1992 (3) TMI 64 - SC - Central Excise

Whether the Government of India erred in holding that the duty paid on the electric motors was not deductible in computing the wholesale cash price under the provisions of Section 4 of the Act? Whether the Government of India erred in restoring the orders of the Assistant Collector whereby only 25 per cent discount was held to be deductible by way of trade discount in computing the wholesale cash price of the pumps in question? Held that - There can be no doubt that the wholesale cash price has to be ascertained only on the basis of transactions at arm s length. Once wholesale dealings at arm s length are established, the determination of the wholesale cash price for the purpose of Section 4(a) of the Act may not depend upon the number of such wholesale dealers. Before the Central Government it was emphasised by the appellant itself that the discrimination between the two patterns of sales was on account of the .fact that area distributors provided after sales service etc. which could be treated as post manufacturing operation. It is thus clear from the submission made by the appellant itself before the Central Government that the discount to area distributors was also in consideration for also providing after sales service which is not required to be taken into account while dealing with trade discount within the meaning of explanation to Section 4(a) of the Act. Therefore the Central Government rightly did not take into account such area distributors who may have to provide after sales service. The trade discount given to such wholesalers who were under no obligation to provide after sales service is the relevant trade discount given to the wholesalers. In view of our conclusion on the first point itself no useful purpose would be served in examining the second question as the appellant himself had given the reasons before the Central Government as to why they gave higher trade discount to their depots and other area distributors. Appeal dismissed.

Issues Involved:

1. Deduction of Central Excise duty paid on electric motors in computing the assessable value of pumps.
2. Deduction of trade discount in computing the assessable value of pumps.

Issue-wise Detailed Analysis:

1. Deduction of Central Excise duty paid on electric motors in computing the assessable value of pumps:

The appellant, a manufacturer of power-driven pumps, argued that the Central Excise duty paid on electric motors, used as components in the pumps, should be deducted when computing the assessable value of the pumps. The Assistant Collector of Central Excise disagreed, stating that the excise duty paid on electric motors could not be deducted while computing the assessable value. The Appellate Collector, however, accepted the appellant's argument and allowed the deduction of excise duty paid on electric motors. The Central Government, upon review, issued a show cause notice and subsequently set aside the Appellate Collector's order, reinstating the Assistant Collector's decision. The Central Government reasoned that the deduction contemplated under Section 4 of the Central Excises and Salt Act, 1944, pertains only to the duty payable on the finished article, not on the raw materials or components used in its manufacture. The High Court upheld this view, stating that the duty referred to in the explanation to Section 4 is the duty payable on the manufactured product, not on its components. The Supreme Court affirmed this interpretation, concluding that the excise duty paid on electric motors is not deductible while computing the assessable value of the pumps under Section 4(a) of the Act.

2. Deduction of trade discount in computing the assessable value of pumps:

The appellant contended that a 30% trade discount allowed to wholesale dealers should be deducted from the wholesale cash price of the pumps. The Assistant Collector allowed deductions for trade discounts only if given uniformly to all wholesale dealers. The Appellate Collector accepted the appellant's contention, stating that the 30% discount was uniformly passed on to the trade in all wholesale transactions. However, the Central Government, upon review, disagreed, noting that the appellant had different categories of wholesale dealers with varying discount rates. The Central Government emphasized that the transactions with the appellant's own selling depots could not be considered at arm's length and that the genuine wholesale cash price should be based on transactions with independent wholesale dealers. The High Court agreed with the Central Government, holding that the trade discount must be uniformly given to all wholesale dealers to be deductible. The Supreme Court upheld this view, stating that the trade discount given to wholesalers who were under no obligation to provide after-sales service is the relevant trade discount within the meaning of the explanation to Section 4(a) of the Act. The Supreme Court concluded that the Central Government rightly did not take into account the higher trade discount given to the appellant's depots and area distributors.

Conclusion:

The Supreme Court dismissed the appeal, affirming the Central Government's decision to restore the orders of the Assistant Collector. The Court held that the excise duty paid on electric motors is not deductible while computing the assessable value of the pumps, and the trade discount must be uniformly given to all wholesale dealers to be deductible.

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