2001 (1) TMI 84 - SC - Central Excise

Whether Bank charges for collection of sale proceeds and discount for damages are allowable deductions in computing the value of the manufactured goods under Section 4 of the Central Excises and Salt Act, 1944? Held that - The object of damage discount is to compensate the buyer for the damaged goods and logically, compensation for damaged goods could not feature as a relevant consideration for determining the price of the goods as manufactured at the time of clearance of the goods. The 'discount' is admittedly on account of damages suffered by goods after removal from the factory. Thus a compensation in the nature of warranty allowance on a defective tyre . The finding of the Tribunal on this issue therefore cannot be sustained. On the question of bank charges, however we are of the view that bank charges being in the nature of post clearing expenses are deductible while calculating the assessable value of the goods. In Assistant Collector of Central Excise and Others v. Madras Rubber Factory (supra) and Shriram Fertilizers Chemicals v. Union of India 1997 (3) TMI 112 - SUPREME COURT OF INDIA and Government of India and Others v. Madras Rubber Factory Ltd. and Others 1995 (5) TMI 28 - SUPREME COURT OF INDIA this Court has held that interest on receivables earned on account of the time lapse between the delivery of the goods and the realisation of the monies is deductible from the assessable value of the goods at the time of removal from the respondents' factories. For the same reason, bank charges included in the price on account of clearance of outstation cheques cannot form part of the price of the goods at the time of removal and are as such excludible from the price while calculating the assessable value of the goods. The Tribunal had, as such, correctly allowed this deduction. Thus the appeals are allowed to the extent of disallowing the respondents' claim for deduction on account of damage discount and dismissed in so far as the respondents' claims for deduction of bank charges are concerned. There will be no order as to costs.

Summary

Issues involved:
Challenging Customs Tribunal's decision on bank charges and damage discount as allowable deductions under Section 4 of Central Excises and Salt Act, 1944.

Detailed Analysis:

Issue 1:
Civil Appeal No. 2579 of 2000:
- The appellant challenged the excise duty calculation by Customs Department based on the price charged by Hindustan Lever Ltd. (HLL) to redistribution stockists.
Civil Appeal No. 3160 of 2000:
- M/s. IPF Vikram India Ltd. produced detergent under agreement with Indexport Ltd. (IEL) and Stepan Chemicals Ltd. (SCL) under the brand name 'Wheel'. The respondent claimed deductions for damage discount and bank charges on outstation cheques from the assessable value of goods for excise duty purposes.

Issue 2:
- The appellant argued that the discount on damaged goods was not admissible as a deduction on wholesale price as it could not be known at the time of removal from the factory. Bank collection charges were also contested as not falling under the definition of discount in the Act.
- Respondents contended that damage deductions were for goods damaged during transit, not sold at the factory, and were akin to transit insurance costs. Bank charges were post-manufacturing expenses and should be deductible.

Issue 3:
- The crux of the matter lay in the interpretation of Section 4 of the Central Excise Act, 1944, specifically regarding the valuation of excisable goods for excise duty purposes.
- The determination of "normal price" with reference to the time and place of goods' removal from factories was crucial. Precedents like Union of India v. Bombay Tyres International Ltd. and others, clarified that transportation costs, including insurance, were deductible, but not compensation for defective goods.

Issue 4:
- The Tribunal's decision on damage discount as a trade discount under Section 4(d)(ii) was challenged. The Court held that compensation for damaged goods could not be a relevant consideration for determining manufactured goods' price at clearance.
- However, bank charges were considered post-clearing expenses and deductible in calculating the assessable value of goods, as established in previous judgments like Assistant Collector of Central Excise v. Madras Rubber Factory and others.

Conclusion:
- The appeals were allowed to disallow damage discount deductions but dismissed for bank charges deductions. The Court emphasized the distinction between compensatory discounts for damaged goods and post-clearing bank charges, affirming the deductibility of the latter.