TaxTMI 
TaxTMI 
1986 (9) TMI 317
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....e history of the case is somewhat long and complex, it would be helpful to set out the salient facts. 3.  The appellants are manufacturers of auto lamps. The goods manufactured by them are sold partly to their 4 distributors, partly to industrial consumers and independent buyers, and partly to M/s. Mico and Caltex (Goods in the last category are sold under the brand name "Mico" and "Caltex"). 4.  It may be mentioned at the outset that the scope of the present controversy is in a very narrow compass. It is as regards the admissible discount on goods sold by the appellants to their distributors (there being two different rates of discount). 5.  Some material dates in regard to the case are set out below :- 7-8-1978 Appellants filed the Revision Application which is now before the Tribunal. 12-8-1978 Show-cause notice in pursuance of Second Order-in-Appeal issued, alleging short-levy or Rs. 75,511 + Rs. 8,647.51. 31-1-1979 Show-cause notice issued by Government of India under Section 36(2), proposing to revise the Second Order-in-Appeal on the ground that the distributor were favoured buyers and the discount allowed to them was not admissible.....
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....der-in-Appeal has in its turn been set aside and no Fourth Order-in-Original has been issued so far. Therefore the appellants' revision application against the Second Order-in-Appeal dated 14-2-78 remains to be decided. [In the preamble to the orders by the two learned Members, it has been erroneously mentioned that the appeal arises out of the Order-in-Appeal dated 19-12-1983 passed by the Collector (Appeals), New Delhi.] 8.  In the Second Order-in-Appeal dated 14-2-78, giving rise to the present appeal, there were two decisions, one as regards the discount admissible on sales to the 4 distributors and the other as regards the assessable values of goods sold to M/s. Mico and Caltex. As regards the second question, both the learned Members are agreed that the assessable values would be the prices of sales to M/s. Mico or Caltex, as the case might be, and not the prices at which they subsequently sold the goods. This question therefore stands decided by the Bench and does not form part of the reference to me. The reference is confined to the question regarding the discount admissible on sales to the 4 distributors, on which the two learned Members have differed. The question....
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....re me. In addition he sought to advance yet a third plea. This was that the discount allowed on the major value of transactions (which according to him was 35.57%) should be allowed. It was pointed out to Shri Jain that at this stage the question was only of deciding between the views expressed by the two learned Members on the basis of the pleas advanced before them, and it was not permissible to introduce an entirely fresh plea. Shri Jain was also asked which of the two pleas placed before the Bench represented the relief sought by the appellants - whether they sought the maximum discount allowed by them to any distributor to be applied to their sales to all their distributors, or whether they sought acceptance of the discount allowed in each case. Shri Jain stated that these were alternative arguments, and both should be considered. Finally, however, he submitted that I should endorse the view of the learned Technical Member, which is that the discount actually allowed to each distributor should be admitted. 13.  In support of his argument that the wholesale cash price at the place nearest to the factory should be adopted. Shri Jain referred to the Assistant Collector's ....
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....tor of Central Excise, Kanpur, decided by the Tribunal [1986 (25) E.L.T. 79 (Tribunal) = 1985 (6) E.T.R. 132] Shri Jain referred to Para 15 of the Tribunal's order where the learned S.D.R. was recorded as having contended that for admissibility for abatement of duty, a discount should be allowed on uniform basis to all buyers. According to Shri Jain, the Tribunal's decision in this case "did not take this submission into account". Accordingly, the Tribunal should be taken as having rejected this submission. (e) Malwa Vanaspati &: Chemical Co. Ltd. v. Appellate Collector of Central Excise and Customs, New Delhi, decided by the Tribunal [1984 (17) E.L.T.395]. In Paras 2 and 3 of the Tribunal's order reference had been made to the judgment, dated 14/15 November, 1983 of the Hon'ble Supreme Court, clarifying certain points arising out of the Supreme Court's main judgment in the case of Bombay Tyre International etc. (1983 E.L.T. 1896). It had been held by the Tribunal that for a reduction to qualify to be treated as a trade discount what was material was the established practice of the trade, and mere nomenclature was not material. 16.  After referring to these authorities i....
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....not in issue. In the first place the Government of India, in pursuance of the review show-cause notice under Section 36(2), had clearly held that the distributors could not be regarded as favoured buyers. Secondly, neither of the two learned Members who earlier heard this appeal found any reason for objecting to the discounts per se. Shri Doiphode submitted that the review show-cause notice issued by Government was on the basis that assessment should be on the prices at which the distributors sold the goods to wholesale dealers. That was no the case of the Department before the Tribunal. 20.  Shri Doiphode disputed the contention of Shri Jain that there was no wholesale market at the factory gate. He submitted that this was nowhere on the record. On the contrary, since all the goods were sold direct from the factory, there could be said to be a wholesale cash price at the factory gate. In this connection he referred to the judgment of the Supreme Court in the case of A.K. Roy and Another v. Voltas Limited (1977 E.L.T. 177). He referred to Para 9 of this judgment wherein the Supreme Court had explained that a wholesale market does not always mean that there should be an actu....
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....imum of the discounts allowed. He submitted that the facts were similar to those in the present case and therefore the ratio of that order would apply to the present case. 25.  Shri Doiphode then referred to the order of the Tribunal in the case of Premier Automobiles Ltd. v. Collector of Central Excise, Bombay [1985 (20) E.L.T. 156]. There the question was whether payment for after-sales service could be regarded as a trade discount, and it was held that it could not. (This order does not appear to have much relevance to the present case). 26.  Shri Doiphode then cited the order of the Tribunal in the case of Dharampur Leather Cloth Private Ltd., Gujarat v. Collector of Central Excise, Baroda, reported in 1986 (25) E.L.T. 445. In Para 11 of this order the Tribunal, relying on a judgment of the Madras High Court (no reference given) observed that different prices charged to different customers could be accepted if they were based on rational commercial basis. However, in the case before the Tribunal it was held that the appellants had not been able to establish that the differentiation was on some rational commercial basis. On the same analogy in the present case th....
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....ranted to the distributors were vitiated by any special relationship has been pronounced upon by the Government of India, in their order, dated 5-5-1982, discharging the show-cause notice. It has also been raised by the two learned Members, who have implicitly held that the discounts were not so vitiated. The only question is which rate of discount should be accepted, in a case where there are varying rates. In view of this it is not necessary to consider the arguments advanced by Shri Doiphode against the admissibility of the discounts, on the ground of extra-commercial considerations etc. 32.  The main question for consideration is whether varying assessable value to different customers in one and the same class of buyers (distributors in this case) would be acceptable in terms of Section 4 at the material time. Though the questions posed to me refer to varying discounts, I would prefer to discuss them in terms of varying prices or varying assessable values, these lase being what ultimately have to be decided. (Discounts, prices and values are of course inter-related). 33.  A number of authorities in this regard have been cited. For the reasons which follow, it ap....
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....ided the grant of 15% discount "so long as such or higher discount is actually being granted uniformly, on all the sales in wholesale lots" to the distributors, sub-dealers etc. by the sole-selling agents". (This direction seems to have been misunderstood or misapplied by the lower Central Excise authorities). The emphasis in the judgment is on sales to wholesale dealers and distributors, where the discount given was 15%. It is also recorded that the manufacturers allowed 18-1/2% discount to their sole selling agents, who in turn allowed 15% discount to dealers and distributors: in regard to these sales the manufacturers claimed abatement of only 15%. In the judgment, particularly Para 31, the points made are that (1) it is the wholesale price that has to be determined for the purpose of levying excise duty and not the retail price; (2) trade discount is bound to vary, because of larger quantities being taken or for other reasons; (3) a 15% deduction had been given to wholesale dealers and that was the material factor to be taken into account for determining the wholesale cash price and consequently the assessable value. The final order of the High Court is to confirm the amounts a....
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....igh Court [1986 (24) E.L.T. 269]. The facts in the above case appear to be different from those in the case before me. It appears that the manufacturers were allowing a trade discount of 4% plus a cash discount of 3%, and this was initially accepted by the Excise authorities. Subsequently however, the acceptance was withdrawn, on the ground that the discounts were not uniformly given. Although the facts are not quite clear, it appears that in some cases the discount was not allowed at the time of clearance, but allowed subsequently in the form of credit notes and it was on this basis that the Excise authorities took the view that the discount was not uniformly given. This objection was held by the High Court to be not justified. Obviously these facts and circumstances have no bearing on the present case. However, citing this judgment of the Madras High Court, the learned advocate for the appellants drew particular attention to the observations made therein regarding the observations of the Hon'ble Supreme Court in the case of Voltas Limited. The Supreme Court is said to have held in that case that the trade discount need not be uniform and that a deduction could be permitted in rel....
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....erent prices to the same class of consumers under the same conditions were acceptable in terms of the unamended Section 4. I shall now take up the cases cited against this proposition :- (a) Shyam Glass Works v. Inspector of Central Excise, Sasni, decided by Allahabad High Court (1979 E.L.T. 460). In this case one rate of discount was allowed to buyers in Uttar Pradesh and another to buyers outside Uttar Pradesh. The brief judgment does not make it clear on what considerations the differentiation was based, and whether those could be considered as "extra-commercial". The Allahabad High Court observed that the petitioner was clearly not entitled to the deduction of discount given to the customers in a manner which was not uniform. No specific authority from previous decisions was cited. This judgment was specifically referred to by the Gujarat High Court in its judgment in the case of Gujarat State Fertilizers Company Ltd. [para 36(b) above]. The Hon'ble Gujarat High Court expressed its disagreement with the view taken by the Hon'ble Allahabad High Court. It also observed that the Allahabad High Court had not given any reasons for reaching its conclusion, and that was sufficient ....
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....tself. The relevant part of this Section read as under :- "Where under this Act, any article is chargeable with duty at a rate dependant on the value of the articles, such value shall be deemed to be - (a) the wholesale cash price for which an article of the like kind and quality is sold or is capable of being sold.....". It will be seen that what constitutes the value is "the wholesale cash price". It is not "any price" but "the price". The use of the definite article "the" would, by common usage, indicate that the reference is to a single price and not to a multiplicity of prices, such as would have been implied if the wording had been "any wholesale cash price". Again, in the alternative clause (b), the reference is to "the price". 41.  Secondly, and more important, acceptance of a multiplicity of assessable values under the same conditions would cut at the very basis of the Self Removal Procedure, which is set out in Chapter VIIA of the rules made under the Act. The core of the Self Removal Procedure is that an assessee can assess his goods himself, pay duty and remove them, on the basis of the value and rate of duty approved by the proper officer. Rule 173C pr....
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....Rule 173C, would lose much of their purpose. 44.  Therefore, having regard to the precedents referred to in Para 37, the wording of Section 4, and the Self Removal Procedure and the statutory rules on which it is based, I am of the view that for the same goods under the same conditions (which would include the same class of buyers) only one assessable value would be acceptable. It would thus follow that varying discounts, leading to varying assessable values, would not be acceptable. The first question raised for my consideration is answered accordingly. 45.  As regards the second question, where the discounts vary, the actual discount in each transaction obviously cannot be accepted, in view of the answer to the first question. The choice, in terms of the second question, would, therefore, lie between the maximum discount and the minimum discount : which I would prefer to put as between the minimum net price and the maximum net price. Having regard to the precedent cited, namely the decision of the Tribunal in the Standard Autoparts case with which I am in respectful agreement, I would hold that in these circumstances what is admissible is the minimum discount, whi....
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....ured for others like M/s. Mico. That value will have to be the price at which the goods are sold to the brand name owners and not the price at which they themselves sell them to their customers. The Appeal in so far it relates to varying discounts allowed on normal commercial considerations to different customers in one and the same class of buyers, is dismissed. It is held that it is only the minimum of such discounts that is to be excluded in the computation of the assessable value, thus confirming the order of the Appellate Collector in this regard. Sd/- Sd/- (K. Prakash Anand) (M. Gouri Sankara Murthy) Member (Technical) Member (Judicial) New Delhi Dated : 30.9.1986 EDITOR'S COMMENTS The Supreme Court in the case of Atic Industries Ltd. v. H.H. Dave -1978 E.L.T. (J444) (SC)- has propounded that where different trade discounts have been allowed to different wholesale buyers, the lower trade discount given to one of them cannot be made the basis for working assessable value of the other. A somewhat similar view has been taken by the Karnataka High Court in the case of State of Karnataka v. Union of India -1978 E.L.T. (J564) and....