2019 (4) TMI 587 - SC - Central Excise

Valuation - inclusion of Dharmada Charges (Charitable donation received from the customers) in the assessable value - Held that - The receipts on account of Dharmada were voluntary, earmarked for charity and in fact credited as such. Though the payment as Dharmada has been found to be voluntary, it would make no difference to the true character and nature of the receipts even if there were found to be paid compulsorily because the purchaser, purchased the goods out of their own volition. The purchase of the goods is the occasion and not consideration for the Dharmada paid by the customer. When an amount is paid as Dharmada along with the sale price of goods, such payment is not made in consideration of the transfer of goods. Such payment is meant for charity and is received and held in trust by the seller. If such amounts are meant to be credited to charity and do not form part of the income of the assessee they cannot be included in the transaction value or assessable value of the goods. The Dharmada collected by the appellant which is clearly an optional payment made by the buyer cannot be regarded as part of the transaction value for the sale of goods - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Whether Dharmada, a charitable donation collected by the appellant along with the sale price of goods, should be included in the assessable value for the purpose of excise duty.

Issue-wise Detailed Analysis:

1. Nature of Dharmada and its Inclusion in Assessable Value:
The appellant-assessee, a manufacturer of goods under Chapter 24 of the Central Excise Act, 1944, charged customers Dharmada, a charitable donation, along with the price of goods. The appellant argued that Dharmada was a voluntary payment by customers intended for charity and should not be included in the assessable value.

2. Show Cause Notices and Initial Adjudication:
The Superintendent, Central Excise, Nashik issued show cause notices demanding duty on Dharmada, claiming it was part of the sale price. Initially, the Adjudicating Authority and the Deputy Commissioner held that Dharmada was not part of the trading receipts and could not be included in the assessable value, thus dropping the demand for excise duty and penalty.

3. Commissioner’s Appeal and CESTAT’s Decision:
The Commissioner (Appeals) reversed the initial decisions, holding that Dharmada should be included in the assessable value. The Central Excise and Service Tax Appellate Tribunal (CESTAT) partly allowed the appellant's appeal but rejected the contention that Dharmada was not part of the transaction value, following the Supreme Court's judgment in Collector vs. Panchmukhi Engineering Works.

4. Reference to Larger Bench and Key Question:
The appellant contended that the Panchmukhi decision, which followed Tata Iron & Steel Co. Ltd. vs. Collector of Central Excise, was not applicable. The Division Bench referred the question to a larger Bench: "Whether the Dharmada collected by the appellant, which is clearly an optional payment made by the buyer, can be regarded as part of the transaction value for the sale of goods."

5. Voluntary Nature of Dharmada:
It was undisputed that Dharmada was paid voluntarily by customers and credited to charity. Certificates from a chartered accountant confirmed that Dharmada collections were credited to a separate account and donated to a trust.

6. Definition of Transaction Value:
Under the Central Excise Act, excise duty is chargeable with reference to the value on removal of goods. "Transaction value" includes the price paid for goods and any additional amount the buyer is liable to pay to the assessee in connection with the sale, excluding excise duty, sales tax, and other taxes.

7. Consideration and Transaction Value:
The test for determining transaction value is whether the money was paid as consideration for the goods. In this case, Dharmada was not paid as consideration for the goods but for charity, and thus, it cannot form part of the transaction value.

8. Nature of Dharmada:
Dharmada is a donation for charity, not a commercial transaction. The Supreme Court in Bijli Cotton Mills held that Dharmada amounts are not income of the assessee but are held in trust for charitable purposes. The payment of Dharmada is voluntary and not part of the price for goods.

9. Precedential Value of Panchmukhi and Tata Iron & Steel:
The Panchmukhi decision, which followed Tata Iron & Steel, was not based on a detailed discussion of facts and law and thus has little precedential value. Tata Iron & Steel involved a surcharge added to the price of steel for a development fund, which is different from Dharmada intended for charity.

10. Conclusion:
The Supreme Court held that Dharmada, being a voluntary payment for charity, is not part of the transaction value for the sale of goods. The judgment of the CESTAT was set aside, and the appeal was allowed. The Dharmada collected by the appellant cannot be regarded as part of the transaction value for the sale of goods.

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