Judgment:
1. This order is concerned with two sets of appeals. The first set, one by M/s. Rider Industries (hereinafter referred to as Rider), and the other by the department, is against the Order No. 429/CEX/93, dated 31-12-93 of the Collector of Central Excise, Aurangabad. In that order, the Collector was adjudicating on a notice issued in May 1991 to Rider.
This notice narrated that Rider was permitted to avail of the facility of invoice value, and was therefore not required to file a price list for assessment of the goods manufactured by it. The sales of these goods from its factory were negligible, and it sold virtually all of its production either from its sales depot at Bombay, or through its distributor M/s. H.V. Industrial Electronics Pvt. Ltd. (HVIE for short). The notice alleged that Rider and HVIE were related persons, being interested in the business each other and the entire production of Rider were sold through HV Industries. Therefore, it is the price at which the goods were sold by HVIE, after permitting a discount of 25%, that should form the assessable value of the goods. In the case of the goods sold from the depot of Rider, apart from the 25% trade discount, discount on account of quantity discount and cash discount are not admissible, since it has not been shown that it has been passed on. On these considerations, the notice demanded duty for the goods manufactured and cleared by Rider between April 1986 and February 1991.
2. Rider resisted the proposals in the notice raising various contentions. Cross-examination of the departmental officers requested by Rider was also permitted in the course of the hearing. After considering these contentions and hearing, the Collector passed the order impugned in these appeals. In that order, he did not accept that Rider and HVIE were related. He noted that Rider was a partnership firm, and HVIE a limited company. There was no evidence showing mutuality of interest in the business of each other or of financial flow back. He said that the failure by Rider to produce before the assessing officers invoices relating to the sales from its depots amounts to "deliberate withholding of actual information having relevance to the assessment" and was sufficient to invoke the proviso under Sub-section (1) of Section 11A of the Act. He however said that the demand for the years 1986-87 and 1987-88 could not be made because the notice issued under Rule 9(2) did not allege clandestine removal.
He therefore limited the demand for the period between December 1988 and February 1991.
3. On merits, he found that there were no sales in the factory gate in the years 1986-87 and 1987-88, the entirety of the sales being from Rider's depots. There were sales at the factory gate as well as sales from Rider's depot in 1988-89. There were sales at the factory gate, and sales at the depots of HVIE in 1989-90 and part of 1990-91 with which the notice was concerned. He ruled that during the periods when there were sales at the factory gate, it is that price that would apply, for the goods sold from the depots of Rider and of HVIE.Therefore, for the sales in 1988-89,1989-90 and part of 1990-91, the discount that was extended to buyers at the factory gate comprising 25% trade discount, quantity discount up to a maximum of 10% and cash discount up to a maximum of 5% could not be denied in the case of sales made from the depots of HVIE. In the case of sales made from Rider's own depots in 1988-89, only the trade discount could be deducted, but not the cash discount and quantity discount-"Since the transfers are to their own depots I do not consider them entitled for quantity discount as well as cash discounts." There being no sales at the factory gate in 1986-87 and 1987-88, the value had to be determined by applying the Valuation Rules, Rule 7 being appropriate to the facts of the case.
Therefore, the price of similar goods sold to other manufacturers should determine the value. He concluded by ordering recalculation of the duty for the period from December 1988 to the end of February 1991.
4. This order is being challenged in these appeals both by Rider, as well as by the department.
5. The other two appeals, one by HVIE, and other by the Commissioner, are against Order-in-Original No. 428/CEX/93, dated 31-12-1993 passed by the Collector of Central Excise, Aurangabad. HVIE manufactured and cleared power controllers from its depots, to which the goods were transferred from the factory after payment of duty. Notice was issued to it demanding duty on clearances for the same period that we are concerned with in the appeal filed by Rider. The basis for the alleged short levy was that, to arrive at the assessable value, the quantity and cash discount could not be deducted in cases of sales from the depots. The notice invoked the extended period contained in the proviso under Section 11A(1) as well as Rule 9(2). The Collector has held that Rule 9(2) will not apply, and hence held inadmissible any demand for clearances made prior to 1-12-1988. He has held that for the remaining period, the discounts should be limited to 25%, disallowed cash discount and quantity discount, up to a maximum of 10% and cash up to a maximum of 5%, deduction of which was made by the manufacturer. The department here, too, questions the Collector's action in dropping the demand for the period prior to 1-12-1988. The manufacturer contends that it is entitled to deduct the discount totalling 40% in arriving at the assessable value. The issues for consideration in both appeals are thus common.
6. We will first consider the department's appeal. This questions the Collector's view that the demand should be restricted to the period from 1-12-1988 to 28-2-1991, and contends that it should be available up to 1-4-1987 for which the notice was issued. The proviso under Sub-section (1) of Section 11A of the Act had been invoked in the notice. It urges that the Collector's view that Rule 9(2) could not apply because there was no clandestine removal is contrary to the decision of the Tribunal in FTC Limited v. CCE -1994 (72) E.L.T. 315.
7. The Collector's contention that the extended period or Rule 9(2) will not apply cannot be accepted. The show cause notice, in fact, cites both Section 11A(1) and Rule 9(2), and the Collector says, in his order, that "I find that the present demand can be made under Section 11A(1) proviso and be determined under Section 11A(2)." His view that demand cannot be made under Rule 9(2), as no clandestine removal is alleged, is contrary to the decision of the Tribunal cited in the department's appeal. In that decision, the Tribunal has held that a failure to declare collection of additional consideration from customers would attract the proviso of Rule 9(2) notwithstanding that the assessee's factory was under physical control. The demand in this case, as we have noted, is on the ground that the manufacturer did not disclose to the department the fact of discount given at the depots.
The extended period therefore was applicable.
8. The appeal by the manufacturer contends that the quantity discount and cash discount was extended to buyers at the factory gate and therefore should not be denied. The advocate for the appellant produced documentary evidence in support of the contention that the discount was extended in the case of sales made from the depot.
9. Where the factory gate price is known, it is that price that would apply, even in the case of sales from depots. This view of the Collector is supported by numerous judgments of the courts and of the Tribunal, of which we need only refer to the Judgment of the Supreme Court in Indian Oxygen v. Collector - 1988 (36) E.L.T. 723. It is on this consideration that he has permitted the trade discount of 25%.
Different considerations however would apply in the case of quantity discount and cash discount. Quantity discount is extended on the basis of quantity of goods purchased by a buyer, either in one transaction or over a period of time. Cash discount again is contingent upon payments being made within a period specified for the purpose. While these would be available in the case of sales from the factory gate, if the specified conditions are satisfied, that would not be the case where the sale is made from the depot. Clearances to the sales depot are not by way of sale, but removals by a manufacturer to his own premises, or those of his agent. There is no payment involved in the case of these removals. Permitting deduction of quantity and cash discounts would not arise; when the goods are cleared from the factory, it would not be possible to verify whether the conditions subject to which these discounts were available had been complied with.
10. The place of removal specified in Section 4 of the Act, as it stood at the relevant time, is the factory gate, in a case, where there is a sale at the factory gate. In that situation, it would not include the depot. Therefore, in such a situation, whatever happens at the depot is not the concern of the department. The clearances from the depot are of duty paid goods, in which the department has no concern for the purpose of assessment of duty. Any discount given at that point would not concern the department, the goods having already been removed on payment of duty, just as the department will not be concerned where a manufacturer sells his goods, cleared from his factory on payment of duty, at a higher price in the depot.
11. None of the decisions cited at by the advocate for the appellant is on this point. Indian Oxygen Limited v. CCE - 1988 (36) E.L.T. 723, Oswal Agro Mills Ltd. v. CCE - 1998 (100) E.L.T. 141, Rubicon v. CCE -1993 (66) E.L.T. 207, all laid down the proposition that, where the factory gate price is known, that is to be applied to sales from the depot. The decision in CCE v. Punjab Chemicals & Pharmaceuticals - 1999 (107) E.L.T. 57, deals with removal of goods from the depots to different buyers in different regions, as does Garware Polyester Ltd. v. CCEBombay Tyre International v. Union of India -1983 (14) E.L.T. 1896 that the cost of transportation of the goods from the factory gate to the sales depot is not includible in the assessable value to be irrelevant in the facts of this case. Therefore, where the factory gate price is known, the Collector's conclusion that the trade discount and quantity discount should not be allowed for removals for clearances to the depots has to be confirmed.
12. The position, however, would be different when there is no factory gate sales, and the removals are entirely to the depots. In that situation, it is the depot that is the place of removal, and it is the price at which the goods are sold from the depots that would apply.
This is the position as laid down in paragraph 6 of the decision in Indian Oxygen Ltd. v. CCE. In that situation, therefore, all the discounts including quantity and cash discounts would be permissible for deduction, provided the conditions relating to the discounts being known at the time of clearance and the regular practice in the trade are complied with.
13. The Collector, in his order, does not say what was the pattern of sale between 1-4-1987 and 1-12-1988. If the sales were partly from the factory gate and partly through the depots, these discounts would not be available. If all the clearances were from the depot, discounts will be available. The matter is therefore remanded to the Commissioner for determination of this factor and for passing appropriate order, as the facts before us are insufficient to enable us to come to any conclusion.
14. After the conclusion of the hearing, the advocate for the appellant has filed a letter on 5-9-2000 enclosing an unreported decision of this Tribunal in CCE, Aurangabad v. Kesharbai Electronic Pvt. Ltd. in 2000 (122) E.L.T. 851 (Tri.) [Appeal E/886/95A with E/Cross/338/95A] contending that the ratio of this decision will apply. We are unable to find this to be the case. The Tribunal, in that order, had not accepted the appeal against the Commissioner's order on its finding that the Commissioner's conclusion that there was no relationship between the two did not warrant interference. It, therefore, declined to accept the contention in the appeal that the difference in the discount between the discount of 40% at which Kesharbai Electronics sold to H.V Industrial Electronics and the 25% at which H.V. Industrial Electronics sold to its dealers formed additional consideration for the price.
These are not the considerations spelt out in the notice, or dealt with by the Collector. The ratio, therefore, will not apply.
15. The two appeals of the department are allowed. The appeals of HVIE and Rider are dismissed.