2001 (1) TMI 84 - SC - Central Excise

Excise assessable value u/s4: damage discount for post-removal warranty denied; bank collection charges excluded; appeals partly allowed.

Damage discount claimed as a deduction under s. 4 of the Central Excises and Salt Act, 1944 was held inadmissible because it operated as ... Deductions in computing the value of the manufactured goods u/s 4 - Whether Bank charges for collection of sale proceeds and discount for damages are allowable deductions in computing the value of the manufactured goods under Section 4 of the Central Excises and Salt Act, 1944? - Held that:- The object of 'damage discount' is to compensate the buyer for the damaged goods and logically, compensation for damaged goods could not feature as a relevant consideration for determining the price of the goods as manufactured at the time of clearance of the goods. The 'discount' is admittedly on account of damages suffered by goods after removal from the factory. Thus a compensation in the nature of warranty allowance on a defective tyre'. The finding of the Tribunal on this issue therefore cannot be sustained. On the question of bank charges, however we are of the view that bank charges being in the nature of post clearing expenses are deductible while calculating the assessable value of the goods. In Assistant Collector of Central Excise and Others v. Madras Rubber Factory (supra) and Shriram Fertilizers & Chemicals v. Union of India [1997 (3) TMI 112 - SUPREME COURT OF INDIA] and Government of India and Others v. Madras Rubber Factory Ltd. and Others [1995 (5) TMI 28 - SUPREME COURT OF INDIA] this Court has held that interest on receivables earned on account of the time lapse between the delivery of the goods and the realisation of the monies is deductible from the assessable value of the goods at the time of removal from the respondents' factories. For the same reason, bank charges included in the price on account of clearance of outstation cheques cannot form part of the price of the goods at the time of removal and are as such excludible from the price while calculating the assessable value of the goods. The Tribunal had, as such, correctly allowed this deduction. Thus the appeals are allowed to the extent of disallowing the respondents' claim for deduction on account of damage discount and dismissed in so far as the respondents' claims for deduction of bank charges are concerned. There will be no order as to costs. Issues: (i) Whether discounts/credits given to buyers for goods damaged in transit constitute allowable trade discounts under Section 4(4)(d)(ii) and are deductible from the value of goods for excise duty purposes; (ii) Whether bank collection charges on outstation cheques are deductible from the value of goods for excise duty purposes.Issue (i): Whether compensation/discount for damaged goods in transit can be treated as a trade discount deductible from the assessable value under Section 4.Analysis: The relevant valuation concept is the normal price determined with reference to the time and place of removal. Discounts that compensate buyers for losses occurring after removal are compensatory in nature and relate to post-removal events. Prior decisions distinguish compensation for defective or damaged goods from transportation cost and from trade discounts allowed in the normal wholesale practice at time of removal. A warranty or post-sale allowance functions as compensation for loss and does not alter the price of the goods as manufactured at the time of clearance.Conclusion: Such compensation/discount for damaged goods is not a trade discount deductible under Section 4(4)(d)(ii); deduction is not allowable.Issue (ii): Whether bank collection charges on outstation cheques are excludible from the assessable value of goods.Analysis: Bank collection charges arise after removal and relate to realisation of sale proceeds. Established principles permit exclusion of amounts attributable to post-removal realisation (for example, interest on receivables) from the assessable value. Bank charges included in the price because of clearance of outstation cheques do not form part of the price at the time of removal and are post-manufacturing expenses excludible from the value for excise duty computation.Conclusion: Bank collection charges on outstation cheques are deductible from the assessable value; deduction is allowable in favour of the assessee.Final Conclusion: The appeals are allowed in part by disallowing deduction for damage-related discounts and dismissed in part by upholding deduction for bank collection charges; overall effect is a partial success for Revenue on the damage-discount issue and a partial success for the assessee on bank charges.Ratio Decidendi: Compensation or allowance for goods damaged after removal is not a trade discount under Section 4(4)(d)(ii) and cannot be excluded from the assessable value, whereas bank collection charges arising post-removal are post-manufacturing expenses excludible from the assessable value under Section 4.