Commissioner of Income-tax, Delhi and Rajasthan Vs. Hira Lal Kapur Chand - 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]k.s. hegde, j.1. this appeal by special leave arises from the decision of the high court of delhi wherein the high court refused to call for a statement of case under section 66(2) of the indian income tax act, 1922.2. the material facts of the case are as follows :there was a sale of jewellery in 1937 to the prince of berar. the main question that fell for decision was whether the sale was by the firm known as m/s. babu mal & co., or whether it was by an association of persons consisting of kapur chand and his brother hira lal. it appears that kapur chand and hira lal were partners of the firm m/s. babu mal & co., the right to collect the price of the jewellery sold to the prince of berar appears to have been allotted to the share of kapur chand and hira lal by the arbitrator who divided the assets of m/s. babu mal & co., amongst the various partners of that firm. the income-tax officer assessed kapur chand and hira lal as association of persons in respect of the profits said to have arisen as a result of the sale of jewellery to the prince of berar. kapur chand and hira lal denied their liability to be taxed on the profit in question. according to them they cannot be held liable for the sale of the jewellery in question merely because that the right to collect the price of those jewellery had been assigned to their share. the income-tax officer rejected the plea of kapur chand and hira lal and assessed them in respect of the profits said to have arisen as a result of the sale of those jewellery as an association of persons. that order was affirmed by the appellate assistant commissioner. the tribunal, however, set-aside the order of the assessesment. it came to the conclusion that there was no evidence to show that the transaction in question was effected by kapur chand and hira lal but all the same the tribunal directed the income-tax officer to proceed to find out as to who was responsible for the transaction and assess the profit arising there from in the hands, of that person. thereafter the department wanted the tribunal to refer certain question claimed by it to be questions of law arising from its order to the high court for its opinion. the tribunal rejected that prayer hold that no question of law arose from its order. aggrieved by that decision, the department moved the high court to direct the tribunal to state a case and refer the questions mentioned by it in its application to the high court for its opinion. the high court agreed with the tribunal that no question of law arose from the order of the tribunal. we are in agreement with the high court that no question of law arises from the order of the tribunal. the finding of the tribunal are essentially findings of fact.3. in the result this appeal fails and the same is dismissed. no costs.