1985 (3) TMI 69 - HC - Central Excise

Exclusion of Trade and Cash Discounts from Manufacturing Cost for Excise Duty Levy

UNION OF INDIA AND OTHERS Versus S. SM BROS. PRIVATE LTD.

UNION OF INDIA AND OTHERS Versus S. SM BROS. PRIVATE LTD. - 1985 (22) E.L.T. 766 (Mad.) Issues:Entitlement to exclude trade discount and cash discount in determining manufacturing cost for excise duty levy.Analysis:The judgment addressed the question of whether manufacturers are entitled to exclude trade discount and cash discount in determining the manufacturing cost for excise duty levy. The respondents, manufacturers of embroidered cotton fabrics, were assessable to excise duty under Item 1911 of the Central Excises and Salt Act, 1944. The respondents had opted to pay duty at compounded rates under Rule 96J of the Central Excise Rules. The issue arose when the Assistant Collector of Central Excise disallowed the trade discount and cash discount allowed by the manufacturers, leading to a demand under Rule 10A of the Central Excise Rules. The authorities contended that the discounts were not uniformly allowed to all purchasers, and trade discount should only be allowed at the time of sale. However, the court held that trade discount need not be uniform and can be allowed even if given at a later point in time, as long as it is related to the sales. The court referred to a Supreme Court decision stating that trade discount is a percentage deduction from the regular list or catalogue price of goods and need not be uniform.The judgment further discussed the distinction between trade discount and cash discount. The court emphasized that cash discount, which is allowed for prompt payment, should also be considered in determining the assessable value under Section 4 of the Act. Referring to a Bombay High Court decision, the court highlighted that if the nature of the discount is known to the purchaser prior to the purchase, it should be deducted from the sale price. In this case, the price list prepared by the manufacturers disclosed the cash discount offered for prompt payment, indicating that purchasers were aware of the discount. Therefore, the court concluded that both trade discount and cash discount should be allowed in determining the assessable value for excise duty levy.In conclusion, the court dismissed all contentions raised by the manufacturers and upheld the disallowance of the trade discount and cash discount. The judgment clarified that both types of discounts can be excluded from the manufacturing cost for excise duty levy, even if not uniformly offered or given at the time of sale. The decision provided clarity on the treatment of trade and cash discounts in determining the assessable value for excise duty purposes.