TaxTMI 
TaxTMI 
1994 (5) TMI 105
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.... price list filed under Rule 173C. Once the dealer achieve the turnover in terms of the agreement, the company pays the discount at the agreed rate on the turnover in the form of credit notes. 2. In the case of additional discounts, the assessee has been granting these discounts in addition to trade discount for certain categories of tools in certain regions where the market conditions are poor to enable the dealers to increase the sales of such types of tools. The quantum of additional discount is also made known to all the wholesale dealers of the assessee and the agreements are entered into with the dealers at the beginning of the year and the relevant declarations are also made in the price lists. 3. After the amendment of Section 4 of the Central Excises & Salt Act, 1944 w.e.f. 1-10-1975, the issue relating to the determination of the assessable value was the subject matter of a Writ Petition No. 141/79 in the High Court of Madras. Following the judgment of the Supreme Court in Bombay Tyre International reported in 1983 (14) E.L.T. 1896, the High Court remanded the matter to the Asstt. Collector to adjudicate de novo in the light of the judgment of the Supreme ....
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....unt is a part of selling expenses. In support of the above propositions, he relied on the following orders and judgments: Orient General Industries v. C.C.E. - 1985 (21) E.L.T. 326, R.R. Paints v. C.C.E. - 1987 (28) E.L.T. 478, India Pistons v. State of Tamil Nadu - 33 STC 472. 9. Shri Prabhat Kumar elaborating his arguments submitted that the turnover discount varies from region to region and depends upon the volume of sale. It is distinguishable from cash discount in the sense that cash discount is given for prompt payment of sale price and there is an element of certainty, whereas in the case of turnover discount and additional discount. There is no certainty, that these discounts are in the nature of an incentives to promote sales of the manufactured goods. The quantity can be ascertained only at the end of the year and the element of quick payment is not there. It is in the nature of an additional consideration to the dealer. His further argument is that the turnover discount on the facts and circumstances of this case is given as an incentive to increase the sales. It is contingent upon completing a fixed target of purchases. If the dealer does not lift so much of the....
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....oods increases when marketed through reputed companies, firms or the individual dealers, correspondingly the business of manufacturer or wholesaler becomes more and more prosperous. The object of trade discount is to promote one's own trade. Referring to the nature of the turnover discount and the additional discount, the ld. counsel submitted that these are given in the normal course of trade and no portion of it is refundable to the assessee. It is a percentage reduction from the list price as can be seen from the agreements entered into between the assessee and the wholesale dealers from time to time. The nature and allowance of the discount is known prior to the removal of goods. It is a normal and established trade practice in the business of cutting tools. They are known only as discounts. His further submission is that the nature of the discount has been considered and allowed by the Asstt. Collector in his order dated 11-6-1985 and he categorically observed that these discounts are being given to dealers in the normal trade practice during the course of business and these discounts are given to them by way of credit notes and sale is being adjusted against the subsequent sa....
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....the year and treated as a reserve from which the distributors could draw to make further purchases. The Madras High Court rejecting the claim of the assessee for deduction of this rebate from the turnover held that discount given by the assessee cannot be called a cash discount so as to claim as a deduction from the turnover. While holding as above, the Madras High Court approved the judgments of the Allahabad High Court in Baidya Nath Ayurved Bhawan (P) Ltd. v. Commissioner of Sales Tax - 1970 (26) STC 171 and the judgment of the Madras High Court in State of Madras v. Jeevanlal Ltd. - 1973 (32) STC 649. His argument is that the discount structure in the Baidyanath Ayurved Bhawan case was identical to the discount granted by assessee and therefore, the principle laid down in the judgment of the Allahabad High Court in Baidyanath Ayurved should be extended to the assessee's case. He further pointed out that the Madras High Court in Jeevanlal's case has referred to with approval the judgment of the Baidyanath Ayurved Bhawan. Therefore, the assessee is entitled to the allowance of turnover discount as well as additional discount. He also pointed out that the reliance placed by the....
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....on the judgment of the Supreme Court in M.R.F. Ltd. which is under review. 16. The next question would be whether this tribunal should await the decision of the Supreme Court in M.R.F. case. We have heard Shri Prabhat Kumar and the ld. counsel on this issue and after hearing the arguments and looking into various authorities relied upon by the ld. counsel, we are of the view that we can proceed with the appeals as there is sufficient material available in order to decide the issue one way or the other. 16(a) Section 4 provides for the determination of the assessable value and the relevant portion reads as follows : Section 4. Valuation of excisable goods for purposes of charging of duty of excise. - (1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value, shall, subject to the other provisions of this section, be deemed to be - (a) the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole co....
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....ccording to the assessee, turnover discount is granted to wholesale dealers on the basis of turnover achieved by the dealer on a slab basis in terms of percentage and the nature of allowance of discount or already made known to the wholesale dealers by means of relevant policies which are signed by the dealers at the commencement of the year and are reflected in the price lists. Once the dealer achieves the turnover in terms of the agreement, the assessee pays the agreed rate on the turnover in the form of credit notes which are passed on then and there. We are taking up the policy for April, 1988 to March, 1989 as an illustration and the relevant policy reads as follows : "ANNUAL TURNOVER POLICY FOR ALL TYPES OF STANDARD CUTTING TOOLS (Period: April, 1988 to March, 1989) Applicable for the Dealers covered by : DELHI CITY Turnover Slabs on Gross Value Turnover Discount on Gross Value Above Upto -- 4.20 Nil 4.20 8.50 2.0% 8.50 12.00 3.0% 12.00 18.70 4.0% 18.70 24.80 5.0 The Policy as against turnover discount says as follows : "Turnover discount is given in addition to trade discount. The rate ....
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....of the year. 21A. Having examined the nature of discount given by the appellant, let us examine the position of law under Section 4 of the Central Excises Act. 22. As stated earlier, the assessable value under Section 4 is the price at which the goods are sold in the normal course of trade etc. minus the trade discount. We have already referred to, that the expression `trade discount' has not been defined in the Act and according to the interpretation, it is the catalogue price minus the manufacturer's sale price. We may now refer to the interpretation given by the Supreme Court and various High Courts and this Tribunal as to the meaning of trade discount. The earliest decision is the judgment of the Supreme Court in Dy. Commissioner of Sales Tax v. Advani Oerlikons - (supra). The facts in brief are as follows : The assessee charged the retailers the catalogue price less the trade discount. The catalogue price is the price which the retailer is entitled to charge the customer. The return filed under the Sales Tax Act for the year 1971-72 showed a taxable turnover of sales amounting to Rs. 8,71,624 which excluded the amount of Rs. 1,06,708/- paid as discount by th....
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....h are relevant are that the respondents were marketing their goods through its main distributors (purchasers) namely, the TVS group of companies which constituted a prestigious group of commercial concerns. The assessee was giving discount over and above the normal trade discount in consideration of the extra benefit derived by them by reason of the marketing of its goods through them. The said discount was given in accordance with the trade agreement. The assessee claimed deduction of these discounts. The Asstt. Sales Tax Commissioner disallowed the same. On appeal, the Dy. Commissioner of Sales Tax allowed the deduction of discount from the turnover. The Department having failed in revision and also before the High Court appealed to the Supreme Court by way of special leave. The main contention of the Department before the Supreme Court was that the said additional discount allowed by the assessee could not strictly be termed as discount as it was in lieu of services rendered by its main distributors by way of popularisation of sales and consumption of the products sold by the assessee. Rejecting the said contention, the Supreme Court held that "ordinarily any concession shown in....
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....ales Tax disallowed the claim of the appellants for deduction of the discount paid on the total turnover from the taxable turnover. The High Court while setting aside the order of the ld. Judge (Revisions) Sales Tax held that "a deductible discount can be in cash or even in kind provided it is allowed on sale price. The motive of the dealer in giving a discount to a customer has not been defined. The legislature considered it immaterial as to what impels a dealer to pay a discount to a customer. Whatever may the reason motivating a dealer to pay a discount, it would be deductible provided it is paid on sale price. It is thus immaterial whether a dealer pays something to a customer as an inducement for prompt payment of the sale price or with a view to push up his own sales or with a view to get better of his competition in the trade. It was further held that the Additional Judge (Revisions) was in error in emphasising that the assessee was paying the annuity as a kind of reward to the customers to make heavy purchases. It was also held that the ld. Judge (Revisions) was in error in holding that since the annuity was paid not immediately the price is paid, but at the end of the year....
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....must be taken that it was aware of the normal trade practice in commercial circles of giving cash or other discount." 27. We may point out that the above decisions arose under various Sales Tax Acts. The decision in Advani Oerlikons arose under the Central Sales Tax Act, whereas the decision in Madras Motors, Baidyanath Ayurved Bhawan, Jeevan Lal arose under the General Sales Tax Act of Kerala, U.P. and Madras. In the case of Central Act the expression 'sale price' is defined by excluding the `cash discount' whereas, the State Act defines `sale price' by excluding `cash or any other discount'. The Supreme Court in Advani Oerlikons having regard to the definition of sale price under the Central Act providing for excluding of `cash discount' observed that trade discount existed prior to the definition of `sale price'. In other words, the definition of sale price under the Central Act is after the deduction of trade discount. Whereas in the various Sales Tax Acts the `sale price' is defined by excluding not only `cash discount' but also any other discount. Therefore, the necessity for deduction of not only cash but any other discount from the sale price. The reason is obvious,....
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....enging the order of the Govt. of India confirming the orders passed by the Departmental authorities. 29. The High Court following the judgment of the Supreme Court in the case of Voltas Ltd. - 1977 (1) E.L.T. (J177) and the judgment in Bombay Tyre International case allowed the trade discount. The next decision to be considered is the judgment of the Bombay High Court in Jenson & Nicholson (India) Ltd. v. U.O.I. - 1984 (17) E.L.T. 4 (Bom.) The facts in brief are : In the price list, the petitioner claimed 10% trade discount as deduction. On appeal, the Collector allowed only 4% cash discount in respect of sales made by it. Since the petitioner is aggrieved by the order of the Collector he filed a revision before the Revisional authority. The matter ultimately went upto the High Court. The argument before the High Court was that discount which is not actually availed by the buyers would not be deducted while arriving at the wholesale cash price for the purpose of levying the excise duty. The Department contended that a mere clause is inserted in the price list that certain amount of discount is allowed if payment is made in cash, and in actually it may happen that none of....
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....consumers/dealers was based on legitimate commercial consideration of volume of purchases, we have no hesitation in holding that the actual discount as given to the respective consumer/dealer should be accepted. 31. The observations of the Supreme Court in Bombay Tyre International have already been referred to by us. 32. From the judgments under the Central Excise Act referred to above, it follows that the discount given on the volume of purchases is an allowable deduction. Secondly that no distinction is drawn between the cash discount and trade discount as long as it is indicated in the price list, under the terms of sale or agreement provided the allowance and the nature of discount is known at or prior to the removal of the goods. The indication given in the price list pro- viding for payment of a particular discount appears to have been taken as one of the criteria to show that discount is made known prior to the removal of the goods. If it is indicated in the price list, it is taken that the purchasers are aware of the said discount depending upon when the payment of the price is made. 33. Let us now examine the cases relied upon by Shri Prabhat Kumar. The....
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....olesale cash price is to be determined at the time of removal of goods and since the amount is paid at the end of the year, the price paid at the time of removal of goods is not reduced, we may point out at the outset that the above order arose under Section 4 before the amendment in 1975. The reason given by the Tribunal since the discount was not paid at the time of removal of goods and therefore, there is no reduction in price appears to be inconsistent with ratio laid down by the judgment of the Allahabad High Court in Sri Baidyanath Ayurved Bhawan's case and the judgment of the Madras High Court in Jeewanlal's case and also the judgment of the Supreme Court in Bombay Tyre International. The Allahabad High Court held that the fact that annuity is paid not immediately the price is paid, but at the end of the year does not make it a deduction not permissible. "The only condition before a payment is excluded from the turnover is that it should be a payment in cash or in kind and it must be allowed on the price of any sale." The Madras High Court following the judgment of Baidyanath Ayurved Bhawan also refused to restrict the interpretation of sale price so as to cover only those d....
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....ined after the close of the agreed period. The scheme of discount provided is - that the amount allowed as discount to each of the distributors is credited to their accounts, (which are maintained on mercantile basis) at the end of the year and it is treated only as a reserve which distributor can draw to make future purchases. 35B. It was held that since bonus discount is treated as a credit reserve for making future purchases, it does not go to reduce the sale price already agreed or paid for during the period. Another reason given by the Learned Judges is that the bonus discount is not refunded to the distributor. They distinguished the judgment of Allahabad High Court in Baidyanath Ayurved Bhavan on the ground that the cash payment was made in the said case whereas in the instant case only credit note is given. While holding as above, the Learned Judges referred to with approval the judgment of the Allahabad High Court in Baidyanath Ayurved Bhavan and the judgment of Madras High Court in Jeewan Lal's case (in fact, Mr. Justice Ramanujam and Mr. Justice Ramaswami are the judges in Jeewanlal's case). According to the Learned Judges, credit notes are given to the distribut....
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.... payment contingent upon exceeding a particular turnover cannot be allowed as a deduction is rejected in the light of the judgment of the Allahabad High Court in Baidyanath Ayurved Bhawan's case. 37. The above analysis makes it clear that the order of this Tribunal in Orient General Industries - (supra) is inconsistent with the views expressed by the two High Courts namely, Allahabad and Madras High Court and the judgment of the Supreme Court in Bombay Tyre International. Therefore, we are of the view that it is wrongly decided. 38. We may now consider the arguments of Shri Prabhat Kumar that the discount in the instant case is given as an incentive bonus and to promote the sales of the manufacturer and the element of quick payment is not there and it is distinguishable from the cash discount which is given for prompt payment and there is an uncertainty, therefore, it is not known at the time of removal of goods. 39. According to Allahabad High Court in Baidyanath Ayurved Bhawan's case, it is immaterial whether a dealer pays something to a customer as an in- ducement for prompt payment of the sale price or with a view to push up his own sales or with a view ....
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....promote one's own sales is a reasonable commercial consideration and trade discount given to promote one's own sales is a permissible deduction provided it is based on sale price. The fact that the trade discount is paid at the end of the year and not paid immediately at the time of removal of goods or in the invoice is not material as long as it reduces the sale price. The fact that it is contingent on the purchase of increased turnover and the amount can be ascertained only at the end of the year does not make any difference as long as the purchaser knows that if he purchases so much quantity of goods, he would be getting a particular percentage of discount at the end of the year. The expression trade discount under the explanation to Section 4 is wider and includes not only cash discount but any discount given on the sale price for commercial consideration. Discount given on the volume of sales is a valid commercial consideration and is a permissible deduction. 41A. In the light of the above, let us now examine the facts of this case. Let us first take up the turnover discount. According to the policy extracted above, it is filed alongwith the price list and the dealer h....
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....V. Maruthi. With respect, I am unable to agree for the following reasons :- 44. The issue that has arisen for decision in these appeals is whether turnover discount and additional discount offered by the assessees to their wholesale dealers can be deemed as admissible deductions in terms of Section 4(4)(d)(ii) of the Central Excises and Salt Act, 1944. According to the appellants the turnover discount is granted periodically in the form of credit notes as a percentage of the turnover achieved in accordance with the sales policy intima- ted by the appellants to their wholesale dealers at the commencement of each year. The additional discount on the other hand is granted by assessee over and above the normal trade discount in respect of selected categories of goods to dealers in certain regions where the market conditions are poor to enable them to increase their sales. The quantum of additional discount is also made known by the assessee to the concerned dealers at the beginning of the year. 45. The appellants case is that both turnover and additional discounts being in the nature of percentage deductions from the price list in accordance with agreements entered into....
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....ingent in nature and dependent upon the basis of the purchased turnover or performance. In the case of S.S. Miranda Ltd. v. U.O.I. reported in 1990 (47) E.L.T. 553 the Bombay High Court on the basis of the Supreme Court's clarificatory order reported in 1984 (17) E.L.T. 329 has also held that `Incentives or Rebates' not known at or prior to the time of removal of goods but contingent upon customers purchasing a particular quota and during particular period would not be deductible as trade discount from the sale price in terms of Section 4(4)(d)(ii) of the Central Excises and Salt Act, 1944. Para 6 from the said judgment is reproduced below :- "6. I find much substance in the contentions raised on behalf of the Respondents. Section 4(d)(ii) of the Central Excises and Salt Act, 1944 states that "value" in relation to any exisable goods does not include the amount of the duty of excise, sales tax and other taxes, if any, payable on such goods and, subject to such rules as may be made, the trade discount (such discount not being refundable on any account whatsoever) allowed in accordance with the normal practice of the wholesale trade at the time of removal in respect of such g....
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....ir fulfilling certain target within a specific period. Both the availability of the incentive as well as its quantum were contingent upon the customers' purchasing a particular quota and during a particular period. If they failed to complete the specified quota during the specific period, they were not entitled to any discount at all. In other words the incentive was not as a matter of course accompanying each purchase. It was more in the nature of a contingent benefit. It could hardly be described as a trade discount. That it was not a discount allowed in accordance with the normal practice of the wholesale trade at the time of removal of the goods is patent on the face of the said scheme itself. Both the circulars did not make a secret of the fact that they were both surprise and incentive schemes. The contents of the circulars themselves show that neither the factum of the incentive nor its quantum was known in advance for a major part of the period. Nor was the quantum known to the purchasers at the time of clearing their individual purchases during the rest of the period. At best this was a profit sharing scheme between the Petitioners and their customers on the customers reac....
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....om the assessee. (iv) Final adjustment of the discount is made either after attainment of the turnover or at the end of the year. (v) It was also admitted by the assessee's counsel on instructions during the course of hearing that if a particular dealer fails to achieve the expected turnover, on the basis of which he has been given advance 50% of the turnover discount, duty has been paid by the assessee and question of claiming any such discount as a deduction from the price does not arise. 52. Policy regarding additional discount is not at all clear. It cannot be said whether the nature of discount or its allowance is at all known to the dealers at the time of, or before removal of the excisable goods from the factory. 53. In view of the above factual setting, let me set out the provisions of law and ruling, if any, of the Supreme Court on the subject. Section 4 of the Central Excises & Salt Act, 1944 and the rules made thereunder lay down the method of determining the value of excisable goods for the purpose of assessment of duty where duty is chargeable on ad valorem basis. 53.1 Provisions of sub-section (4)(d)(ii) of Section 4 read as follows....
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....similar strain is the reasoning of the Tribunal in R.R. Paints, even though Supreme Court's judgment in the case of MRF on which R.R. Paints is based has been recalled. Recall of MRF's judgment by the Apex Court on a Review Petition cannot take away the reasoning in R.R. Paints leading to inadmissibility of the discount. Learned Single Judge in S.S. Miranda also adopts the same reasoning in disallowing `Surprising Incentive Rebate'. 55. Learned advocate, Shri Anil B. Divan for the assessee has however, relied on the following judgments :- (i) Baidyanath Ayurved Bhavan v. Commissioner of Sales Tax [1970 (26) STC 171 (Allahabad HC)] (ii) State of Madras v. Jeevanlal [1973 (32) STC 649] (iii) Ramdas Motor Transport Ltd. v. Collector [1988 (36) E.L.T. 629] (iv) D.C Sales Tax v. Motor Industries [1983 (53) E.L.T. 48] (v)  Jenson & Nicholson (India) Ltd. v. U.O.I. [1984 (17) E.L.T. 4 (Bom.)] (vi) Goodlass Nerolac [1993 (65) E.L.T. 186] 55.1 Learned advocate for the assessee on the other hand, supports the view taken by the learned Judicial Member. He has submitted that, Tribunal in Orient General based itself on Madras High Court's judgment in Indi....
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....me of Central Excise duty under the CE & SA, 1944 and the rules made thereunder. Turnover tax is determined on the aggregate sales during the year after allowing cash and other discounts. This is apparent from the following extracts from the judgments in the case of Baidyanath by Allahabad High Court and in the case of Jeevanlal by Madras High Court :- From Baidyanath's case "Under the U.P. Sales Tax Act, sales tax is payable by a dealer on the turnover. The term `turnover' has been defined in section 2(i) of the Act to mean the aggregate amount for which goods are supplied by way of sale by a dealer. Clause (ii) of its second explanation runs as follows :- `any cash or orther discount on the price allowed in respect of any sale........... shall not be included in the turnover. .............................. `any sale' would not, in our opinion, mean an individual sale. It will include any aggregate of sales" . [Emphasis supplied] From Jeevanlal's case ". . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Explanation (2) to section 2(r) of the Act, in so far as it is relevant, is set out below : `Subject to such conditions and restrictions, ....
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....ale. It is well-known that a scheme of discount adopted by commercial circles is normally of two types - cash discount and trade discount - and a discount normally denotes a deduction from the amount due as price of goods in consideration of its being paid promptly or in advance. Trade discount is the one allowed to a customer if he places an order for a certain amount or quantity or more. Such a discount is given to encourage a buyer to buy more at a time or within a period of time. When the Legislature has specifically used the words `cash or other discount', it must be taken that it was aware of the normal trade practice in commercial circles of giving cash or other discounts." [Emphasis supplied] 56.1 Scheme of collection of the Central Excise duty is at the time of removal of the goods from the factory. It is for this reason that Section 4(l)(a) envisages valuation of excisable goods at the time of removal of goods. Section 4(4)(d)(ii), as already extracted, also envisages trade discount allowed at the time of removal of goods. It is ostensibly for this reason that the Apex Court has laid down in its clarificatory order reported in 1984 (17) E.L.T. 329 (supra) that ....
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...."? In Chamber's Twentieth Century Dictionary, `allowance' means : that which is allowed; a limited portion or amount allowed, allotted, granted; a ration or stint; money allowed to meet expenses or in consideration of special conditions; abatement, a sum periodically granted; a taking into account in calculation or excuse. All the relevant meanings of the word `allowance' imply a fixed sum or money for various considerations. Apex Court, therefore, meant determination of a fixed sum of discount known at or prior to the removal of the goods for reduction from the price. 59. Learned Advocate for the assessee's reliance on National Radio (supra) no doubt at first blush tends to support him. Assessee therein, in pursuance of a format order passed on Dec. 1993 consequent to decision of the Supreme Court in Bombay Tyres International [1983 (14) E.L.T. 1896] claimed, inter alia, `bonus to dealers', as a post-manufacturing expense. The Assistant Collector determined the revised assessable value without abatement of post-manufacturing expenses as claimed by the assessee [c.f. para 2 of 67 E.L.T. 232]. The Assistant Collector declined to accept the claim for deduction on account of `....
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....rt in Jenson & Nicholson (supra) wherein para 15 of the said Report, in the context of cash discount, Division Bench in Jenson & Nicholson observed : "In our opinion the nature and the extent of the discount allowable is known and ascertainable prior to the removal of the goods". `Extent of the discount', in my view, means the quantum of discount and not the rate of discount. The word `extent' in Chamber's Twentieth Century Dictionary means :- (i) the space or degree to which a thing is expanded; bulk; compass : scope : degree or amount (as to some extent) : a stretch or extended space : a valuation of property : (law) a writ directing the shessif to seize the property of a debtor, for the recovery of debts of record due to the Crown. Therefore the most relevant meaning of the word `extent' in the expression "extent of the discount" would be the "degree" or "amount" of discount and not just the rate of discount. It is also to be noted that Jenson & Nicholson does not appear to have been brought to the notice of the Bench deciding National Radio. 59.2 Learned Single Judge of the Bombay High Court in S.S. Miranda (supra) relied upon by my learned Brother, Shri P.K. Ka....