1986 (12) TMI 35 - SC - Central Excise

Court rulings on discounts, deductions, and pricing methods in MRF Ltd. case

ASSISTANT COLLECTOR OF CENTRAL EXCISE AND OTHERS Versus MADRAS RUBBER FACTORY LTD. AND OTHERS

ASSISTANT COLLECTOR OF CENTRAL EXCISE AND OTHERS Versus MADRAS RUBBER FACTORY LTD. AND OTHERS - 1987 (27) E.L.T. 553 (SC), 1987 AIR 701, 1986 (0) Suppl. ... Issues Involved:1. TAC/Warranty discount2. Product discounts3. Interest on finished goods and stocks carried by the manufacturer after clearance4. Over-riding commission to Hindustan Petroleum Corporation5. Cost of distribution incurred at duty paid Sales Depots6. Interest on receivables7. 1% turnover discount allowed to RCS Dealers8. Secondary packing cost on tread rubber9. Discount to Government and other Departments10. Determination of wholesale price of tyres on the basis of the ex-factory price for Defence supplies11. Deductions claimed towards excise duty paid on processed tyre cord12. Method of computation of assessable value in a cum-duty price at a factory gate saleIssue-wise Detailed Analysis:1. TAC/Warranty Discount:The petitioners argued that TAC/Warranty discounts should be deducted when determining the assessable value, claiming it is a trade discount established by practice since 1943. However, the court found that the warranty discount is not a discount on the tyre already sold but relates to goods subsequently sold to the same customers. It is a form of compensation for previous defects and does not satisfy the condition of being known at or prior to the removal of the goods. Therefore, the court disallowed the claim for TAC/Warranty discounts.2. Product Discounts:- Prompt Payment Discount: The court recognized this as a trade discount known at or prior to the removal of goods, thus allowing the deduction.- Year-End Discount: Disallowed as it is computed at the end of the year and not known at the time of removal, making it more of a bonus or incentive.- Campaign Discount: Similarly disallowed as it is calculated after the removal of goods and not known at the time of removal.3. Interest on Finished Goods:The court allowed the deduction of interest on finished goods from the date of delivery at the factory gate to the date of sale. However, interest incurred after delivery from the sales depot is not deductible, as it adds to the value of the goods post-removal.4. Over-riding Commission to Hindustan Petroleum Corporation:The court rejected this claim, stating that the commission is not a trade discount known at or prior to the removal of goods but a compensation for sales through HPC dealers.5. Cost of Distribution:The court held that the cost of distribution at duty-paid sales depots is not to be included in the assessable value, as the wholesale dealers take delivery from outside duty-paid godowns.6. Interest on Receivables:The court allowed the deduction for interest on receivables, as it is an expense incurred after the sale and removal of goods, aligning with the principle that only expenses contributing to the value up to the date of sale are includable.7. 1% Turnover Discount to RCS Dealers:The court did not specifically address this issue in the judgment text provided, but the principles applied to other discounts would likely apply here, requiring the discount to be known at or prior to the removal of goods.8. Secondary Packing Cost on Tread Rubber:The court, referencing the Bombay High Court's decision in the Bombay Tyres International Ltd. case, held that secondary packing charges for tread rubber cannot be excluded from the assessable value, as the packing is necessary for selling the product in the wholesale trade.9. Discount to Government and Other Departments:The court rejected the claim, stating that selling products at a lower price to the Government constitutes a normal price for that class of buyers and not a discount.10. Determination of Wholesale Price for Defence Supplies:The court allowed MRF Ltd. to file revised price lists for Defence Department supplies under the old Section 4, recognizing that different prices for different classes of buyers are permissible.11. Deductions for Excise Duty on Processed Tyre Cord:The court upheld the deduction for excise duty on processed tyre cord, aligning with Section 4(4)(d)(ii) of the new Section 4.12. Method of Computation of Assessable Value in a Cum-duty Price:The court clarified that the assessable value should be computed by first deducting permissible deductions from the cum-duty selling price and then applying the excise duty rate. The court rejected the method of pre-deducting excise duty before permissible deductions, emphasizing that excise duty is a ratio of the assessable value and should be computed accordingly.Conclusion:The court directed the assessing authorities to quantify and re-determine the permissible deductions in accordance with the judgment, requiring MRF Ltd. to file fresh price lists within one month. The court also allowed for appropriate credits in the Personal Ledger Accounts for items where deductions were allowed.