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TMI Blog1995 (5) TMI 28X X X X Extracts X X X X X X X X Extracts X X X X ..... national as clarified in Union of India Ors. v. Bombay Tyre International Pvt. Ltd. [1984 (17) E.L.T. 329]. Certain other directions were also given with respect to the manner in which the assessing authorities were to proceed in the matter of determining the value to which it is not necessary to refer at this stage. The Assistant Collectors (Central Excise) accordingly passed orders allowing certain claims for deductions and rejecting certain others. In terms of the formal orders, the assessing authorities forwarded the orders of assessment made by them to this Court along with the objections filed by the assessees in each case. The Revenue too filed certain objections. The matters were posted before a Bench of this Court comprising P.N. Bhagwati, C.J. and V. Khalid, J. for finally determining and deciding several issues arising between the parties. By their judgment dated December 20, 1986, the Bench disposed of the appeals, [Assistant Collector of Central Excise Ors. v. Madras Rubber Factory Limited Ors. [1987 (27) E.L.T. 553)]. Contending that the said judgment is not in accord with the judgment in Bombay Tyre International, the Revenue filed review petitions, which came ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 978 (2) E.L.T. (J 265) (PC) = 65 I.A. 32). Section 4 itself was the subject matter of two decisions of this Court in A.K. Roy Anr. v. Voltas Limited [1977 (1) E.L.T. (J 177) (S.C.) = 1973 (2) S.C.R. 1089] and Atic Industries Limited v. H.H. Dave, Assistant Collector of Central Excise Ors. [1978 (2) E.L.T. (J 444) (S.C.) = 1975 (3) S.C.R. 563]. The Government of India felt that the operation of Section 4 (old) presented certain practical difficulties some of which, according to it, were highlighted in the decision of this court in Voltas Limited. With a view to overcome the said difficulties in the working of the section, it felt it necessary to suitably revise the provisions contained in Section 4. Accordingly, it introduced a Bill in the Parliament seeking to substitute the existing Section 4 altogether. The Statement of Objects and Reasons appended to the Bill (which later became the Amendment Act XXII of 1973) stated inter alia : in order to overcome the various difficulties experienced in the working of the section it is proposed to suitably revise the valuation provision contained in Section 4 of the Act, providing, as far as practicable, for assessment of excisable goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not sold or for any other reason, the nearest ascertainable equivalent thereof determined in such manner as may be prescribed. Where, in relation to any excisable goods the price thereof(2) for delivery at the place of removal is not known and the value thereof is determined with reference to the price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery shall be excluded from such price. The provisions of this section shall not apply in respect of(3) any excisable goods for which a tariff value has been fixed under sub-section (2) of Section 3. For the purpose of this section, (4) assessee means the person who is liable to pay the duty of(a) excise under this Act and includes his agent; place of removal means (b) a factory or any other place or premises of production or(i) manufacture of the excisable goods; or a warehouse or any other place or premises wherein the(ii) excisable goods have been permitted to be deposited without payment of duty, from where such goods are removed; related person means a person who is so associated with the(c) assessee that they have inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re may be cases where the goods are sold by the assessee at different prices to different classes of buyers (not being, of course, related persons). In such a case, the price charged to each class of buyers shall be deemed to be the normal price of such goods in relation to each such class of buyers, subject, of course, to the existence of other circumstances specified in clause (a). Where, however, the goods are sold in the course of wholesale trade for delivery at the time and place of removal at a price fixed under any law in force or where the law has specified the maximum price, the price so fixed or the maximum price so specified, as the case may be, shall be deemed to be the normal price of such goods. Where, however, the assessee generally sells his goods in the course of wholesale trade only to or through a related person, the normal price shall be deemed to be the price at which such related persons sells the said goods in the course of wholesale trade at the time of removal to the dealers (not being related persons). [Since this Rule is not relevant for our purposes, we are not stating the Rule fully.] If the normal price of excisable goods is not ascertainable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l, therefore, proceed to ascertain the principles enunciated in the said decision. 7.The main issue, referred to as central issue , in that case was whether the value of an article for the purposes of the excise levy must be determined by reference exclusively to the manufacturing cost and the manufacturing profit of the manufacturer or should be represented by the entire wholesale price charged by the manufacturer. This question arose in the context of the fact that the wholesale price actually charged by the manufacturer consists of not merely his manufacturing cost and his manufacturing profit but includes, in addition, a whole range of expenses and an element of profit (conveniently referred to as post-manufacturing expenses and post-manufacturing profit ) arising between the completion of the manufacturing process and the point of sale by the manufacturer. The contention of Sri N.A. Palkhivala, learned counsel for the assessees was that the duty of excise has three essential characteristics, viz., (1) it is a tax on manufacture or production and not on anything else; (ii) uniformity of incidence is a basic characteristic of the duty of excise; and (iii) exclusion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the new Section 4, the price charged by the manufacturer on a sale by him represents the measure. Price and sale are related concepts and price has a definite connotation. The `value' of the excisable article has to be computed with reference to the price charged by the manufacturer, the computation being made in accordance with the terms of Section 4. The normal price mentioned in new Section 4(1)(a) is the(d) price at which the goods are ordinarily sold by the assessee in the course of wholesale trade. It is the wholesale price charged by him. This is also the scheme underlying old Section 4. The value of excisable goods determined under new Section(e) 4(1)(a) may vary according to certain circumstances, a fact evident from the three clauses in the proviso appended to clause (a) of sub-section (1). The phrase that is to say following the expression normal(f) price in new Section 4(1)(a) makes it clear that normal price is the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal where the buyer is not a related person and the price is the sole consideration for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its Explanation that in determining the price of any article under that section, no abatement or deduction would be allowed except in respect of trade discount and the amount of duty payable at the time of the removal of the article chargeable with duty from the factory or other premises aforesaid, the new Section 4 specifically provides for certain deductions. The learned Judge mentioned the deductions claimed by the assessees in those matters as : Storage charges.(1) Freight or other transport charges, whether specific or(2) equalised. Outward handling charges, whether specific or equalised.(3) Interest on inventories (stocks carried by the manufacturer(4) after clearance.) Charges for other services after delivery to the buyer.(5) Insurance after the goods have left the factory gate.(6) Packing charges.(7) Marketing and Selling Organisation expenses, including(8) advertisement and Publicity expenses. 11.The learned Judge then mentioned the two broad bases put forward by the learned counsel on the basis of which the said deductions were claimed, viz., (a) that in determining the value of an excisable article, all expenses must be excluded which do n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ged freight included in such wholesale cash price has to be deducted in order to arrive at the real wholesale cash price at the factory gate and no excise duty can be charged on it. 12.The learned Judge then took up the issue of packing. After referring to sub-clause (i) of clause (d) of sub-section (4) and the explanation appended to the said sub-clause, the learned Judge observed, the packing of which the cost is included is the packing of which the goods are wrapped, contained or wound when the goods are delivered at the time of removal. In other words, it is the packing in which it is ordinarily sold in the course of wholesale trade to the wholesale buyer. (Emphasis added) The learned Judge referred to the fact that the degree of packing will vary from one class of articles to another and to the concept of primary and secondary packings and observed : We must remember that while packing is necessary to make the excisable article marketable, the statutory provision calls for strict construction because the levy is sought to be extended beyond the manufactured article itself. It seems to us that the degree of secondary packing which is necessary for putting the excisabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elivery. Where a company has more than one factory located at4. different places and the prices at the depots is the same irrespective of the lack of identification of the goods from a particular factory of production, the deductions as set out in this judgment and as explained in this order shall be computed and allowed on the basis of such price. This order shall be by way of clarification of the judgment5. (Emphasis in the original)delivered on 7th October, 1983. 15.Thereafter, individual appeals were taken up and disposed of under `minutes of the order', (`format orders') signed by counsel for both the sides. Pursuant to format orders, the concerned Assistant Collectors of Excise passed orders after an elaborate enquiry and hearing. In terms of the format orders, the assessment orders along with the objections filed against them came up for hearing before a Bench comprising P.N. Bhagwati, C.J. and V. Khalid, J., as stated hereinbefore. By their judgment and order dated December 20, 1986, the learned Judges dealt with each of the deductions claimed and recorded their opinion thereon. The said judgment, however, has been recalled by another Bench on May 1, 1989. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al price at which such goods are sold, i.e., under clause (a) of sub-section (1) of Section 4. Only where the goods are not sold and, therefore, the price of such goods is not ascertainable or in a situation where the normal price of such goods is not ascertainable for some other reason that clause (b) is attracted, whereunder the nearest ascertainable equivalent price is ascertained in accordance with the rules framed in that behalf. Clause (b) is in the nature of a residuary clause which should be resorted to where the normal price cannot be ascertained for the reasons mentioned therein. In other words, where the normal price is available or is ascertainable, resort to clause (b) is not permissible. P A R T - II 19.We may now proceed to deal with each of the deductions in issue in these matters keeping in mind the provisions of Section 4 and the principles enunciated by this Court in Bombay Tyre International. The first deduction which happens to be the principal claim made by the Madras Rubber Factory - and urged strongly by Sri F.S. Nariman - is the deduction of the expenses incurred by the assessee upon the maintenance of the depots from where the goods manufactured by i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thod. However, if for some reason, the Revenue is not prepared to adopt this course then, he says, the Revenue has to deduct all the aforesaid expenses and not merely the transportation charges as specifically provided by sub-section (2) of Section 4. Sri Nariman relies upon the holding in Bombay Tyre International that deductions other than those specifically mentioned in Section 4 are permissible in law, depending no doubt upon the character of the deduction claimed. On the other hand, Sri Chandrasekharan, learned Additional Solicitor General, submits that sub-section (2) of Section 4 does specifically envisage and provide for the situation concerned therein. It provides expressly that where the price of any excisable goods is not known at the place of removal and the value of such goods is determined with reference to the price charged at the time of their delivery from a place other than the place of removal, the transportation charges incurred for transporting the goods from the place of removal to the place of such delivery shall be excluded. The learned Additional Solicitor General says that since the Act has provided only for one specific deduction, it is reasonable to pres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e upto the date of delivery on account of storage charges, outward handling charges, interest on inventories (stocks carried by the manufacturer after clearance), charges for other services after delivery to the buyer, namely after-sales service and marketing and selling organisation expenses including advertisement expenses cannot be deducted. It will be noted that advertisement expenses, marketing and selling organisation expenses and after-sales service promote the marketability of the article and enter into its value in the trade. Where the sale in the course of wholesale trade is effected by the assessee through its sales organisation at a place or places outside the factory gate, the expenses incurred by the assessee upto the date of delivery under the aforesaid heads cannot, on the same grounds, be deducted. But the assessee will be entitled to a deduction on account of the cost of transportation of the excisable article from the factory gate to the place or places where it is sold. The cost of transportation will include the cost of insurance on the freight for transportation of the goods from the factory gate to the place or places of (Embhasis added)delivery. We may a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction (2) of Section 4. Only where the price at the gate (at the place of removal) is not known that one is put to the necessity of making the aforesaid deduction from the price charged at the depot; this deduction is made precisely for the purpose of ascertaining the price at the gate. It may also be noted that the first of two bases (referred to in the first paragraph in the above extract) is admittedly inapplicable, having been roundly rejected in Bombay Tyre International. Then how is it that the second basis alone is applicable. The very idea is a contradiction in terms. We, cannot, therefore, understand the aforesaid statement of law in Bombay Tyre International as premised on the basis urged by Sri Nariman. The reasoning of Sri Nariman does appear to be logical and attractive exfacie but it flies directly in the face of the clear holding in Bombay Tyre International and cannot, therefore, be accepted. 22.It is brought to our notice that this claim was accepted by the Bench comprising Bhagwati, C.J. and Khalid, J. in their judgment dated December 20, 1986 in Assistant Collector of Central Excise Ors. v. Madras Rubber Factory Ltd. Anr. [1987 (27) E.L.T. 553] - the judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t extra charge from the assessable value and the appeal must, therefore, fall and be dismissed with no order as to costs. [Emphasis added] 24.A reading of the Order makes it clear that the extra five per cent charge, which was allowed, represented the cost of additional packing desired by the buyer. The further observation to the effect, and moreover in such case the wholesale dealers take delivery of the goods manufactured by the respondent from the duty-paid warehouse situated outside the factory premises does not mean that any portion of five per cent extra charge represented the expenses incurrred on maintaining and running the depots outside the place of removal. The order appears to have turned more on the ground of absence of denial of assessee's averments by the Revenue. In any event, it is not possible to read the said Order as laying down a proposition contrary to the considered and specific holding in the decision in Bombay Tyre International. It is also not reasonable to read any inconsistency between both the orders, inasmuch as the Bench which made the order in Duphar Interfran Limited is the very same Bench which delivered the judgment in Bombay Tyre Intern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvertisement charges and hence cannot be deducted. Where, however, the freight charges are equalised in the manner indicated in the preceding paragraph, such charges can be deducted from the normal price; it is obvious that such deduction will be common to the price at the gate and at the depots outside the gate - because of the equalisation, the price will equally be uniform at the gate as well as at the depots. This aspect will become clearer once we deal with the permissibility of the deductions claimed. 26.With respect to the alternative argument of Sri Nariman, we must say that no direction can be given to the authorities to adopt the price at which the assessee sells its goods to the Government as the price in respect of its total sales. Firstly, by virtue of proviso (i) to Section 4(1)(a), the Government would be a class by itself and the price charged to it would be relevant only to the goods sold to it. So far as depot sales are concerned, they are to a different class or classes of buyers and in respect of the goods sold to them, the price charged to each of such class of buyers would be the normal price. The price charged to one class of buyers cannot, therefore, be d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r referring to the sub-clause and the explanation aforesaid, Pathak, J. stated that the cost of packing contemplated by the said sub-clause as included in the value of the goods packed is the cost of packing in which it is ordinarily sold in the course of wholesale trade to the wholesale buyer . The learned Judge recognised that the degree of packing will vary from one class of excisable goods to another and observed that while there is no controversy about what may be called the `primary packing' (examples of which were given by him), serious dispute has arisen with respect to the cost of secondary packing. Observing that secondary packing may be of different grades, the learned Judge posed the questions is all the packing, no matter to what degree, in which the wholesale dealer takes delivery of the goods to be considered for including the cost thereof in the `value'? or does the law require a line to be drawn somewhere? and answered them in the following words : We must remember that while packing is necessary to make the excisable article marketable, the statutory provision calls for strict construction because the levy is sought to be extended beyond the manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C.J. are : the respondent-assessee was engaged in the manufacture of cigarettes. The cigarettes were packed initially in paper/cardboard packets of ten and twenty. These packets were packed together in paper/cardboard cartons/outers. These cartons/outers were then placed in corrugated fibreboard containers. It is these corrugated fibreboard containers (CFCs) filled with cartons/outers containing the packets of cigarettes of ten and twenty which were delivered by the assessee to the wholesale dealers at their factory gate. So far as the cost of initial packing is concerned, there was no dispute. Similarly, there was no dispute with respect to the cost of paper/cardboard cartons/outers. The dispute, however, centred round the cost of CFCs. Bhagwati, C.J., referred to the holding in Bombay Tyre International, to the provisions of Section 4(4)(d)(i) and the explanation thereto and opined : It is apparent from the wide language of the Explanation that every kind of container in which it can be said that the excisable goods are contained would be `packing' within the meaning of the Explanation and this would necessarily include a fortiorari corrugated fibre board containers in w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the wholesale dealer who takes delivery may have his depot at a very short distance only from the factory gate or may have such transport arrangements available that damage or injury to the cigarettes can be avoided. The corrugated fibre board containers are not necessary for selling the cigarettes in the wholesale market at the factory gate . 33.It is thus clear that the learned Judge held the cost of CFCs not includible in the wholesale cash price in view of his finding - factual finding - that the CFCs were not necessary for delivering the excisable goods at the gate. The approach of A.N. Sen, J. is similar to the one adopted by Pathak, J., viz., the test of necessity of such packing. The learned Judge observed : Cartons of cigarettes are usually further packed in corrugated fibre containers for facilitating transport in the course of delivery to buyers in the wholesale trade where there is any possibility of the cartons becoming otherwise damaged in course of transit. Naturally, in such cases, delivery of the cigarettes in those cartons is effected to the buyers at the factory gate after further packing these cartons in corrugated fibre board containers. The further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the majority in Godfrey Philips. The Bench referred to the holding in Godfrey Philips in the following words : This court took the view by a majority of two against one that corrugated fibre board containers were used as secondary packing only in order to ensure cartons or outers against injury or damage during transport and that it was not necessary for putting the cigarettes in the corrugated fibre board containers for their sale in the wholesale market at the factory gate and the cost of such secondary packing was therefore not liable to be included in determination of the value of the cigarettes for the purpose of excise duty. The Bench held that the same reasoning must apply in the case before them and accordingly allowed the assessee's appeal. It is thus implicitly clear that the factual position in this case was perceived to be the same as in Godfrey Philips (majority opinion) to wit, wooden boxes were not necessary for putting the torches and batteries in the condition in which they are generally sold in the wholesale market at the gate and on that basis it was held that the cost of such wooden boxes cannot be included. 37.We may now refer to the decision in Colle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is a question of fact to be determined by application of the correct approach.**, (Emphasis supplied). Packing, which is primarily done or mainly done for protecting the goods, and not for making the goods marketable should not be included ..... The question is whether these goods could be so sold, but the question is whether these goods are so sold (Emphasis inusually and as such used to become marketable in such manner. original) 39.We are in entire and respectful agreement with the test evolved and the position of law stated by the learned Judge. It is wholly in tune with the test in Bombay Tyre International - indeed a reiteration of it. 40.In his concurring opinion, Ranganathan, J. referred to the ratio in Bombay Tyre International and pointed out : the reference in Bombay Tyre International to secondary packing `which is necessary' led to a further refinement in Godfrey Philips and Geep Industrial Syndicate. After referring to the holding in the said two decisions and in Hindustan Polymers, the learned Judge opined : There is, therefore, much to be said for the view that, in judging the condition of packing whose cost is to be included in the assessable valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Industrial Syndicate. 42.Reference may also be made to the decision in Hindustan Polymers rendered by a Bench comprising Sabyasachi Mukharji, S. Ranganathan and J.S. Verma, JJ. The facts of this case, however, are markedly different. The appellant-assessee was engaged in the manufacture and sale of fusel oil. Its case was that the fusel oil manufactured by it was mainly sold in bulk and that only a small portion was being supplied to the customers in drums supplied by such customers. It was contended that the cost of the drums cannot be included in the value of the oil so sold. Mukharji, J. held that inasmuch as the material on record established that the goods were not sold in drums generally in the course of wholesale trade, that in the wholesale trade these goods were delivered directly into tankers and that delivery in drums was only to facilitate their transport in small quantities. In view of the said material, the learned Judge held, the cost of the drums is not includible. Ranganathan, J. agreed with the conclusion arrived at by Mukharji, J. but on a wholly different basis. The learned Judge held that according to Section 4(4)(d)(i), where the manufacturer supplies the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es were of coordinate jurisdiction (Bombay Tyre International was thus binding upon the latter Bench) but also because both the decisions were rendered by the very same Bench. The adage in such matters is : look for harmony, not divergence. It is equally relevant to point out that Bombay Tyre International was equally binding upon the Bench (of three learned Judges) which decided Geep Industrial Syndicate and that it would be equally unreasonable to suggest that the Bench (deciding Geep Industrial Syndicate) would lay down an inconsistent proposition from the one in Bombay Tyre International without even referring to the decision or its ratio. The conclusion in these two later cases turned upon the finding as to factual situation obtaining therein whereas the two opinions in Ponds not only follow the test in Bombay Tyre International but reiterate it in clear terms. The test laid down in Bombay Tyre International has never been departed from in any of the later decisions and must be treated as good and sound. We may as well stress the obvious : in a matter like this, certainty in law is essential. It may be that in applying the principle having regard to the facts of a given case, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions on the following reasoning: (a) in the instant case, the company has not adduced any evidence to show that there are any agreements or contracts between it and its buyers for return of such packings; (b) as a matter of fact, the goods in question are invariably delivered to their customers packed in cartons/cardboard boxes; (c) the unit of sale for the said goods for which the company files its price lists from time to time is a wholesale package comprising of a dozen or gross pieces; (d) the packing of such goods in cartons/cardboard boxes is indispensable, as in the absence of the same, they cannot be conveniently delivered to the customers; (e) not a single instance could be shown where the assessee ever delivered the goods without the above packing and (f) the assessee conceded that its buyers are not returning such packages to it on account of the cost of transportation. We are of the opinion that on the above findings recorded by the Assistant Collector, the only conclusion that can follow is that the cost of the cartons/cardboard boxes cannot be excluded from the value of the goods. If, however, the assessee wishes to challenge the correctness of the findings of fact r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he following effect : the expression TAC means Tyre Adjustment Committee . The TAC discount originated in the year 1943. It was a voluntary body set up by the four tyre manufacturing companies in the country then in existence, viz., Goodyear, Dunlop, Firestone and India Super. The Committee was composed of District Managers and Service Engineers of the Tyre Companies. At present, each manufacturer has constituted its own TAC, because, it is stated, the M.R.T.P. Commission objected to the common committee. The duty of the committee is to examine the tyres brought back by the purchaser for defects discovered during the course of user. The committee deals with only latent defects, i.e., defects which were not apparent or evident at the time of sale but which were discovered during the course of user of the tyre. Where such tyre is brought to the company by the customer, the company refers the matter to the committee to determine whether there was any manufacturing defect in the tyre and if so, the amount of remission the customer is entitled to. Instead of paying the said amount in cash to the customer, it is explained, the company supplies a new tyre (at the price obtaining on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uyer on account of the manufacturing defect in the first tyre is set off against the price of the new tyre does not mean that the new tyre is being sold at a discount - nor can it be suggested that the discount is being given out of the price of the old tyre. The learned Additional Solicitor General brought to our notice that in the judgment dated December 20, 1986 this court has disallowed the said claim and that the assessee has not chosen to question the same by way of a review petition. On the other hand, Shri Nariman, learned counsel for the assessee submits that this is a discount clearly within the meaning and contemplation of Section 4(4)(d)(ii). The evidence adduced by the assessee, which has been accepted by the Assistant Collector, shows that this discount is being made in accordance with an established practice and understanding, prevalent over more than fifty years and there can be no doubt about its genuineness. Learned counsel submits that certain defects in the manufacture are not apparent at the time of their removal or sale but came to light only later in the course of user. In such cases, the customer is entitled to proportionate remission attributable to the man ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... called as discount on the tyre being sold. It is in the nature of a benefit given to the customers by way of compensation for the loss suffered by them in the previous sale . He characterised it as a compensation in the nature of warranty allowance on a defective tyre . We express our respectful concurrence with the said observations. 54.This claim of the assessee is accordingly rejected. One Per cent Turn Over Discount : 55.The assessee's case in this behalf is this : this is a discount granted to all dealers operating under Recurring Credit Scheme (RCS) with effect from April 1, 1980. The discount is being given on a half-yearly basis depending upon the volume of purchases made by each such dealer. Out of the total Madras Rubber Factory dealers, about eighty per cent are said to be RCS dealers and out of the total sales effected by the Madras Rubber Factory, over sixty per cent sales are made by these RCS dealers (as per the figures relating to the year 1981-82). The discount is being granted by issuing credit notes to dealers and though the said discount is not shown on the face of each invoice, it is known to all the Madras Rubber Factory dealers. The discount ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which the Assistant Collector has allowed this deduction. He commended for our acceptance the reasoning in Para 13(ii) of the judgment dated December 20, 1986 (Assistant Collector of Central Excise v. Madras Rubber Factory). The reasoning in the said order runs thus : The allowance of the discount is not known at or prior to the removal of the goods. The calculations are made at the end of the year and the Bonus at the said rate is granted only to a particular class of Dealers. This is computed after taking stock of the accounts between MRF and its dealers. It is not in the nature of a discount but is in the nature of a Bonus or an incentive much after the invoice is raised and the removal of the goods is complete. In the circumstances, we are of the opinion that MRF is not entitled to deduction under this head. 60.We are, however, of the respectful opinion that the said reasoning cannot be accepted in view of the clear finding recorded by the Assistant Collector that this system of discount is prevalent in the industry and is known and understood at the time of removal of particular goods, though the amount is quantified later. In view of the said finding and in the light ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r as packed was produced before Bharucha, J. He has described that the tread rubber is a strip of rubber approximately 6 wide and about 1 thick which is tightly wound into a roll. Each roll weighs between 15 Kgs and 40 Kgs. The roll is not held together by any means. The roll is inserted into a loose and open polythene bag. That bag also cannot hold the roll together. The bag is placed in a cardboard carton or a wooden case. The cardboard carton is held together by rubber bands. The wooden case is nailed together. Though, it was contended that the cardboard cartons and wooden cases were in the nature of secondary packaging whose cost was not includible in the value of tread rubber, Bharucha, J. held that a roll of tread rubber cannot be sold without the cardboard carton or the wooden case. It is further stated that the secondary packing in which tread rubber is sold is in the course of wholesale trade. The secondary packing is not employed merely for the purpose of facilitating transport or smooth transit and is necessary for selling the tread rubber in the wholesale trade. Bharucha, J. refused to remand the matter to the authorities as the tread rubber as packed had been produce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Para 14 of the judgment dated December 20, 1986 on this count. We are, however, unable to agree with the said submission. We have already held, following Bombay Tyre International, that expenditure incurred on sales organisation cannot be deducted. The claim herein is in reality expenses incurred by the assessee upto the date of delivery on account of storage charges held not excludible in Bombay Tyre International, even where the wholesale trade is effected by the assessee through its sales organisation at a place or places outside the factory gate . Interest on receivables : 66.The case of the assessee (Madras Rubber Factory) is that where the goods are sold to up-country wholesale buyers and payments are received quite sometime later, it is indeed a case of sale on credit and, therefore, the interest charged from the date of delivery of goods till the date of realisation of the price thereof should be deducted from the value of the goods. The interest charged, it is submitted, is only in lieu of the time taken in making the payment by the up-country wholesale buyer. Since this is the amount received subsequent to the sale from the depots and does not fall within the amb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their price lists for several articles is approved much in advance of the removal from the factory. They contend that when the assessable value is to be arrived at, the same amount of excise duty which was pre-determined and added to the factory price is naturally to be deducted first and only thereafter the permissible deductions should be deducted to arrive at the value. For the purposes of argument, MRF submitted the following example for consideration : They suggest that their selling price should be considered (cum-duty selling price) as ₹ 3,200/-. They further submitted that the permissible deductions whether on account of trade discount or on account of cost of secondary packaging or sale tax or other taxes should hypothetically be considered at ₹ 200/-. The rate of excise duty chargeable is 60% ad valorem for automatic tyres. Assuming for the sake of argument that the value of the product is actually ₹ 2,075/-. In accordance with the provisions of Section 4(4)(d) permissible deductions are made. The assessable value would be ₹ 1,875/- being the difference of ₹ 2,075/- and ₹ 200/-. The excise duty at the rate of 60% would thereafter be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sable value should naturally be deducted first, is putting the cart before the horse. The excise duty is only known as a ratio of the assessable value when an ad valorem duty is included in the cum-duty paid selling price. The quantum of excise duty cannot be pre-deducted or pre-determined till the assessable value is known. It is only the permissible deductions in concrete monetary terms and amount which are known. The cum-duty paid sale price being available for computation and a known value of deductions permitted being also known, the assessable value and the excise duty as a ratio of the assessable value can be only decided by first deducting the permissible deductions, from the cum-duty paid selling price and thereafter computing the value in accordance with the equation mentioned above. This has both a legal and a mathematical basis. If the pre-determined amount of excise duty as per the illustration given by MRF Ltd. is first deducted, the equation will not tally. For example, if from a hypothetical cum-duty price of ₹ 150/- (comprised of the value of the product at ₹ 100/- and ad valorem excise duty @ 50% at ₹ 50) if the excise duty of ₹ 50/- is fir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. The appeal was filed directly in this Court against the judgment of the learned Single Judge evidently because at that time the law on the subject was not supposed to be clearly settled. Now that the principles have all been properly enunciated and also because the question whether the packing is durable and returnable by the buyer to the assessee is essentially a question of fact, the proper course would be to remit the matter to the excise authorities for determination of the said question of fact. The matter will, therefore, go back to the Assistant Collector of Central Excise concerned who shall decide the said question in accordance with law and on the basis of the material that may be placed before him. Similar direction should follow in Civil Appeal No. 1307 of 1977 (Synthetics Polymer Industries v. Union of India Ors., where too the dispute is whether the packing is durable and returnable. The matter shall go back to the concerned Assistant Collector of Central Excise who shall decide the said question in accordance with law and on the basis of the material placed before him. PART - VI 69.Accordingly, Civil Appeal No. 3195 of 1979 (Union of India Ors. v. Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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