1985 (3) TMI 72 - HC - Central Excise

Summary

Issues involved: Determination of manufacturing cost for levy of excise duty excluding trade discount and cash discount.

Summary:
In this judgment, the High Court of Judicature at Madras considered the issue of whether the respondents were entitled to exclude trade discount and cash discount in determining the manufacturing cost of articles for the purpose of levying excise duty. The respondents, manufacturers of embroidered cotton fabrics, were assessable to excise duty under Item 19-II of the Central Excises and Salt Act, 1944. The dispute arose when the authorities questioned the uniformity of the discounts allowed by the respondents to all purchasers. The respondents contended that the trade discount need not be uniform and could be given at the time of sales or on subsequent dates as long as it was given with reference to the sales. The court examined the definition of "trade discount" and referred to previous judgments to support the allowance of trade discount even if the rates were not uniform.

The court emphasized that excise duty is charged on the actual wholesale price of the manufacturer, not the list price, and that the trade discount should be deducted from the list price to arrive at the actual wholesale price. It cited a Supreme Court decision stating that trade discount need not be uniform and can be allowed even if different rates are offered, as long as they are not based on extra commercial considerations. Additionally, the court referred to another Supreme Court case which held that trade discounts known to the purchaser prior to the purchase should be deducted from the sale price, regardless of when they are payable.

Regarding the distinction between trade discount and cash discount, the court noted that cash discount is typically offered for prompt payment and should also be considered in determining the assessable value of the product. It cited a Bombay High Court case to support the deduction of trade discount allowed under the terms of sale or agreement. Ultimately, the court dismissed the appeals, stating that all contentions put forth by the appellants had failed, and no costs were awarded.

In conclusion, the judgment clarified the treatment of trade discount and cash discount in determining the manufacturing cost for the purpose of levying excise duty, emphasizing that trade discounts need not be uniform and can be allowed even if not given at the time of sale, while cash discounts should also be considered in arriving at the assessable value of the product.