Full Judgment
2. The facts of the case briefly stated are that the respondents herein are engaged in the manufacture of PVC Sheeting and Films falling under Chapter 39 of the Central Excise Tariff Act, 1985. The respondents herein submitted their declaration under Rule 173B claiming therein the shrinkage of their product namely PVC sheeting at a rate of 7.5% in cases where the product was sold/cleared in metres and 5% i.e. 100 pieces were being accounted for in cases of 105 pieces, where the product was sold/cleared in numbers. Since this concession appeared to be inadmissible to the respondents herein Central Excise Authorities issued show cause notices stating as to why shrinkage should not be disallowed and why penalty should not be imposed. The Deputy Commissioner while adjudicating the case disallowed the shrinkage in terms of lengths and pieces and imposed a penalty.
3. Arguing the case for Revenue Shri M.M. Dubey, learned DR submits that the respondents herein claimed deduction of shrinkage as a percentage of the product and in terms of pieces. He submitted that duty is required to be paid on the length and number of pieces as they are at the time of clearance from the factory. He submits that what happened to the goods after clearance cannot be considered at the time of clearance of the goods. Clearance of the goods in terms of length or piece as they are at the time of physical clearance from the factory is accountable for the purpose of levy of duty. He submits that Commissioner (Appeals) has cited decision of the Apex Court in the case of Ujagar Prints [1988 (38) E.L.T. 535 (S.C)] stating that shrinkage value was to be included in the print fabric. Learned Commissioner (Appeals) also observed that assessee claimed various discounts namely, cash discount, quantity discount, which are permissible under law and therefore, it was observed by the learned Commissioner (Appeals) that shrinkage is not at all liable under law the same may be allowed as trade discount. Learned DR submits that learned Commissioner (Appeals) has not correctly appreciated the problem and has erred in holding that a shrinkage in length or number are equivalent to cash discount, trade discount, quantity discount or prompt payment allowance discount. He, therefore, prays that appeals may be allowed.
5. We have heard the submissions of the learned DR. We have also perused the evidence on record as also the findings of the learned Commissioner (Appeals). We note that reliance placed by the learned Commissioner (Appeals) on the Apex Court decision in the case of Ujagar Prints [1988 (38) E.L.T. 535 (S.C.)] is misplaced inasmuch as in that case shrinkage took place before clearance of the goods from the premises of the processor and thus at the time of physical clearance of the goods the shrinkage had already taken place. In the instant case we note that shrinkage takes place after clearance of the goods. The goods when cleared were not shrunk and therefore/ no allowance could be given on further shrinkage.
6. Insofar as clearing of higher number of pieces than those on which duty was paid and treating it as quantity discount we cannot agree with this finding. This is misunderstanding of the concept of quantity discount. Quantity discount is admissible in case where a large number is ordered and cannot be given in cases where larger number is cleared but for the purpose of levy of duty a smaller number is taken. Thus we find that Commissioner (Appeals) had fallen in error in holding that shrinkage discount in length and in numbers can be equated with cash discount, quantity discount etc. His contention is that this is in the form of trade discount is not tenable inasmuch as when the goods were physically presented they were of higher length or in larger number.
Therefore, duty is required to be paid in the physical form at the time of clearances either in length or in number or number of goods at the time of clearance. Looking to the above discussions, we set aside the impugned order and allow the appeals.