made by Ponds(1) Limited
to the assessee.
(3) The Tribunal equally erred in law in
rejecting the appellant’s contention regarding
rebates and discounts given to Ponds (1)
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Limited for being deducted from the gross
price. We shall deal with these contentions
seriatim.
9. So far as Contention 1 is concerned, it is obvious that
the Department invoked proviso to Section 11-A on the ground
that while submitting the price list, the appellant had
suppressed material facts. It has been found on record that
in the price lists submitted by the appellant details of
advances made by Ponds (1) Limited, the wholesale buyer of
appellant’s goods and that too interest-free advances of
huge amounts were all suppressed from the Department and,
therefore, it has to be held that the duty had been short
levied on account of wilful suppression of relevant facts by
the assessee. This finding is well-sustained on record and
calls for no interference. We, therefore, concur with the
conclusion reached by the Tribunal that longer period of
limitation is available to the Department. We reject
Contention 1.
10. So far as Contention 2 is concerned, it is true that
Ponds (1) Limited was almost a wholesale buyer of the
appellant’s goods, namely, metal containers manufactured by
it as it was lifting 90 per cent of the total production of
the appellant. For that purpose huge amounts were being
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advanced free of interest by Ponds (1) Limited to the
appellant. When Ponds (1) Limited was given 50 per cent
discount from normal price then the material aspect that
Ponds (1) Limited had advanced large amounts free of
interest had necessarily entered into consideration between
the parties. Therefore, special treatment was given by the
assessee to Ponds (1) Limited. It has to be appreciated
that if Ponds (1) Limited had not given these amounts, the
appellants would have been required to borrow these amounts
for purchasing raw materials and other accessories from
outside like banks etc. and would have been required to pay
large amounts of interest which naturally would have got
reflected in the purchase price to be charged from the
buyers as it would be a part of cost of production which was
to be passed on to the customers of the appellant’s goods.
It has been laid down by Section 4(1)(a) that normal price
would be price which must be the sole consideration for the
sale of goods and there could not be other consideration
except the price for the sale of the goods and only under
such a situation subsection (1)(a) would come into play. If
the price in a particular transaction is not the sole
consideration flowing directly or indirectly from the buyer
to the assessee-manufacturer, either in cash or any other
form, the additional consideration quantified in terms of
money value is to be added to the price declared by the
assessee for determining the normal price of the goods. In
these circumstances the Tribunal was perfectly justified in
upsetting the decision of the Collector and confirming the
decision of the Assistant Collector when the latter held
that notional rate of interest on the advances given by the
wholesale buyer, Ponds (1) Limited, to the appellant should
be reloaded in the price so as to reflect the correct price
of the goods sold by the appellant. The Tribunal was right
when it considered the fact that after agreement entered by
the appellant with Ponds (1) Limited, the appellant got
large amounts of Rs 75 lakhs in 1980, Rs 100 lakhs in 1981
and Rs 200 lakhs in 1982 free of interest and these advances
were maintained at the
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same level on the first working day of every month as
specifically provided for in the agreement column 9 as the
special agreement between the parties and it had a direct
impact on the pegging down of purchase price which
ultimately was charged by the appellant from the wholesale
buyer, Ponds (1) Limited. The said price charged by the
appellant from Ponds (1) Limited could not be said to be
normal price of containers on account of extraneous reason,
namely, that a favoured treatment was given to Ponds (1)
Limited which had given such large amounts to the appellant
free of interest for purchasing raw materials and
accessories for manufacturing the containers which were
ultimately sold by the appellant to Ponds (1) Limited. The
Tribunal has also noted the reasoning of the Assistant
Collector on this aspect to the effect that the extent of
such deduction in the price can reasonably be attributed to
the interest amount payable on the advance which M/s Metal
Box India Limited had obtained from any other source with
interest-bearing loan, would have been loaded on the cost of
manufacture and sale price of the metal containers naturally
increasing the concessional price charged from Ponds (1)
Limited.
11. On the facts on record, therefore, it must be held that
the Tribunal was perfectly justified in taking the view that
charging a separate price for the metal containers supplied
to M/s Ponds (1) Limited could not stand justified under
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Section 4(1)(a) proviso and, therefore, to that separate
price charged from the Ponds (1) Limited, the extent of
benefit obtained by the assessee on interest-free loan was
required to be reloaded by hiking the price charged from M/s
Ponds (1) Limited to that extent. Contention 2 also,
therefore, fails and is rejected.
12. This takes us to the last contention. On this
contention the appellant is on a better footing. The Ponds
(1) Limited was almost a wholesale buyer of the metal
containers of the assessee during the relevant periods of
assessment. Out of the total metal containers manufactured
by the assessee in its factory at Madras, 90 per cent were
lifted by Ponds (1) Limited. In such a situation the
question arises whether the proviso to Section 4(1)(a) can
be made applicable after taking out the consideration of
interest-free advance made by Ponds (1) Limited to the
appellant. As we have rejected Contention 2 and allowed
reloading of purchase price by the notional value of
interest on the advances made by Ponds (1) Limited to the
assessee, that aspect now has to be kept out of picture. In
that light we may visualise the situation prevailing at the
relevant time. It becomes clear that the assessee came
forward to give special rebate in the purchase price to an
almost wholesale buyer of its goods and when it had to meet
the demand for metal containers as placed in advance by such
a bulk buyer. It is not in dispute that 90 per cent of
metal containers which were manufactured by the appellant
were supplied to this wholesale buyer, Ponds (1) Limited.
Now the question whether Ponds (1) Limited was also a
financier becomes irrelevant as that aspect is taken care of
by our decision on Point 2 and the price charged by the
appellant from Ponds (1) Limited has got reloaded by the
amount of notional interest which the appellant had to pay
to Ponds (1) Limited for
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utilising its money for purchasing raw materials etc.
Therefore, the net picture which emerges is that here was a
wholesale buyer claiming discount because it avoided the
botheration of the appellant by way of advertising cost for
marketing its products as 90 per cent of its product were
guaranteed to be lifted by Ponds (1) Limited. For such a
buyer if a concession by way of trade discount is given, may
be to the extent of 50 per cent though in fact now it will
not be to the extent of 50 per cent but much less as we have
permitted reloading of the contract price between the
parties by the notional value of interest on advances
received by the assessee from Ponds (1) Limited during the
relevant time, such a trade discount cannot be said to be in
any way uncalled for or a special treatment contrary to
trade practice. Therefore, once Contention 2 is rejected
then for deciding Contention 3 the proviso to Section
4(1)(a) would directly get attracted. Learned counsel for
the respondent contended that for attracting the said
proviso it should be shown that in accordance with normal
practice of wholesale trade different prices are charged
from different classes of buyers. That a buyer who
purchases 90 per cent of the goods cannot be said to form a
different class of buyers. It is difficult to agree with
this contention. The buyer who purchases small quantities
of goods may stand in different class as compared to a buyer
who purchases 90 per cent of manufactured goods. He would
certainly form a separate and distinct class. In this
connection, we may usefully refer to the term ’value’ as
mentioned in Section 4, sub-section (4)(d). It is subject
to deductions envisaged by Section 4(4)(d)(ii) which include
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amongst others 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. It cannot be gainsaid that the appellant was
manufacturing the goods which were offered for sale in
wholesale to Ponds (1) Limited, a buyer also in wholesale
and it lifted 90 per cent of the manufactured goods. For
such a buyer if the manufacturer offers trade discount that
amount cannot be included in the value of the excisable
goods and has to be deducted for computing the normal price
of the goods concerned.
13.Learned counsel for the Department vehemently contended
that such a discount to be admissible has firstly to be
uniformly made available to all customers like concessional
sales of goods on festivals like Diwali or Christmas etc.
It may be that such general concessions are given on such
occasions to all customers but it cannot be said that if a
special trade discount is given to such an esteemed customer
who is a buyer of 90 per cent of goods, it would amount to
trade practice which would not be a normal trade practice
but would be in any way an impermissible trade practice. In
fact such type of concessions are usually given by
manufacturers whose goods are lifted by wholesale buyers
whose availability avoids lot of marketing and advertising
costs for the manufacturer and also ensures a guaranteed
quantity of sales year after year. In order to keep such a
wholesale monopolistic buyer attached to it, if under such
circumstances by way of business expediency, the
manufacturer offers him a special trade discount, it
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cannot be said that it is not in accordance with normal
practice of wholesale trade. It is not in dispute that
Ponds (1) Limited has not refunded such discount on any
account. Therefore, it satisfies the requirement of clause
(ii) of Section 4(4)(d) of the Act. Learned counsel for the
appellant in this connection invited our attention to the
decision of the Gujarat High Court in Gujarat State
Fertilisers Co. Ltd. v. Union of India1. The Division Bench
of the Gujarat High Court consisting of RD. Desai and G.T.
Nanavati, JJ., interpreting the scope of Section 4 of the
Act laid down that Section 4 of the Central Excise Act does
not in terms enact that the trade discount in order to
qualify for deduction thereunder should be on a uniform
basis to all wholesale purchasers at the factory gate. Any
such view would require the addition of word ’uniform’
before "trade discount" occurring in Section 4 which is not
evidently permissible. Nor would it be advisable to read
the requirement of uniformity even by implication. Even if
trade discount is not uniformly given or is given at
different rates to different purchasers, it cannot by itself
disqualify it from being excluded for arriving at the
assessable value so long as the lack of uniformity is not
founded on any extra-commercial considerations. To ignore
the deduction of trade discount would amount to adding a
non-existent fraction to the manufacturing profit which will
artificially inflate the net assessable value for the levy
of excise duty which is not legally permissible having
regard to the basic concept of excise levy. We concur with
the aforesaid view on the scope and ambit of trade discount
envisaged for Section 4. In view of the aforesaid
discussion, it must be held that the Tribunal was in error
in taking the view that as trade discount was uniformly not
given to all its customers by the assessee, it was not a
permissible deduction and it had to be reloaded in the price
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of the excisable goods. We, therefore, accept the last
contention. In the result these appeals are partly allowed,
the order of the Tribunal will stand confirmed insofar as
period of limitation applicable herein and reloading of the
purchase price by the notional value of interest on advances
made by wholesale buyer Ponds (1) Limited to the assessee is
concerned and to that extent Assistant Collector’s order
will stand untouched. However, to the extent of
disallowance of the trade discount offered to the wholesale
buyers Ponds (1) Limited by the assessee, the decision of
the Tribunal is set aside and accordingly the original order
passed by the Assistant Collector to that effect will also
stand set aside. In the facts and circumstances of the
case, there will be no order as to costs.
14.The liability of the appellant for the demanded duty in
the showcause notice will have to be recalculated in the
light of the present judgment.
1 (1980) 6 ELT 397 (Guj)
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