Prakash Cotton Mills (P) Ltd. Vs. B. Sen and ors. - 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] - 2219 of 1969, are quite similar, except that the consignment in that case was of 63 cases of nylon yarn, which were stored in the warehouse on december 14, 1965, and were cleared on may 25, 1967. in that case also, the appellants paid the duty under the provisions of the amended sections under protest, and unsuccessfully applied for refund of the so-called excess duty. they failed in their appeals to the appellate collector of customs and their application for revision was rejected by the central government on march 19, 1969. 4. it will thus appear that the controversy in these two sets of cases relates to the short question whether the customs authorities were justified in applying the rate of duty (to the imported goods in question) according to the rate prevalent on the date of their actual removal from the warehouse.p.n. shinghal j.1. these appeals by special leave arise out of an order of the central government dated january 16, 1969 by which six revisional applications of the appellants were dismissed, and a similar order dated march 19, 1969, in the remaining case. as the basic facts and the law governing them are quite similar, it will be sufficient to deal with the common point in controversy before us on the basis of the admitted facts, and to dispose of the appeals together.2. the appellants obtainted licences for the import of 102 cases of 3,000 kgs. of nylon yarn. the yarn was shipped to bombay on the basis of a letter of credit in favour of the foreign suppliers. when the shipment arrived, the appellants received the bill of lading and other documents of title from the bankers on or about august 23, 1965, and paid for the same. they lodged the bill of entry the same day, and it has been claimed that the goods were assessed for duty by the customs authorities at a certain figure. the appellants stored the goods in the warehouse on december 22, 1965. they cleared 32 cases for 'home' consumption on may 10, 1966, and there is no controversy in regard to it. the currency was devalued on june 6, 1966, and the customs (amendment) ordinance, 1966, was promulgated on july 7, 1966, by which sections 14 and 15 of the customs act, hereinafter referred to as the act, were amended. the ordinance was replaced by the customs (amendment) act, 1966. the appellants cleared 12 cases of the aforesaid consignment on or about september 1, 1966. another 12 cases were cleared on october 10, 1966, and 46 cases were cleared in two lots on or about december 30, 1966 and february 20, 1967. their grievance was that the cases were allowed to be cleared on payment of 'enchanced' duty according to the amended provisions of the act. they paid the duty under protest and applied for refund of the excess payment on the ground that the amended law was not applicable as the consignments had been received, stored and assessed to duty before the promulgation of the ordinance. the applications of the appellants for refund were rejected by the customs authorities, and their appeals were dismissed by the appellate collector of customs on the ground that the amended sections 14 and 15 of the act were applicable to the consignments in question. the appellants filed revision applications before the central government, but they were dismissed by the aforesaid common impugned order dated january 16, 1969. they have therefore approached this court for a redress of their grievance.3. the facts relating to civil appeal no. 2219 of 1969, are quite similar, except that the consignment in that case was of 63 cases of nylon yarn, which were stored in the warehouse on december 14, 1965, and were cleared on may 25, 1967. in that case also, the appellants paid the duty under the provisions of the amended sections under protest, and unsuccessfully applied for refund of the so-called excess duty. they failed in their appeals to the appellate collector of customs and their application for revision was rejected by the central government on march 19, 1969.4. it will thus appear that the controversy in these two sets of cases relates to the short question whether the customs authorities were justified in applying the rate of duty (to the imported goods in question) according to the rate prevalent on the date of their actual removal from the warehouse.5. it will be recalled that the customs (amendment) ordinance, 1966, was promulgated and came into force on july 7, 1966, and was replaced by the customs (amendment) act, 1966. the amendments in question were by way of substitution of sections 14 and 15 of the act by the new sections. it has been argued by mr. chitale for the appellants that the material change was that made in sub-section (1) of section 15 of the act by substituting the words 'the rate of duty, rate of exchange' for the words 'the rate of duty'. he has therefore argued that the customs authorities were not entitled to take the new 'rate of exchange', at the depreciated value of the currency, into consideration in respect of the consignments in question as they had been shipped to bombay and stored in the warehouse before the amended section 15 came into force. the learned counsel tried to argue that the orders of assessment of the customs duty were also made before the amendment ordinance was promulgated on july 7, 1966, but he did not pursue that line of argument because he was not in a position to produce the so-called assessment orders. but, as we shall show, even if it were assumed that any such order or orders had been made before july 7, 1966, that could not possibly affect the correct rate of duty applicable to the imported goods.6. a reference to sections 14 and 15 of the act will show that while section 14 deals with the valuation of goods for purposes of assessment, it is section 15 which specifies the date for determination of the rate of duty and tariff valuation of imported goods. the amended section reads as follows,-15(1) the rate of duty, rate of exchange and tariff valuation, if any, applicable to any imported goods, shall be the rate and valuation in force,-(a) in the case of goods entered for home consumption under section 46, on the date on which a bill of entry in respect of such goods is presented under that section; (b) in the case of goods cleared from a warehouse under section 68, on the date on which the goods are actually removed from the warehouse; (c) in the case of any other goods, on the date of payment of duty:provided that if a bill of entry has been presented before the date of entry inwards of the vessel by which the goods are imported, the bill of entry shall be deemed to have been presented on the date of such entry inwards.(2) the provisions of this section shall not apply to baggage and goods imported by post.(3) for the purposes of section 14 and this section-(a) 'rate of exchange' means the rate of exchange determined by the central government for the conversion of indian currency into foreign currency or foreign currency into indian currency; (b) 'foreign currency' and 'indian currency' have the meanings respectively assigned to them in the foreign exchange regulation act, 1947.it is thus the clear requirement of clause (b) of sub-section (1) of section 15 of the act that the rate of duty, rate of exchange and tariff valuation applicable to any imported goods shall be the rate and valuation in force on the date on which the warehoused goods are actually removed from the warehouse. a cross-reference to section 49 of the act shows that an importer may apply to the assistant collector of customs for permission to store the imported goods in a warehouse pending their clearance, and he may be permitted to do so. the other relevant provision is that contained in section 68 of the act which provides that the importer of any warehoused goods may clear them for 'home consumption' if, inter alia, the import duty leviable on them has been paid. that is why clause (b) of sub-section (1) of section 15 of the act makes a reference to section 68. it is therefore quite clear that the rate of duty, rate of exchange and tariff valuation shall be those in force on the date of actual removal of the warehoused goods from the warehouse. as it is not in dispute before us that the goods, which are the subject matter of the appeals before us, were removed from the warehouse after the amending ordinance had come into force on july 7, 1966, the customs authorities and the central government were quite right in taking the view that the rate of duty applicable to the imported goods had to be determined according to the law which was prevalent on the date they were actually removed from the warehouse, namely, the amended sections 14 and 15 of the act. there is therefore no force in the argument that the requirement of the amended section 15 should have been ignored simply because the goods were imported before it came into force, or that their bills of lading or bills of entry were lodged before that date.7. as we find no force in these appeals, they are dismissed with costs.