Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6
PETITIONER:
COLLECTOR OF CENTRAL EXCISE, INDORE.
Vs.
RESPONDENT:
M/S.HINDUSTAN LEVER LTD., CHHINDWARA.
DATE OF JUDGMENT: 03/08/2000
BENCH:
S.P.Bharucha, R.C.Lahoti, N.S.Hegde
JUDGMENT:
SANTOSH HEGDE, J.
In the above appeals, common questions of law are
involved, hence these appeals are disposed of by this common
order. For the purpose of convenience, we shall refer to
the facts of the case as found in C.A. Nos.303-304 of 1999.
The respondent in the above appeals is engaged in the
manufacture of Toilet Soaps and organic surface active
agents. It submitted various price lists under Rule 173-C
of the Central Excise Rules, 1944 (for short the Rules)
claiming deductions from the assessable value. The
Assistant Collector provisionally approved the prices after
disallowing some of the deductions claimed. Being aggrieved
by the said order of disallowing some of the deductions
claimed by it, the respondent preferred appeals before the
Commissioner of Appeals who allowed most of the deductions
sought by the respondent except three items out of which
discount damages was one of the items. In an appeal filed
to the Customs Excise Gold (Control) Appellate Tribunal
(CEGAT), the Tribunal allowed the said appeal following its
earlier orders in Assam Valley Plywood Pvt.Ltd. vs.
Collector of Central Excise (1989 (43) ELT 360) and
Tungbhadra Industries Ltd. vs. Collector of Central Excise
(1992 (60) ELT 512) and directed the original Authority to
consider afresh claim for deduction in accordance with law
in the light of observations contained in the said order.
On remand, the original Authority again disallowed some of
the deductions claimed by the respondent including the
deductions in regard to damages. Having failed in the
appeal before the Appellate Authority, the respondent
approached the Tribunal once again and the Tribunal by the
impugned order allowed the appeal of the respondent once
again solely relying on its judgments in Assam Valley and
Tungbhadra Industries cases (supra) and held that discount
should be allowed in regard to the value of compensation
paid to the buyers in lieu of damages caused to goods during
transit depending on the nature and extent of damage. It is
against this order of the Tribunal, the Collector of Central
Excise has preferred the above appeals. Learned Attorney
General for India appearing for the appellant contended that
the Tribunal erred in placing reliance on Assam Valley and
Tungbhadra Industries cases (supra) as they had no relevance
whatsoever to the facts of the case in hand. He further
contended that the deduction claimed being in the nature of
a post- manufacturing deduction, under Section 4(4)(d)(ii)
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6
of the Central Excise Act, 1944 (hereinafter referred to as
the Act), the same is not deductible from the assessable
value. He also contended that assuming that such
post-manufacturing expenses are deductible, the assessee
will have to establish that such deduction is being claimed
because same is a part of the trade discounts allowed in
accordance with normal practice of that wholesale trade
which fact, according to learned Attorney General, the
respondent has failed to establish. He also argued that the
contention of the respondent that, as a matter of fact, such
a practice existed stood belied by the agreement entered
into by the respondent with its buyers. Shri Anil Divan,
learned senior counsel appearing for the respondent firstly
contended that the appellants should not be permitted to
question the finding of the Tribunal as to the deductibility
of the damage discount because this question was finally
adjudicated and decided by the Tribunal in the first round
of litigation between the parties and the appellants did
not, at that stage, question the finding of the Tribunal
which remanded the matter back to the original Authority to
decide certain other questions. Hence, the issue in hand
having attained finality, the same should not be permitted
to be reopened by way of the present appeal. He also
defended the impugned order of the Tribunal on the ground
that the deductions permissible under Section 4(4)(d)(ii)
are not confined only to deductions available at the time of
removal of the goods from the factory-gate but are also
available to such of those deductions whose existence in
practice has been established even though they get computed
subsequent to the removal of the goods from the factory
gate. He also contends that the respondent has established
the normal practice of the wholesale trade with reference to
this deduction by filing affidavits of its buyers and
certificates of the Chartered Accountants. He contended
that the respondent is not relying upon the agreement
referred to by the learned Attorney General for the purpose
of claiming the deductions in question. We will first deal
with the objection of Shri Divan which is in the nature of a
preliminary objection. As noted, he contended that the
issue in question is finally decided inter se between the
parties in an earlier proceedings which was not challenged
by the Department; therefore, so far as the parties to
these appeals are concerned, the matter stands concluded and
the parties cannot reopen the said issue. It is true that
this issue was decided by the Tribunal in the earlier round
of litigation primarily relying upon two orders to which we
have already made reference; the correctness of that
finding was not challenged in this Court because the matter
stood remanded to the original Authority. Inspite of this
finding of the Tribunal, the parties again joined issue
before the original Authority on this issue by producing
materials like affidavits and made their submissions based
on which the original Authority gave a finding against the
respondent, who took the matter in appeal before the
Appellate Commissioner and having lost before the Appellate
Commissioner, the respondent once again took the matter
before the Tribunal. From the materials on record, we do
not find any argument based on finality of the decision
having been urged before the Tribunal nor the Tribunal
having decided this issue on that basis. On the contrary,
it seems that the Tribunal considered the issue afresh but,
relying on the two decisions referred to above, once again
decided to hold in favour of the respondent which decision
is now under challenge before us. Therefore, on facts,
finality is not the ground on which the Tribunal allowed the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6
appeal. That apart, even in law, so far as this Court is
concerned, it is not bound by the finding of the Tribunal
rendered in the first instance while remanding the case to
the lower authorities because this Court is now hearing an
appeal against the order of the Tribunal in which the
earlier order has merged. This Court in the case of Jasraj
Inder Singh vs. Hemraj Multanchand {(1977) 2 SCC 155} has
held :- In an appeal against the High Courts finding the
Supreme Court is not bound by what the High Court might have
held in its remand order. It is true that a subordinate
court is bound by the direction of the High Court. It is
equally true that the same High Court, hearing the matter on
a second occasion or any other court of coordinate authority
hearing the matter cannot discard the earlier holding, but a
finding in a remand order cannot bind a higher Court when it
hears the matter in appeal. (emphasis supplied).
Therefore, the above contention of the respondent has
to be rejected. In support of the contention as to the
applicability of Section 4(4)(d)(ii) of the Act, the learned
Attorney General relied on the observation of this Court in
the case of Assistant Collector of Central Excise & Ors.
vs. Madras Rubber Factory Ltd. (1986 Supple. SCC 751)
wherein this Court held at para 9 of the said report 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. Taking support from
these observations, learned Attorney General contended that
the discounts in regard to which the deduction is sought by
the respondent pertain to the damages to the goods which
have occurred in transit, admittedly after the goods were
removed from the factory-gate; therefore, such a deduction
is not permissible in law. He also relied upon a subsequent
decision of this Court in Madras Rubber Factory case
reported in (1995) 4 SCC 349, at page 384) wherein this
Court after referring to the judgment in the earlier case of
M.R.F. (supra) held: - As rightly pointed out by
Bhagwati, C.J. in the order dated 20.12.1986, what is
really relevant is the nature of the transaction (SCC
p.760, para 8). The learned Chief Justice pointed out
further that the warranty is not a discount on the tyre
already sold, but relates 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 (SCC p.760, para 8). He characterised it as a
compensation in the nature of warranty allowance on a
defective tyre (SCC p.760, para 11). We express our
respectful concurrence with the said observations.
Therefore, it is contended that the claim of the
respondent for deduction being one arising out of a
post-manufacturing situation, the same is outside the
purview of Section 4(4)(d)(ii) of the Act. He further
contended that the claim of the respondents based on normal
practice of the wholesale trade is also unacceptable in view
of the agreement between the respondent and its buyers
wherein at Clause 14 of the agreement it is unequivocally
stated that the claim for damages in transit to the goods
sold will be borne by the buyer. Therefore, according to
the appellant, the respondent cannot claim any trade
practice in regard to reimbursement of any value of the
goods which have suffered damage in view of Clause 14 of the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6
said agreement. He further contended that the affidavits of
the buyers filed by the respondents which are contrary to
the terms of the agreement are neither admissible nor can be
relied upon. Shri Anil Divan, per contra, contends that the
deductions contemplated under Section 4(4)(d)(ii) of the Act
are not confined only to deductions that could be
attributable to a stage prior to the removal of the goods
from the factory gate only. According to him, even those
expenses which have occurred subsequent to removal of the
goods from the factory gate have been held to be deductible
expenditure from the assessable value of the goods by this
Court. As an example, he submitted that the expenses
incurred on the insurance of the goods, year ending
discount, interest on receivables etc. even though are
expenses incurred after the removal from the factory gate
have been accepted as deductible expenditure by various
pronouncements of this Court; on this basis he contends
that the respondents are entitled for damage deduction. In
support of this contention, Mr. Divan relied on the
judgments of this Court in Assistant Collector of Central
Excise & Ors. vs. Madras Rubber Factory Ltd. (1986 Supp.
SCC 751), Government of India & Ors. vs. Madras Rubber
Factory Ltd. & Ors. (1995 (4) SCC 349), Guljag Chemicals &
Plastics Pvt.Ltd. vs Collector of Central Excise (1993
(63)ELT 710) and Authorised Officer (Land Reforms) vs. M.M.
Krishnamurthy Chetty (1998 (9) SCC 138), wherein this Court
according to Shri Divan has allowed deductions which are
referable to expenditure occurring after the removal from
the factory. He laid special emphasis on deduction allowed
on account of insurance. He said that the deductions now
sought by the respondent are similar to the insurance
deductions and as a matter of fact in the instant case in
effect the company is acting as an insurer of its own goods.
We will now consider the correctness of the Tribunals
finding based on its earlier two decisions in the cases of
Assam Valley Plywood Pvt.Ltd. and Tungbhadra Industries
Ltd. (supra). The Tribunal was of the view that the said
decisions fully covered the issue that arose for its
consideration in the impugned order. In Assam Valley
Plywood Pvt.Ltd., the Tribunal at para 6 of its order held
thus: In Appeal No.E-396/80-A, there is an additional
point of dispute. It relates to the quantum of discount or
reduction in value for damaged goods cleared by the
appellants. The lower authorities have allowed the minimum
discount of 25%. Before the Appellate Collector, the
appellants claimed that they had allowed 40% to 50% discount
for the damaged goods. In the appeal before us, it is
contended that there was reduction of upto 75% in some
cases. The appellants explained that the nature and extent
of damage on different pieces of their products was not
uniform and hence the price reduction for the damaged goods
could not be uniform. They had allowed varying
discount/reduction depending upon the nature and extent of
the damage in each case and they prayed that the
discount/reduction so actually allowed from case to case may
be accepted after necessary verification by the authorities.
The learned representative of the department had no comments
to make. We find the appellants request quite fair and
reasonable, and allow it.
From a perusal of this part of the order, we are
unable to deduce any principle either in law or in facts
decided by the Tribunal so as to make it applicable to the
issue that arose before it in the case with which we are
concerned. None of the questions which are addressed before
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6
us or decisions cited have been considered by the Tribunal
in the said order in Assam Valley case. After carefully
considering the said order, we are unable to agree with the
Tribunal that those cases either wholly or in part cover the
issue involved in the present case. While in the case of
Tungbhadra Industries case (supra), the Tribunal held in
para 19 of its order thus: Admittedly, the appellants are
giving discount for damages to the goods caused during
transit. Shri Beri relied on the order on this Tribunal in
Assam Valley (P) Ltd.case reported in 1989 (43) ELT 360
(Tri.). According to the said order, varying discount
reduction depending upon the nature and extent of damage in
each case is admissible. It is also a case of damage caused
to the goods during transit. Following the above order, we
direct the A.C. to verify the nature and quantum of
discount for damage caused to the goods in the transit and
allow the same.
It is seen that this order of the Tribunal is based on
certain admissions made by the parties and reliance was once
again placed on the order in Assam Valley which, according
to us, does not lay down any principle in law. Tribunal, in
our opinion, erred in applying the orders delivered by it in
the cases of Assam Valley and Tungbhadra Industries to the
facts of the present case.
This, however, will not assist us to dispose of these
appeals finally. When the original Authority took up the
matter for consideration after remand, the respondent filed
certain affidavits of its buyers who in their own words have
stated that some trade practice was existing whereby the
respondent company was reimbursing the loss suffered by the
buyers due to the damages caused to the goods. Learned
Attorney General has argued that these affidavits cannot be
relied upon. He also urged that the appellant has produced
a copy of the agreement between the respondent and its
buyers which, according to him, belies the existence of the
trade practice as claimed by the respondent. Even though
this document was produced only at the first appellate
stage, we find it has direct bearing on the question in
issue in view of the contents of clause 14 of the said
agreement. Based on this clause, it is contended for the
appellant that no trade practice in regard to damage
deduction is in existence. On behalf of the respondent, it
is contended that they are not relying on the agreement to
establish the trade practice; still, to rebut the argument
of the appellant based on clause 14 of the agreement. the
respondent places reliance on clause 15 of the said
agreement which, according to the respondent, creates an
obligation on the respondent to compensate the buyers for
the loss suffered by them due to damage to the goods. We do
not want to express any opinion in regard to these arguments
addressed by the parties. The authorities below have not
gone into the impact of the various clauses of the agreement
on the claim of the respondent as to the existence of trade
practice in the wholesale market. We feel this raises
primarily a question of fact and is a matter which goes to
the root of the claim, therefore, it should be decided in
the first instance by the original Authority. Therefore, we
consider it appropriate to remand the matter back to the
original Authority directing it to decide the matter afresh
after giving the parties concerned an opportunity of
producing such evidence as they desire to produce and after
hearing the parties. We make it clear that we have not
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6
expressed any opinion with reference to the various
arguments addressed before us and referred to in this order
of ours except to the extent of the finding delivered by us
in regard to the finality of the decision rendered by the
Tribunal in the earlier round of proceedings and in regard
to the correctness of the reliance placed by the Tribunal on
the two orders of its own while allowing the appeal of the
respondent, which according to us, is unsustainable.
For the reasons stated above, the impugned order is
quashed, the matter is remitted to the original Authority
for fresh disposal in accordance with the observations made
hereinabove. The appeals are disposed of accordingly.