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PETITIONER:

KIRLOSKAR BROTHERS LTD., DEWAS (M.P.)

Vs.

RESPONDENT:

UNION OF INDIA AND ORS.

DATE OF JUDGMENT10/03/1992

BENCH:

YOGESHWAR DAYAL (J)

BENCH:

YOGESHWAR DAYAL (J)

RANGNATHAN, S.

RAMASWAMI, V. (J) II

CITATION:

1992 AIR 1324 1992 SCR (2) 81

1992 SCC (2) 658 JT 1992 (2) 286

1992 SCALE (1)599

ACT:

Central Excises and Salt Act, 1944: Section 4-

Explanation (prior to Amendment) and Section 36(2).

Excise Duty-Central Government's Notification No.

84/72-CE dated 17.3.72 as amended by Notification No. 113/72

dated 22.3.72-Power driven and monoblock pumps-Electric

Motors purchased and used in manufacture of pumps-Excise

duty paid on Electric Motors-Whether deductible in arriving

at assessable value.

Trade discount-Discount given to distributors providing

after sales service-Also discount given to wholesalers not

providing after sales service-Whether entitled for deduction

from excise value.

HEADNOTE:

The appellant-Company was manufacturing power-driven

pumps and monoblock pumps. It was purchasing electric

motors from another company and using them in the

manufacture of these pumps. The Superintendent of Central

Excise issued show cause notice to the appellants for

recovery of short levy of duty relating to the period from

17th March, 1972 to 31st March 1973 stating that (1) there

was less determination of the assessable value of pumps due

to non-inclusion of Central Excise duty paid on electric

motors used in the manufacture of pumps and that (2) there

was deduction of irregular trade discount on wholesale cash

price while determining the assessable value of the articles

in question.

The Assistant Collector directed the appellant to pay

the duties short levied holding that the excise duty paid by

the appellant on electric motors fitted to the pumps could

not be deducted while computing the assessable value of the

pump sets for purposes of assessment and that the wholesale

cash price minus the trade discount, which is uniformly

given to all wholesale dealers, would represent the

assessable value for assessment purposes.

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Against the orders of the Assistant Collector the

appellant preferred an appeal before the Appellate Collector

who allowed the appeal and quashed the demand notice holding

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(i) that the assessable value of the pumps had to be arrived

at after deduction from the wholesale cash price of the

excise duty payable not only on the pumps which are

manufactured but also the excise duty paid on the electric

motors which were used as a component of the pumps and (ii)

that in determining the assessable value of the PD pumps a

discount of 30 per cent declared by the appellant and

allowed to wholesale dealers was liable to be deducted from

the wholesale cash price of the pumps under the provisions

of the section 4 of the Central Excises and Salt Act, 1944.

In exercise of the powers conferred on it under

section 36(2) of the Act the Central Government suo moto

issued a show cause notice dated 21st June, 1976 to the

appellant proposing to set aside the order of the Appellate

Collector and restore the orders of the Assistant Collector

stating that the Appellate Collector has erred in his

decision. The appellant filed its reply to the notice and

also made its submissions during the course of personal

hearing. After considering the appellant's reply as well as

points urged by it during the course of personal hearing the

Central Government set aside the Appellate Collector's order

and restored the Assistant Collector's orders.

The appellant filed a writ petition in the Madhya

Pradesh High Court challenging the Central Government's

order contending that the Central Government erred in

setting aside the order of the Appellate Collector and in

restoring the orders of the Assistant Collector. The High

Court held that the Explanation to Section 4 of the Act

provides for deduction of trade discount and the amount of

duty payable at the time of removal of the article from the

factory. The 'duty' referred to in the explanation is the

duty payable on the product which is manufactured and does

not refer to the duty paid on the raw material or the

component of the product manufactured. The High Court

agreed with the order of the Central Government on the

deduction on trade discount and rejected the appellant's

contention that the excise duty paid on the component parts

could not be treated as manufacturing cost and that it was

not competent for the Government to levy excise duty on

excise duty paid.

In appeal to this Court it was contended on behalf on

the appellant

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(1) that while computing the assessable value the duty paid

on electric motors for purposes of manufacturing monoblock

pumps was also liable to be excluded; (2) that the Central

Government ignored the Notification No. 84/72-CE dated

17.3.1972 as amended by Notification No. 113/72 dated

22.3.72; and (3) that besides the depots of the appellant

there are other five independent wholesalers and the Central

Government should not have ignored the trade discount

allowed to them.

Dismissing the appeal, this Court,

HELD: 1.It is clear from the Explanation to Section 4

of the Central Excises and Salt Act, 1944 that while

computing the assessable value the deduction has to be

allowed apart from trade discount to the amount of duty

payable at the time of removal of the article chargeable

with duty from the factory. Here the article concerned was

the 'pump' which had an electric motor which was duty paid.

But what was deductible while assessing the assessable value

was merely the excise duty payable on the 'pump' and not the

excise duty already paid on the electric motor which was

merely a component. [98C-D]

M/s Narne Tulaman Manufactures Pvt. Ltd., Hyderabad v.

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Collector of Central Excise, Hyderabad, [1989] 1.S.C.C. 172,

referred to.

2. It is clear from the Government Notification that

while charging duty after computing the assessable value,

the appellant will be entitled to reduction of duty paid on

the electric motors from the over all excise duty payable on

the 'pump'. The value of the excise duty paid on the

electric motor is not deductible while arriving at the

assessable value under Section 4(a) of the Act. This

becomes further clear from the wording of the second proviso

to the Notification which contemplates where the duty of

excise on power driven pumps becomes less than the excise

duty paid on the electric motor then no part of the excise

duty is liable to be refunded to the manufacturer.

Therefore the purpose of the first proviso and the second

proviso of the Notification is only to the calculation of

excise duty payable and has no relevance to the calculation

of assessable value of the articles manufactured when it is

cleared from the factory. [100C-E]

3. It is clear from the submission made by the

appellant itself before the Central Government that the

discount to area distributors was also in consideration for

providing after sales service which is not required to be

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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.

[96E-G]

A.K. Roy & Anr. v. Voltas Ltd., [1973] 2 SCR 1089,

referred to.

JUDGMENT:

CIVIL APPELLATE JURISDICTION :Civil Appeal No. 1773 of

1981.

From the Judgment and Order dated 27.11.1980 of the

Madhya Pradesh High Court in M.P.No. 134 of 1977.

S.Murlidhar and M.S.Ganesh for the Appellant.

K.T.S Tulsi, Add1. Solicitor General, P. Parmeshwaran

and Dalip Tandon for the Respondents.

The Judgment of the Court was delivered by

YOGESHWAR DAYAL, J. This Civil Appeal arises from the

order dated 27th November, 1980 passed by the Division

BNench of Madhya Pradesh High Court in proceedings under

Article 226 of Constitution of India. The proceedings under

Article 226 of the Constitution were directed against an

order dated 19th January, 1977 passed by the Government of

India in exercise of the powers conferred upon them under

Section 36 of the Central Excises and Salt Act, 1944

(hereinafter called 'the Act').

The proceedings before the Central Government arose out

of the review of an order in appeal passed by the Appellate

Collector of Central Excise, New Delhi dated 14th July,

1975. The appellate Collector by the aforesaid order had

accepted various appeals filed by M/s. Kirloskar Brothers

Limited, appellant before us against various order passed by

the Assistant Collector Central Excise, Indore.

The material facts giving rise to this litigation are

as follows :-

The appellant carries on business of manufacturing

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power-driven pumps and monoblock pumps at Dewas. For

manufacturing mono block

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type P.D. pump sets and power driven pumps, the appellant

purchases electric motors from another company M/s.

Kirloskar Electric Co. Ltd. The Superintendent Central

Excise issued eight show cause notices to the appellant

calling upon them to show cause why the short levy as

mentioned in the notices should not be recovered from the

appellant. The period to which the alleged short levy

related was from 17th March, 1972 to 31st March, 1973.

The grounds on which the amount referred to in the

notices issued was proposed to be recovered were (i) less

determination of the assessable value of pumps due to non-

inclusion of Central Excise duty paid on electric motors

used in the manufacture of pumps and (ii) deduction of

irregular trade discount on wholesale cash price while

determining the assessable value of the articles in

question.

The Assistant Collector of Central Excise held that the

excise duty paid by the appellant on electric motors fitted

to the pumps could not be deducted while computing the

assessable value of the pumps sets for purposes of

assessment under the Act.

With regard to the question of trade discount the

Assistant Collector held that in terms of explanation to

Section 4 of the Act deduction in respect of trade discount

on wholesale cash price of the articles to be removed from

the factory has to be allowed; the trade discount allowed

has to be at uniform rate as held by the Supreme Court; once

the wholesale price is fixed and the quantum of trade

discount is decided it must be given uniformly to all

wholesalers irrespective of their relations with the

manufacturers. The Assistant Collector observed :-

"The party had admitted that they have three types

of wholesale dealers and each of them allowed trade

discount at different rate. The first category of

wholesale dealers numbering about 15 got the

maximum trade discount. A perusal of the list of

these 15 wholesale dealers reveal that most of them

are merely selling Depots of the party who get the

maximum trade discount in comparison to other types

of wholesale dealers of the party. The Hon'ble

Supreme Court has held that the wholesale price has

to be ascertained only on the basis of transactions

at 'arms length'. Their Lordships have further

opined that if there is

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relative of the manufacturer and if he is charged

specially low price, the price charged would not

constitute the wholesale cash price for levying the

excise duty. The maximum trade discount allowed to

a particular class of wholesale dealers which is

mostly consisted of their own selling depots,

therefore, does not represent the trade discount in

its true sense in terms of Section 4 according to

which the trade discount has to be allowed at a

uniform rate and not arbitrarily. Therefore, the

fixation of wholesale cash price after allowing the

maximum trade discount to a particular type of

wholesale dealers cannot be treated as a

transaction made at arms length in an ordinary

course of business and, therefore, not in keeping

with provisions of Section 4 of the Act and

consequently cannot represent the correct wholesale

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cash price in terms of Section 4 the Act for

assessment purposes.".

The Assistant Collector held that the wholesale cash

price minus the trade discount, which is uniformly given to

all wholesale dealers, would represent the assessable value

for assessment purposes. Accordingly the Assistant

Collector directed that duties short levied, as pointed out

in the show cause notices, should be paid by the appellant.

Aggrieved by the orders of the Assistant Collector the

appellant preferred an appeal before the Appellate Collector

who held that the assessable value of the pumps had to be

arrived at after deduction from the wholesale cash price of

the excise duty payable not only on the pumps which are

manufactured but also the excise duty paid on the electric

motors which were used as a component of the pumps. The

Appellate Collector further held that in determining the

assessable value of PD pumps a discount of 30 per cent

declared by the appellant and allowed to wholesale dealers

was liable to be deducted from the wholesale cash price of

the pumps under the provisions of Section 4 of the Act. In

this view of the matter the Appellate Collector allowed the

appeals and quashed the demand notices. While allowing the

appeals the Appellate Collector, dealing with the deduction

of trade discount observed as follows:-

"With regard to the second issue i.e.

admissibility of trade discount of 30% declared by

the appellants and approved by the jurisdictional

Central Excise officer, it was contended by

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the appellants that according to the pattern of

their sale they had appointed 16 area dealers for

sales of their products over a particular area.

These area dealers had also appointed subdealers

within their respective jurisdiction. Thus where

the sales were made by the area dealer himself the

full discount of 30% was allowed to him while if

the goods were despatched on the advice of the area

dealer to any of his sub-dealers was passed on to

the sub-dealers while the discount remaining out of

the 30% was passed on by a credit voucher to the

area dealer. In either case the full discount of

30% was being passed on to the trade on all

wholesale transactions. The above contention of

the appellants was verified from the sales invoices

produced by them in respect of wholesale

transactions and it was noticed that the above

contention of the appellants is correct. It was

also noticed that some sales were also made in

small lots by the appellants to the dealers falling

outside the jurisdiction of the area dealers.

These sales represented 1% to 9.7% of the total

sales and could be regarded as sales to retailers.

In their case the discount passed on was less than

30% discount allowed in the case of wholesale

dealers. It was explained that in view of the fact

that such dealers did not have the facility and the

technical know-how for providing after sale

service, the discount allowed to them was lesser

than that allowed to the dealers (wholesale

dealers) who were required to afford the services

after sales. However, in view of the fact that

such sales are meager and are in much smaller lots,

they did not materially change the situation."

(emphasis supplied)

When this order came to the notice of the Central

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Government the Central Government suo moto issued show cause

notice to the appellant proposing to set aside the order of

the Appellate Collector, which appeared to it to be not

correct in law, and restore the order passed by the

Assistant Collector of Central Excise, Indore. The reasons

for the proposed revision were contained in the show cause

notice dated 21st June, 1976, the relevant part of which,

for facility of understanding, is reproduced hereunder:-

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"6. In terms of the explanation to Section 4 of the

Central Excise and Salt Act, 1944 in determining

the price of any article under that section a

deduction is admissible from the wholesale cash

price towards the amount of duty payable at the

time of the removal of the article chargeable with

duty from the factory or other premises. It

appears to the Central Government that the

deduction contemplated therein is in respect of the

duty leviable on the article which is being cleared

from the factory and not the duty paid or leviable

on the raw materials or component which went into

the manufacture of that excisable article. In

other words what is allowed deduction is only that

duty leviable on the finished excisable article and

not the total duty incidence. To held otherwise

appears to be repugnant to the correct construction

of the expression "amount of duty payable at the

time of removal of the article chargeable with duty

from the factory".

7. It, therefore, appears to the Central Government

that in holding that the deduction was admissible

not only in respect of the duty leviable on the PD

Pumps but also in respect of the duty paid on the

electric motor the Appellate Collector has in his

decision.

8. The second question to be determined by the

Appellate Collector was the admissibility of a

trade discount of 30% which the party was granting

in respect of sales to their area dealer or through

area dealers to sub-dealers which to another

category of dealers called independent dealers a

less amount of trade was granted. The case records

reveal that the party had three types of wholesale

dealers namely the following:-

(a) Area dealers which number about 15 get the

maximum trade discount.

(b) The sub-dealers of these area dealer.

These sub-dealers usually get the goods from

the area dealers at the particulars.

discount and can also get the goods directly

from the party on a discount advised by the

area dealers and the

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balance discount out of the total 30% discount

is passed on thereafter to the areas dealers

and;

(c) The lst category of dealers who operate in

area covered by the area dealers and get a

less amount of discount.

9.It also appears that approximately 90% of the

goods are sold through the area dealers or their

sub-dealers and only the rest through other

independent dealers.

10.The Appellate Collector held that the sales to

dealers other than the area area dealers were only

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upto 10% of the total sales and as such these could

be regarded as a sales to retailers. Accordingly

the Appellate Collector held that since a

substantial quantity of goods was sold through the

area dealers or their sub-dealers the price charged

to them was the correct wholesale cash price and

that the 30% trade discount given to them was

admissible and sales to other dealers which were in

small quantity could be ignored and could be

treated as sales to retailers.

11.It appears to the Central Government that the

Appellate Collector failed to take note of the fact

that the sales to these independent dealers in

their respective areas, however, small in quantity

were nonetheless sales to wholesale dealers. These

could not be categorised as retail sales which are

essentially different from wholesales sales.

These independent dealers were as much wholesale

dealers as the areas dealers. Further the

Appellate Collector also failed to take note of the

fact that the so-called area dealers in a large

number of cases were no other than the party's own

selling depots and the price charged to them could

not prima facie be accepted as genuine unless there

was compelling evidence to establish that the

transaction was at arm's length. It accordingly

appears to the Central Government that the

wholesale cash price charged to the independent

dealers and discount given to them is along a

genuine wholesale cash price and that the genuine

whole sale cash price is ascertainable the quantum

of sale however meagre is irrelevant. By holding

that the discount

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given to the area to the area dealers was

admissible and that sales to independent dealers

being meager could be treated as retail sales and

thus ignored, it appears to the Central Government

that the Appellate Collector has erred in his

decision.".

The appellant filed a reply dated 30th August, 1976 and

inter alia contended :-

"We deal with these two points separately as below :-

(i) ASSESSABLE VALUE OF MONOBLOCK PUMPS;

At the outright we wish to state that the

grounds of appeal advanced, against the various

orders in appeal issued by the Assistant Collector,

Central Excise, Indore before Appellate Collector,

Central Excise and Customs, New Delhi, will form

part of our reply and we would rely on them. We

presume that the records of the case are already

with you and there is no need of reproduce here our

arguments.

However without prejudice to whatever stated

in above referred Appeal Memo we wish to state as

under :-

(A) Central Excise duty is an indirect tax and this

tax is not taken into consideration for assessment

purposes. In accordance with the explanation given

in section 4 it is true that what is clear by us is

a Monoblock Pump and not electric motor alone and

not a mere pump. Since we are paid Central Excise

duty to our suppliers of electric motor, we have to

recover the same from the parties to whom monoblock

pumps are sold.

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(B) Had we sold only an Electric motor, the same

recovery to duty would have been made separately by

us and our cost would have been the price paid to

supplier exclusive of central excise duty.

(C) Just because the motor is used in the

manufacture of Monoblock Pumps, it does not deprive

us of our right to recover the duty on the Electric

Motor paid by us when this is ascertainable.

(D) The same would be the case in respect of other

components

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of Monoblock pumps, viz. Steel, paint, shafting,

material etc. However, we are not in a position to

ascertain the duty paid on these Raw Materials.

That is why we have to recover the total amount

including the cost and Central Excise duty paid on

the Raw Material, so that the Central Excise duty

paid on them will automatically be recovered. Such

an amount has to go into the total value. But in

respect of the items of the raw materials if we can

ascertain the central excise duty paid, we can

certainly recover the same in from of duty and not

by way of the cost of the material.

(E) The whole principle of costing is to see what

an article produced by any manufacturer has cost

him. If the duty is ascertainable, there is no

reason as to why it should be go into the cost

necessarily. There is no law to warrant such a

procedure.

(F) The inclusion of Central Excise duty as the

cost of Monoblock pumps, it would further

complicate the matters. In that event we will not

be in a position to recover the full duty paid on

electric motor as we have to allow the

proportionate trade discount on the duty elements.

This would tantamount depriving us of our right to

recover the full amount of Central Excise duty paid

by us.

(G) Further without prejudice, if the duty is so

included what would be the amount to be included

and at what stage. It will have to be decided

whether the whole of the duty on electric motor

i.e. 15% is to be included in the cost or the

balance available from the said duty amount after

availing of the set off admissible under

Notification No. 84/72 as amended by No.113/72.

Under these circumstances, we would request

you not to force us to include the element of

Central Excise duty paid on Electric motors, in the

value of our Monoblock Pumps for purpose of

assessments.

(ii) WHOLESALE CASH PRICE AND QUANTUM OF DISCOUNT

At the outsight we wish to state that the

grounds of appeal

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advanced against the various order in appeal issued

by the Assistant Collector, Central Excise, Indore

before the Appellate Collector, Central Excise and

Customs, New Delhi will form part of our reply and

we would rely on them. We presume that the records

of the case are already with you and there is no

need to reproduce there our arguments.

However, without prejudice to whatever, stated

in above referred appeal memos we would like to

state as follows:-

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ii(A) It is contended in the Show Cause Notice

that the wholesale cash price, charged to the

independent dealers and the discount given to them

is alone a genuine wholesale cash price and that

once the wholesale cash price is ascertainable the

quantum of the sale, however meagre, is irrelevant.

Further it is also contended that the so called

dealer in a large number of cases were no other

than parties own selling depots and the price

charged to them could not prima facie be accepted

as genuine. Unless there was compelling evidence

to establish that the transaction was at arms

length.

In this connection we would like to submit as

follow:

ii(C) The Kirloskar Brother's depots are being

treated on par with these area dealers and the

dealings are from principle to principle. Simply

because they are depots of Kirloskar Brothers it

cannot be presumed that the dealings are not at

arms length.

ii(D) It is not the case of department that

the goods are sold to these area dealers at a

specially low rate. The facts that there are 5

independent dealers alongwith depots goes to prove

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that no special treatment is accorded to the

depots.

ii(E) We would insist with all force that

these transactions are at arms length and these

represents the normal trade practice. The sales to

independent dealers may not be treated as retail

sales but there is no reason as to why the price

charged to these few so called independent dealers

should be preferred to the price charged to

independent area dealers.

ii(F) The whole idea of assessment seems to

have been mis-conceived. Now it is an established

law that "EXCISE IS A TAX ON THE PRODUCTION AND

MANUFACTURE OF GOODS (SEE UNION OF INDIA VS. DELHI

CLOTH AND GENERAL MILLS 1963) SECTION 4 ACT

THEREFORE PROVIDES THAT THE REAL VALUE SHOULD BE

FOUND AFTER DEDUCTING THE SELLING COST AND THE

SELLING PROFITS AND THE REAL VALUE CAN INCLUDE ONLY

THE MANUFACTURING COST AND THE MANUFACTURING

PROFIT".

ii(G) The section also makes it clear that the

excise is levied only on the amount representing

the manufacturing cost plus the manufacturing

profit, and the excludes post manufacturing costs

and the profit arising from the post manufacturing

operation.

ii(H) In our case the amount charged by giving

lesser discount to the so called independent

dealers represents the selling profits and cannot

be attributed to the manufacturing activity. Under

these circumstances the value that could be

approved for our assessment would be the list price

less maximum and this will represent the

manufacturing cost plus the manufacturing profit.

ii(I) Under the circumstances it is abundantly

clear that the price cannot be loaded with any kind

of selling cost or selling profit irrespective of

whether the same is of the wholesellers or of the

manufacturer, the reason being that neither it is

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attributable to manufacturing activity.

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ii(J) After the decision in VOLTAS case there

have been a number of cases both the Supreme Court

and various High Court, wherein the decision in

VOLTAS case have been followed meticulously.

Under these circumstance there are no reason

to reopen the matter and given an adverse

decision."

An opportunity of personal hearing was also granted.

It is noticed in the order of the Central Government that :

"During the course of personal hearing on

19.10.1976 various contentions were reiterated and

it was emphasised that the manufacturers had two

patterns of sales, namely - (i) through area

distributors who are given exclusive rights of sale

within their respective areas and who were further

authorised to appoint sub-distributors, and (ii)

some 10% sales were to other dealers to whom a less

percentage of discount was given. It was

emphasised 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

operations. It was pointed out to them during the

course of personal hearing that majority of the so-

called area distributors were depots of M/s.

Kirloskar Brothers Ltd., only. They contended that

though the over-all controlling authority was the

Kirloskar Group of Companies, yet these depots were

independent entities by themselves. They were

asked to submit detailed information about the

composition of all the Directors of M/s. Kirloskar

Electricals, Bangalore, the Directors of Dewas

factory and their agreements with various area

distributors with their sub-distributors. The

information was to be submitted by November 16,

1976 but could not be received within the time

stipulated.".

The Central Government after considering the points

raised by the appellant in its written reply to the show

cause notice as well as points urged during the course of

personal hearing took the view that under Section 4 of the

Act the abatement of duty is admissible only in respect of

the article in question and not the duty paid on the raw

material or the component which had gone into its

manufacture, and accordingly held that

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the view of the Appellate Collector is incorrect. Regarding

the question of discount the Central Government took the

view that the independent wholesale dealers are those who

are other than the depots of M/s. Kirloskar Brothers. The

view of the Appellate Collector treating sales to these

dealers as retail sales is incorrect. The Central

Government held that once the wholesale cash price is

ascertainable the quantum of sales to such wholesale dealers

is irrelevant and in the instant case even the quantum of

sale to the independent wholesale dealers is 10%. The

wholesale cash price is thus ascertainable. In this view of

the matter the Central Government in exercise of the powers

conferred in it under sub-section (2) of Section 36 of the

Act set aside the impugned order passed by the Appellate

Collector and restored all the orders passed by the

Assistant Collector of Central Excise.

Before the High Court the above referred order of the

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Central Government was impugned in the aforesaid

circumstances. It was contended on behalf of appellant

before the High Court that 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. It was also contended

that 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.

The High Court held that the explanation to Section 4 of the

Act provides for deduction of trade discount and the amount

of duty payable at the time of removal of the article from

the factory. The 'duty' referred to in the explanation is

the duty payable on the product which is manufactured and

does not refer to the duty paid on the raw material or the

component of the product manufactured. Faced with this

difficulty before the High Court the counsel for the

appellant stated that he was not relying on the explanation

to Section 4 of the Act for contending that the duty paid on

electric motors fitted to the pumps was liable to be

deducted from the wholesale cash price of the article in

question. It was urged before the High Court that the

excise duty paid on the component parts could not be treated

as manufacturing cost and that it was not competent for the

Government to levy excise duty on excise duty paid. The

High Court rejected the contention. As regards the

deduction of trade discount the High Court agreed with the

order of the Central Government.

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Before us learned counsel for the appellant has

submitted that the Central Government erred in disturbing

the appellate order of the Collector and submitted - (1)

that beside the depots of the appellant there are other five

independent wholesales and the Central Government should not

have ignored the trade discount allowed to them; (2) that

the Central Government, though has passed the impugned order

only on 14th April, 1977, did not refer to the information

which was submitted after 16th November, 1976; (3) that the

Central Government ignored by Notification No.84/72- CE DT

17.3.1972 as amended by Notification No. 113/72 dated

22.3.1972 and (4) that while computing the assessable value

the duty paid on electric motors for purposes of

manufacturing monoblock pumps was also liable to be

excluded.

It will be noticed that we are concerned with old

section 4 of the Act as operative during the relevant time.

In A.K. Roy & Anr. v. Voltas Limited, [1973] 2 S.C.R.

1089, the Supreme Court emphasised at page 1097 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 of

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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

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higher trade discount to their depots and other area

distributors.

We may take point Nos. 3 and 4 together. In M/s. Narne

Tulaman Manufacturers Pvt. Ltd., Hyderabad v. Collector of

Central Excise, Hyderabad, [1989] 1 S.C.C. 172, the Supreme

Court had the occasion to deal with somewhat similar

situation as in the present case. Sabyasachi Mukharji, J.

(as His Lordship then was) speaking for the Court observed

:-

"The activity carried out by the appellant of

assembling the three components of the weighbridge

brings into being complete weighbridge which has a

distinctive name, character or use. As a result of

the work of assembling a new product known in the

market and known under the excise item

"weighbridge" comes into being. The appellant will

become a manufacturer of that product and as such

liable to duty".

His Lordship further observed thus :

"A part may be goods as known in the excise laws

and may be dutiable. If the indicator system is a

separate part and a duty had been paid on it and if

the rules so provide then the appellant may be

entitled to abatement under the rules. But if the

end product is a separate product which comes into

being as a result of the endeavour and activity of

the appellant then the appellant must be held to

have manufactured the said item. When parts and the

end product are separately dutiable - both are

taxable."

Section 4(a) of the Act read with its explanation reads as

under :-

"4. Determination of value for the purposes of duty

- Where, under this Act, any article is chargeable

with duty at a rate dependent on the value of the

article, such value shall be deemed to be-

(a) the wholesale cash price for which an article

of the like kind and quality is sold or is capable

of being sold at the time of the removal of the

article chargeable with duty from the factory or

any other premises of manufacture of production, or

if a wholesale market does not exist for such

article at such place, at the

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nearest place where such market exists, or

(b)..... ....... ....... .......

Explanation - In determining the price of any

article under this section, no abatement or

deduction shall 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.".

It is clear from the explanation itself that while

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computing the assessable value the deduction has to be

allowed apart from trade discount to the amount of duty

payable at the time of removal of the article chargeable

with duty from the factory. Here the article concerned was

the 'pump' which had an electric motor which was duty paid.

But what was deductible while assessing the assessable value

was merely the excise duty payable on the 'pump' and not the

excise duty already paid on the electric motor which was

merely a component.

The relevant part of the Notification No.84/72-CE dated

17.3.1972 as amended by Notification No. 113/72 dated

22.3.1972 reads as follows:-

"In exercise of the powers conferred by rule 8(1)

of the Central Excise Rules, the Central Government

hereby exempts power driven pumps falling under

tariff item no. 30a of the first schedule to the

Central Excise and Salt Act, 1944 (1 of 1944) and

specified in column (2) of the table annexed hereto

from so much of duty of the excise leviable thereon

as in excess of the duty specified in the

corresponding entry in column (3) of the said

table.

------------------------------------------------------------

S.No Description Duty

(1) (2) (3)

------------------------------------------------------------

1. POWER DRIVEN PUMPS PRIMARILY DESIGNED 10%

FOR HANDLING WATER NAMELY ADVALOREM

i) CENTRIFUGAL PUMPS (HORIZONTAL

OR VERTICAL PUMPS)

ii) DEEP WELL TURBINE PUMPS

iii) SUB MERSIBLE PUMPS AND

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iv) AXIAL FLO AND MIXED FLOW NIL

VERTICAL PUMPS.

2. OTHERS NIL

------------------------------------------------------------

PROVIDED THAT

(i) Where the aforesaid pumps on which the duty of

excise is leviable are fitted with duty paid

internal combustion engine falling under sub-item

(ii) of item no. 29 or Electric motors falling under

sub-item(ii) of item no.30 of the first schedule to

the aforesaid Act such power driven pumps shall

also be exempted from so much of the duty of excise

leviable hereon as is equivalent to the duty

of excise leviable thereon as is equivalent to the

duty of excise or the additional excise duty under

section 2A of the Indian Tariff Act 1934 (32 of

1934) the case may be already paid on such internal

combustion engine or Electric Motors.

(ii) ..... .... ... ... ...

Provided further that where the duty of excise

leviable on power driven pumps is less than the

amount of duty of excise or the additional duty

under section 2A of the Indian Tariff Act aforesaid

specified in clause (i) or as the case may be

calculated under clause (ii) of the first proviso

with respect to internal combustion engine, elect.

motor, rotors or stator then no part of the duty so

specified or calculated shall be refunded to the

manufacturer.

It will be noticed that first part of the Notification

exempts the 'Power Driven Pumps' falling under Tariff Item

No. 30A of the first schedule to the Act and reduces the

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duty to 10% advalorem.

To understand more conveniently the meaning and scope

of provisos, the provisos shorn of unnecessary words may

read as under :-

"PROVIDED THAT :-

(i) Where the aforesaid pumps on which the duty of

excise is leviable are fitted with duty

paid...Electric motors....Such power driven pumps

shall also be exempted from so much of the duty of

excise leviable thereon ...as is equivalent to the

100

duty of excise ......paid on such .....electric

motors.

(ii) .... ...... ..... .......

Provided further that where the duty of excise

leviable on powers driven pumps is less than the

amount of duty of excise or the additional duty

under section 2 A of the Indian Tariff Act

aforesaid specified in clause (i) or as the case

may be calculated under clause (ii) of the first

proviso with respect to internal combustion engine

electric motor, rotors or stator then no part of

the duty so specified or calculated shall be

refunded to the manufacturer."

It is thus clear from the proviso that while charging

duty after computing the assessable value, the appellant

will be entitled to reduction of duty paid on the electric

motors from the over all excise duty payable on the 'pump'.

The value of the excise paid on the electric motor is not

deductible while arriving at the assessable value under

Section 4(a) of the Act. This becomes further clear from

the wording of the second proviso which contemplates where

the duty of excise on power driven pumps become less than

the excise duty paid on the electric motor then no part of

the excise duty is liable to be refunded to the

manufacturer. Therefore the purpose of the first proviso

and the second proviso is only to the calculation of excise

duty payable and has no relevance to the calculation of

assessable value of the articles manufactured when it is

cleared from the factory.

There is thus no merit in this appeal and the same is

accordingly dismissed with costs.

T.N.A. Appeal dismissed.

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