1995 (1) TMI 380 - SC - Central Excise

Whether the proviso to Section 4(1)(a) can be made applicable after taking out the consideration of interest free advance made by Ponds (I) Limited to the appellant? Held that - Tribunal was in error in taking the view that as trade discount was uniformly not given to all its customers by the assessee, it was not a permissible deduction and it had to be reloaded in the price of the excisable goods. We, therefore, accept the last contention. In the result these appeals are partly allowed, the order of the Tribunal will stand confirmed insofar as period of limitation applicable herein and reloading of the purchase price by the notional value of interest on advances made by wholesale buyer Ponds (I) Limited to the assessee is concerned and to that extent Assistant Collector s order will stand untouched. However, to the extent of the disallowance of the trade discount offered to the wholesale buyers Ponds (I) Limited by the assessee, the decision of the Tribunal is set aside and accordingly the original order passed by the Assistant Collector to that effect will also stand set aside. In the facts and circumstances of the case, there will be no order as to costs.

Summary

Issues Involved:

1. Invocation of the extended period of limitation under the proviso to Section 11A of the Central Excises & Salt Act, 1944.
2. Inclusion of notional interest on advances made by Ponds (I) Limited in the assessable value.
3. Deduction of trade discounts from the gross price for determining the assessable value.

Issue-wise Detailed Analysis:

Issue 1: Invocation of the Extended Period of Limitation

The appellant argued that the proceedings invoking the extended period of five years under the proviso to Section 11A of the Act were misconceived, asserting that only a shorter period of limitation was available to the Department. The Department invoked the proviso on the grounds of suppression of material facts by the appellant, specifically the non-disclosure of interest-free advances from Ponds (I) Limited. The Tribunal found that the appellant had indeed suppressed these material facts, which justified the invocation of the extended period of limitation. The Supreme Court concurred with the Tribunal's finding, holding that the longer period of limitation was applicable due to the willful suppression of relevant facts by the assessee. Consequently, contention No. 1 was rejected.

Issue 2: Inclusion of Notional Interest on Advances

The appellant contended that the Tribunal erred in law by allowing the Department's appeal and restoring the loading of the purchase price by the notional interest on advances made by Ponds (I) Limited. The Tribunal noted that Ponds (I) Limited, a major buyer of the appellant's goods, had advanced large sums of money interest-free to the appellant. The Tribunal held that these interest-free advances had a direct impact on the purchase price, as the appellant would have incurred significant interest costs if it had borrowed these amounts from other sources. Therefore, the notional interest on these advances was to be added to the price declared by the assessee to determine the normal price of the goods. The Supreme Court upheld the Tribunal's decision, stating that the special treatment given to Ponds (I) Limited due to the interest-free advances necessitated the reloading of the price to reflect the true value of the goods sold. Consequently, contention No. 2 was also rejected.

Issue 3: Deduction of Trade Discounts

The appellant argued that the Tribunal erred in rejecting the deduction of trade discounts given to Ponds (I) Limited from the gross price. The Tribunal had disallowed the deduction of trade discounts on the grounds that they were not uniformly given to all customers. The Supreme Court, however, found merit in the appellant's contention. It noted that Ponds (I) Limited, which purchased 90% of the appellant's goods, was almost a wholesale buyer. The Court held that a special trade discount given to such a significant buyer could not be considered contrary to normal trade practice, even if it was not uniformly given to all customers. The Court referred to Section 4(4)(d)(ii) of the Act, which allows for the deduction of trade discounts in accordance with normal wholesale trade practices. The Court concluded that the trade discount given to Ponds (I) Limited was permissible and should be deducted from the assessable value. Consequently, the Tribunal's decision to disallow the trade discount was set aside, and contention No. 3 was accepted.

Conclusion:

The Supreme Court partly allowed the appeals, confirming the Tribunal's decision regarding the extended period of limitation and the inclusion of notional interest on advances in the assessable value. However, the Court set aside the Tribunal's decision disallowing the trade discount, allowing the appellant to deduct the trade discount from the gross price. The liability of the appellant for the demanded duty was to be recalculated in light of this judgment. No order as to costs was made.