Sirpur Paper Mills Ltd. Vs. the Commissioner of Wealth-tax, Hyderabad - Court Judgment

Excerpt:
- [p.n. bhagwati, c.j. and; v. khalid, jj.] in union of india v. bombay tyres international ltd., [1984] 1 scr 347, this court held that under s.4 of the central excise and salt act, 1944, only those expenses which were incurred on account of factors contributing to the product's value upto the date of sale or the date of deliv- ery at the factory. gate were liable to be included in the assessable value. on november 14/15, 1983 the court made a clarificatory order wherein it was stated that discounts allowed in the trade (by whatever name called) should be allowed to be deducted from the sale price having regard to the nature of the goods, if established under agreements or under terms of sale or by established practice, and that such allowance and the nature of discount should be known at or prior to the removal of the goods and should not be disallowed only because they were not payable at the time of each invoice or deducted from the invoice price. the respondent-rubber factory claimed various deductions of the nature of post-manufacturing expenses for determining the assessable value of their products under s.4 of the act which were disallowed by the excise authorities. its writ petitions were, however, allowed by the high court. in appeals by the union of india for setting aside the high court judgment it was contended for the respondent: (a) that the tac/ warranty discount, which was sought to be deducted for determining the assessable value, satisfied all the criteria of a trade discount stipulated in the clarifi- catory order; (b) that the claim for deduction of product discounts--prompt payment discount, year-ending discount and campaign discount--was justified on the same reasoning; (c) that the interest on finished goods from the date the stocks were cleared till the date of sale was a proper deduction for determination of the assessable value; (d) that the claim for deduction of interest on receivables (sundry debtors for sales) was justified on the ground that this cost was inbuilt in the price and was incurred on account of the time factor between the delivery of goods and realisa- tion of moneys; (e) that the overriding commission allowed to the hindustan petroleum corporation for exclusive sale of company's products through their dealer net work was also of the nature of a discount; (f) that the cost of distribution at the duty paid sales depot was a proper deduction; (g) that the difference between the lower price at which the product was sold to the government and the price charged from ordinary dealer was of the nature of a discount; (h) that the claim for deduction of special secondary packaging charges squarely falls within s.4(4)(d)(i) of the act, and (i) that the company was entitled to the deduction of excise duty paid on processed typecord under s.4(4)(d)(ii). the respondents also disputed the method of computation of 'assessable value' in a cure-duty price at a factory gate sale and contended that such value was to be arrived at by first deducting the predetermined excise duty added to the factory price and only thereafter the permissible deductions were to be deducted. disposing of the appeals, the court, held: 1.1 the respondent company is not entitled to the deduction of tac/warranty discount for determining assessa- ble value of tyres since it does not come within s.4(4)(d)(ii) of the central excise and salt act, 1944. [856h, 857a, 855h] even though giving of tac/warranty is established by practice for the wholesale trade or capable of being decid- ed, what is really relevant is the nature of the traction. it is not a discount on the tyres already sold, but relate to the goods which are being subsequently sold to the same customers. 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. [8s6b] 1.3 a trade discount of any nature could be allowed to be deducted provided it is known at or prior to the removal of the goods. in the instant case, this condition precedent is not satisfied as the committee decided the claim for tac/warranty subsequent to the removal of the tyre. [856c] 1.4 the analogy of rule 96 of the central excise rules, 1944 relating to abatement of duty of defective tyres cannot be made applicable to justify the claim for deduction of the tac/warranty discount. a tyre being sold as a "seconds" or "defective" would be sold at a discount, such discount being known before the goods were removed/cleared, thereby also satisfying the pre-condition of s.4(4)(d,(ii) of the excise act. the assessable vase and price list submitted would be one relating the 'seconds' tyres. [856g] union of india v. bombay tyres international ltd., [1984] 17 elt 329, referred to. the respondent is entitled to deduction of 'prompt payment discount' which is a 'trade discount' given to the dealers by the company. it is established under the terms of sale or by established practice and is known at or prior to the removal of the goods- [857e-f] the company is not entitled to deduction of the 'year-ending discount'. the allowance of the discount is not known at or prior to the removal of the goods. the calcula- tions are made at the end of the year and the bonus at the said rate is granted only to a particular class of dealers. this is computed after taking stock of the accounts between the company and its dealers. it is not in the nature of a discount but in the nature of a bonus or an incentive much after the invoice is raised and the removal of the goods is complete. [857g-858a] the campaign bonus cannot be a permitted deduction to the company. the allowance of the discount is not known at or prior to the removal of the goods. the qnantum is unascertained at the point of removal. the discount is not on the wholesale cash price of the articles sold but is based an the total sales effected of a particular variety of tyre calculated after the removal. [858d] expenses incurred on account of several factors which have contributed to the product's value upto the date of sale, which apparently would he the date of delivery at the factory gate, are liable to he included in the assessa- ble value. [858f] the company was justified in claiming deduction of interest an finished goods until they were sold and deliv- ered at the factory gate. but interest on finished goods from the date of delivery at the factory gate up to the date of delivery from the sales depot would be an expense in- curred after the date of removal from the factory gate and it would, therefore, not he liable to he included since it would add to the value of the goods after the date of remov- al from the factory gate. [858g-h] union of india v. bombay tyres international ltd., [1984] 1 scr 347, referred to. the interest cost and expenses on sundry debtors or interest on receivables is an expense subsequent to the date of sale and removal or delivery of goods and, therefore, the company would not he eligible to claim deduction on this account. [859h] the overriding commission paid by the company to the hindustan petroleum corporation for sale of their products exclusively through hpc dealer network is not deductible. it was agreed to in consideration of the corporation not agree- ing to enter upon agreement with any other tyre manufactur- ing company vis-a-vis by reason of the respondent undertaking not to enter upon any agreement with any other oil company. it is a compensation granted for the sale of company's products through hpc dealers and is a commission for services rendered by the agent. it is not a discount known at or prior to the removal of the goods. [859a-c] the cost of distribution incurred at the duty paid sales depots is not to he included in the assessable value in case the wholesale dealers take delivery of the goods from outside such godown. the wholesale dealers having taken delivery of the goods manufactured by the company and there being a removal of the goods from the factory gate, the cost of distribution at duty paid sales depots cannot he taken into account for the purpose of determining the assessable value of the goods. [859h-860a] union of india & ors. v. duphar interfram ltd., [1984] ecr 1443, referred to. merely because the product is sold at a lower price to the government it cannot be said that the difference in price with reference to an ordinary dealer and the govern- ment is a discount to the government. the position that there can be different price lists of articles of similar description sold to different classes of dealers or differ- ent classes of buyers in wholesale is specifically recog- nised under s.4(1)(a), proviso (1) of the act. the lower price for the government constitutes a normal price for it as a class of buyer and no deduction on this head is liable to the company for the purpose of determination of the assessable value of the article. [860d, c, e] 8.1 section 4(4)(d)(i) of the act read with the explana- tion thereto makes it apparent that the 'secondary packag- ing' done for the purpose of facilitating transport and smooth transit of the goods to be delivered to the buyer in the wholesale trade cannot be included in the value for the purpose of assessment of excise duty. if a packaging is not necessary for the sale of the product in the wholesale market at the factory gate, the same cannot be included in the value for the purpose of assessment of excise duty. [860 fg] in the instant case, the secondary packaging for tread rubber consists of cardboard cartons and wooden cases. this secondary packing is not employed merely for the pur- pose of facilitating transport or smooth transit but is necessary for selling the tread rubber in the wholesale trade. the cost of these cardboard cartons and wooden cases or any other special secondary charges incurred by the company on tread rubber could not, therefore, be excluded from its assessable value. [861a, d, e-f] union of india & ors. v. godfrey philips india ltd., [1985] 22 elt 306 and bombay tyres international ltd. v. union of india & ors., bombay high court m.p. no. 1534 of 1979 decided an january 7, 1986, referred to. the company is eligible for deduction from selling price of tyre of excise duty paid on processed tyre cord. this is in accord with s.4(4)(d)(ii) of new s.4 of the act. [862f-g] the assessment of excise duty both in relation to s.4 and in relation to the valuation rules is now subject to the definition contained in s.4(4)(d) of the act. the 'va- lue' as defined thereunder is to be arrived at after the cost of packaging of a durable nature or a returnable nature as also amounts of duty of excise, sales tax and other taxes and trade discount allowed in accordance with the normal practice of wholesale trade is determined. it is implicit that no excise duty is payable on an element of excise duty in the price. the value as contemplated under s.4 cannot include a compo- nent of excise duty. [863ab] the aggregate of the assessable value, the permis- sible deduction and the excise duty is equal to the selling price (cure-duty paid). the excise duty is only known as a ratio of the assessable value when an ad valorem duty is included in the cure-duty paid selling price. the quantum of excise duty cannot be pre-deducted or pre-determined till the assessable value is known. it is only the permissible deductions in concrete monetary terms and amount which are known. the cum-duty paid sale price being available for computation and the value of deduction permitted being also known, the assessable value and the excise duty as a ratio of the assessable value can be only found by first deducting the permissible deductions from the cum-duty paid selling price and thereafter computing the value by dividing the difference by (1 +rate of excise duty). this method has both a legal and mathematical basis. to reverse this sequence is to mis-interpret the scheme and the mode of levy of excise duty on the assessable value. [864e-g, 865b, 865g] 10.3 where the factory price is not a cure-duty price, the first step in arriving at the assessable value is to deduct the permissible deductions and thereafter to compute the excise on an ad valorem basis by applying the tariff rate to the assessable value. [865d] - 4 it is stated that the board's instructions were 'specific on the point that no adjustment to depreciation relating to the period prior to march 31, 1957 should be made while determining the total wealth of an assessee on the basis of 'global' valuation'.9. under entry dated august 7, 1963, recorded by the inspector, it is stated that 'upon reference to the board for instructions, it was recommended that the petitions be kept pending decision of the matter till' it was decided by the high court in which the same question was raised.j.c. shah, j.1. in proceedings for determination of wealth tax for the assessment years 1957-58 and 1958-59 the appellant company claimed depreciation allowance on plant, building and machinery at the rates prescribed under the income tax act and the rules framed thereunder. the wealth tax officer adopted the method prescribed by section 7 sub-section (2) of the wealth tax act and' admitted the value of the assets as shown in the certified balance sheets on the respective valuation dates. in appeal, the appellate assistant commissioner of wealth tax confirmed the order passed by the wealth tax officer. the company then moved revision applications before the commissioner of wealth tax under section 25 of the wealth tax act. against the order passed by the commissioner of wealth tax rejecting the applications, the company has filed these appeals under article 136 of the constitution.2. against the orders of the appellate assistant commissioner appeals lay to the income-tax appellate tribunal, but the company preferred revision applications before the commissioner.3. we do not ordinarily encourage an aggrieved party to appeal directly to this court against the order of a tribunal exercising judicial functions under a taxing statute, and thereby to bypass the normal procedure of appeal and reference to the high court, but in the present case, it appears to us that a question of principle of great importance arises. we has e entertained these appeals because in our judgment the commissioner of wealth tax has surrendered his authority and judgment to the board of revenue in deciding the questions which were sought to be raised by the company in its revision applications.4. section 25 of the wealth tax act provides insofar as it is material :(1) the commissioner may, either of his own motion or on application made by an assessee in this court, (sic) call for the record of any proceeding under this act in which an order has been passed by any authority subordinate to him, and may make such inquiry, or cause such inquiry to be made, and, subject to the provisions of this act, pass such order thereon, not being order prejudicial to the assessee, as the commissioner thinks fit :.the power conferred by section 25 is not administrative it is quasi-judicial. the expression 'may make such inquiry and pass such order thereon' does not confer any absolute discretion on the commissioner. in exercise of the power the commissioner must ring to bear an unbiased mind, consider impartially the objections raised by the aggrieved party, and decide the dispute according to procedure consistent with the principles of natural justice he cannot permit his judgment to be influenced by matters not disclosed to the assessee. nor by dictation of another authority. section 13 of the wealth tax act provides that all officers and other persons employed in the execution of this act shall observe and follow the orders, instructions and directions of the board. these instructions may control the exercise of the power of the officers of the department in matters administrative but not quasi-judicial. the proviso to section 13 is somewhat obscure in its import. it enacts that no orders, instructions or directions shall be given by the board so as to interfere with the discretion of the appellate assistant commissioner of wealth tax in the exercise of his appellate functions. it does not, however, imply that the board may give any directions or instructions to the wealth tax officer or to the commissioner in exercise of his quasi-judicial function. such an interpretation would be plainly contrary to the scheme of the act and the nature of the power conferred upon the authorities invested with quasi-judicial power.5. the commissioner appears, in our judgment, to have wholly misapprehended the true character of the jurisdiction with which he is by the act entrusted and has surrendered his judgment to the directions of the board of revenue. the order sheet of the commissioner (at pp. 10-36 of the printed paper book) bears eloquent testimony to the manner in which the commissioner has merely carried out the directions of the board of revenue, instead of deciding the case according to his own judgment.6. in entry dated december 31, 1959, there is a reference to the instructions contained in the board's circular no. 7-d (wt) of 59 dated november 12, 1959 received on november 30, 1959.7. under entry dated april 28, 1960 there is again a reference to the board's circular no. 7-d of 1959 suggesting the manner in which depreciation has to be worked out for the purpose of determining wealth-tax.8. again in the entry dated june 17, 1960 under item no. 4 it is stated that the board's instructions were 'specific on the point that no adjustment to depreciation relating to the period prior to march 31, 1957 should be made while determining the total wealth of an assessee on the basis of 'global' valuation'.9. under entry dated august 7, 1963, recorded by the inspector, it is stated that 'upon reference to the board for instructions, it was recommended that the petitions be kept pending decision of the matter till' it was decided by the high court in which the same question was raised. when on january 27, 1966, the company requested that the applications be kept pending till the disposal of the reference application by the high court for the assessment year 1959-60 in which a similar point was involved, the commissioner was of the view that the application need not be kept pending, but still directed 'write to the board'. a letter was written to the board and the commissioner acted according to the directions of the board.10. there is another entry dated march 14, 1966 which refers to the letter of the board agreeing that the revision applications for the two years may be rejected.11. it is unnecessary to refer to any more entries made in the case sheet maintained by the commissioner of wealth tax. from the inception of the proceedings the commissioner of wealth tax put himself in communication with the board of central revenue and sought instructions from that authority as to how the revision applications filed before him should be decided. he exercised no independent judgment. the commissioner also recorded that the case did not require a personal hearing but since the director of the company had made a personal request for an interview it was 'thought desirable' from 'the point of view of public relations to give an interview.' here also the commissioner misconceived the nature and extent of his jurisdiction.12. counsel appearing on behalf of the commissioner of wealth tax in these appeals has not attempted to support the order under appeal. we set aside the order passed by the commissioner and direct that the revision applications be heard and disposed of according to law and uninfluenced by any instructions or directions given by the board of revenue. the company will get its costs in this court. one hearing fee. r.k.p s.