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CASE NO.:

Appeal (civil) 2579 of 2000

PETITIONER:

COMMISSIONER OF CENTRAL EXCISE, NEW DELHI

RESPONDENT:

VIKRAM DETERGENT LTD.

DATE OF JUDGMENT: 16/01/2001

BENCH:

S.P. BHARUCHA & DORAISWAMY RAJU & RUMA PAL

JUDGMENT:

JUDGMENT

2001 (1) SCR 392

The Judgment of the Court was delivered by

RUMA PAL, J. In both these appeals, the appellant has challenged the

decision of the Customs Excise and Gold (Control) Appellate Tribunal

holding that 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 Excise and Salt Act, 1944.

Civil Appeal No. 2579 of 2000

In this appeal, the respondent, M/s. Vikram Detergent Ltd. is engaged in

the packing of detergent powder received by it from M/s. Hindustan Lever

Ltd. (HLL). After the goods are packed, they are cleared from the factory

by HLL and sold through it's clearing and forwarding agents from their

depots all over the country to wholesale buyers who are known as

Redistribution Stockists. The Department calculated the excise duty payable

on the detergent powder on the price charged by HLL from the Redistribution

Stockists.

Civil Appeal No. 3160 of 2000

M/s. IPF Vikram India Ltd., the respondent in this appeal produces

detergent under agreement with M/s. Indexport Ltd. (IEL) and Stephan

Chemicals Ltd. (SCL) under the brand name 'Wheel' The respondent despatches

the goods manufactured by it to the destinations specified by IEL/SCL.

According to this respondent, IEL and SEL send the goods to clearing and

forwarding agents' depots from where the goods are sold and delivered to

redistribution stockists. The price lists filed by the respondent with the

excise authorities are according to the advice of IEL/SCL and reflect the

price charged by them for the goods in the wholesale market.

Both the respondents inter alia claimed deduction on account of damage

discount and bank charges on outstation cheques from the price charged in

arriving at the assessable value of the goods for the purposes of excise

duty. It is not necessary to set out in detail the proceedings before the

authorities under the Act except to state briefly that in the first appeal,

the Assistant Commissioner disallowed the respondent's claim but the

Commissioner allowed the respondent's appeal. The Tribunal affirmed the

Commissioner's decision.

In the second appeal, both the Assistant commissioner and the Commissioner

had disallowed this respondent's claim for discount of damaged goods and

bank charges relying on the decision of this Court in Government of India

v. MRF, (1995) 77 ELT 433. The respondent challenged the decision before,

the Tribunal. The Tribunal allowed the appeal. Both the orders of the

Tribunal are now the subject matter of challenge before us. 'The issues are

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the same in both appeals as are the relevant facts. We have heard one set

of arguments and our decision disposes of both matters.

According to the appellant, the discount on the damaged goods could not be

known at the time of their removal form the. factory :and as such was hot

admissible as a deduction on the wholesale price. It was contended that

what the respondents claimed as discount was in fact a refund to the buyers

for receiving goods damaged in transit. As far as Bank collection charges

are concerned, according to the appellant, these were neither cash

discounts nor any other discount within the meaning of the word in Section

4(4)(d)(ii) of the Act.

It was submitted by the respondents that deduction on account of damages

represented discounts allowed to the wholesalers for damages suffered by

the goods cleared from the factory during transit there being no sale at

the factory and were incurred in lieu of transit insurance. Bank collection

charges, according to the respondents were post manufacturing expenses and

had been correctly held to be deductible from the assessable value of the

goods.

The issue of value depends on the construction of Section 4 of the Central

Excise Act, 1944 (referred to as the 'Act'). The relevant extract of the

Section for the purposes of this judgment reads as follows:

4. Valuation of Excisable Goods for purposes of charging of duty of excise-

(1) Where under this Act. the duty of excise is chargeable on any excisable

goods with reference to value, such value shall, subject to the other

provisions of this section, be deemed to be:

(a) the normal price thereof, that is to say, 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 the sale.

.WC XXX XXX XXX

(2) Where, in relation to any excisable goods the price thereof 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.

(3) xxx xxx xxx xxx

(4) For the purpose of this section,-

xxx xxx xxx xxx

(d) "value", in relation to any excisable goods:-

XXX XXX XXX

XXX

(ii) does not include the amount of the duty of excise, sales tax and other

taxes, if any payable on such goods and, subject to such rules as may be

made, the trade discount (such discount not being refundable on any account

whatsoever) allowed in accordance with the normal practice of the wholesale

trade at the time of removal in respect of such goods sold or contracted

for sale."

The "normal price" in this case, would have to be determined with reference

to the time and place of removal of the goods from the respondents'

respective factories. Since the price in both cases was fixed with

reference to the sale at the depots to the Redistribution Stockists,

clearly in terms of sub-Section (2) of Section 4, the respondent would be

entitled to deduction of the cost of transportation from the factory to the

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selling depots. It has been so held in Union of India and Others v. Bombay

Tyre International Ltd. and Others, [1984] 1 SCC 467=1984 17 ELT 329 SC as

well as Assistant Collector of Central Excise and Others v. Madras Rubber

Factory Ltd., [1986] Supp. SCC 751, as well as Government of India v.

Madras Factory Ltd. [ 1995 ] 4 SCC 349, 359. These decisions also held that

the cost of transportation would include cost of insurance on the freight

for transportation of the goods from the factory gate to the place or

places of delivery but would not include compensation for defective goods.

The position was further clarified in Collector of Central Excise, Meerut

v. Surya Roshni Ltd., (2000) 122 ELT 3 SC where it was held that:

"The payment made by the respondent to its customers for breakages and

losses cannot tantamount to insurance. Nor can, by any means, such

compensation be treated as a part of the cost of transportation; it is a

clear case of making up to the customer by means of a credit note the

monies that it has lost on account of breakages or losses in transit,"

The respondents sought to distinguished the decision in Surya Roshni case

(supra) by contending that the claim for deduction on account of damaged

goods was a claim not under sub-Section (2) of Section 4 as being part of

the cost of the transportation but under sub-Section 4(d)(ii) of Section 4

as a trade discount. We are unable to accept the submission.

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. A similar deduction claimed as a "warranty discount" was negatived

in the two Madras Rubber Factory judgments referred to earlier. Bhagwati

C.J's dictum in the first of such judgments which was quoted with approval

in the second was: "what is really relevant is the nature of the

transaction........the warranty is not a discount oh the tyre already sold,

but relates to the goods which are being subsequently sold to the same

customers. It cannot be strictly 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........ 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

Fertilisers & Chemicals v. Union of India, (1997) 96 ELT 12 SC and

Government of India and Others v. Madras Rubber Factory Ltd. and Others.

[1995] 4 SCC 349, 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.

In the circumstances, 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.