Paper & Boards Limited, Erode Vs. Collector of Central Excise, Coimbatore  INSC 35 (13 February 1990)
M.H. Kania, M.H. Verma, Jagdish Saran (J)
1990 AIR 974 1990 SCR (1) 320 1990 SCC (2) 146 JT 1990 (1) 197 1990 SCALE (1)164
Excises and Salt Act, 1944/Central Excise Rules, 1944: Section 4 and First
Schedule Tariff Item No. 17--Excise duty--Levy of--Paper and paper boards manufac-
tured by assessee--'Trade discount' and 'service charge discount'--Permissibility.
appellant who was engaged in the manufacture of paper and paper boards which
were assessable under Tariff Item No. 17 of the First Schedule to the Central
Excises and Salt Act. 1944. engaged several dealers referred to as Indentors, with
a view to promote its sales. In the fixation of the normal price of these items
under section 4 of the Act for the purpose of levy of excise duty, the
appellant claimed deduction on account of 'service charge discount' paid to the
Indentors, in addition to the 'trade discount' paid to the purchasers.
failed before the assessing authority and the Central Excise and Gold (Control)
Appellate Tribunal in respect of the deduction claimed on account of 'service
charge discount' the appellant appealed to this court.
contended on behalf of the appellant that al- though in some of the sales the
discount allowed to the Indentors might have been described as 'service charges
discount', that name could not govern the real nature of the transaction and
the discount was really a 'trade discount'.
further contended that in several cases the indentors were really the
purchasers themselves and hence, the normal trade discount paid to them should
have been allowed as a deduction.
the appeal, this Court,
(1) The trade discount was discount paid to the purchaser in accordance with
the normal practice of the trade. In the determination of the normal price for
the purposes of levy of excise duty, it is only a normal trade discount which
is paid to the purchaser which can be allowed as a deduction and commission
paid to selling agents for services rendered by them as agents cannot be
regarded as a 321 trade discount qualifying for deduction. [323B-C] Union of India & Ors. v. Bombay Tyres International
Pvt. Ltd.,  17 E.L.T. 329 (S.C.) and Coromandel Ferti- lizers Limited v.
Union of India & Ors.,  17 E.L.T. 607 (S.C.), referred to, (2) If in
any case the purchaser named in the invoice 18 the same as the Indentor, normal
trade discount given to the Indentor will be allowed as a deduction in the determi-
nation of the normal price for the levy of the excise duty subject to other
relevant considerations. [324B-C]
APPELLATE JURISDICTION: Civil Appeal No. 32 17 of 1988.
Judgment and Order dated 30.5.88 of the Cus- toms Excise and Gold (Control)
Appellate Tribunal, New
Delhi in E/Misc/
194/87-A & E/A No. 1365/85-A & Order No. 308/88- A. Gauri Shankar, Mrs.
H. Wahi, Manoj Arora and S. Rajjappa for the Appellant.
Sorabjee, Attorney General, V.C. Mahajan, R.P. Srivastava and P. Parmeshwaran
for the Respondent.
Judgment of the Court was delivered by KANIA, J. This is an appeal preferred by
the appellant (assessee) from a judgment of the Central Excise and Gold
(Control) Appellate Tribunal, New Delhi (hereinafter re- ferred to as "the
controversy before us is an extremely limited one, we propose to set out only
the facts necessary for appreciating that controversy.
appellant is a public limited company engaged inter alia in the manufacture of
paper and paper boards which were assessable under Tariff Item No. 17 of the
First Schedule to the Central Excises and Salt Act, 1944 (hereinafter referred
to as "the Central Excises Act"). The period with which we are
concerned in this appeal is the period September 9, 1979 to July 26, 1983. The appellant filed several price lists in Part I and Part
II in respect of the clearances of paper and 322 paper boards made by the
appellant. Section 4 of the Central Excises Act prescribes the mode of
valuation of excisable goods for the purposes of charging of the duty of
clause (a) of subsection (1) of section 4, it is provided, in brief, that the
duty of excise is chargeable on any excisable goods with reference to value
which shall, subject to the other provisions of the Act, be deemed to be the
normal price thereof and the normal price, generally speaking, 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 or removal, where the
buyer is not a related person and the price is the sole consideration for the
sale. In the fixation of the normal price of paper and paper boards
manufactured by the appel- lant for the purposes of levy of excise duty, the
appellant claimed several deductions. One of these deductions was described as
"trade discount" and another as "service charge discount".
The trade discount was the discount paid to the purchaser in accordance with
the normal practice of the trade. The appellant had engaged several dealers
with a view to promote its sales. A specimen of the usual agreements entered
into by the appellant with its dealers has been taken on record. The opening
part of the said agreement shows that the appellant is referred to in the
agreement as the company and the contracting dealer is referred to as the Indentor.
We propose to refer to the dealers engaged by the appellant to promote the
sales of its products as "Inden- tors" for the sake of convenience.
Clause (3) of the agree- ment shows that the Indentor agreed to purchase in his
own name or procure acceptable indents from third parties for paper and paper
boards manufactured by the company would be of such quantities and varieties as
set out in the Schedule A to the agreement. The Indentors agreed to deposit
with the company a certain amount of money as security. Clause (8) of the
agreement shows that the Indentors held themselves responsible for the
immediate clearance of the documents relating to the supply of paper on
presentation by the bankers and that all bank charges other than discounting
charges would be on the consignee's account.
common ground that in the invoices in respect of the paper and paper boards
supplied and sold pursuant to the aforesaid agreement with the Indentors, in
most cases the name of the dealer concerned was shown as the Indentor and the
names of the parties to whom the goods were to be deliv- ered were shown as the
purchasers but in some cases the Indentors were themselves shown as purchasers.
It was urged by Dr. Gauri Shankar, learned counsel for the appellant, that
although the discount allowed to the Indentors in respect of some of the
aforesaid sales might have been described as service charge 323 discount that
name could not govern the real nature of the transaction and the discount was
really a trade discount. It was submitted by him that this discount should have
been allowed as a deduction in the determination of the normal price of the
aforesaid goods for the purpose of levy of excise duty. He relied upon the
decision of this Court in Union of India & Ors. v. Bombay Tyres International Pvt. Ltd.,
 17 E.L.T. 329 (S.C) and submitted that the nomenclature given to the
discount could not be regarded as decisive of the real nature of the discount.
There can be no quarrel with this proposition. But it is equally well set- tled
that in the determination of the normal price for the purposes of levy of
excise duty, it is only a normal trade discount which is paid to the purchaser
which can be allowed as a deduction and commission paid to selling agents for
services rendered by them as agents cannot be regarded as a trade discount
qualifying for deduction (Coromandel Ferti- lizers Limited v. Union of India
and Ors.,  17 E.L.T. 607 (S.C.). The correctness of this proposition was
not disputed by learned counsel for the appellant but it was submitted by him
that in several cases where supplies had been effected pursuant to the aforesaid
agreements, the Indentors were really themselves the purchasers and hence, the
normal trade discount paid to them should have been allowed as a deduction in
the determination of the normal price for the purposes of levy of excise duty.
We find from the judgment of the Tribunal and the lower authorities that there
is no dispute that wherever the Indentors are shown as the purchasers in the
respective invoices, the trade dis- count given to them has been allowed as a
deduction. More- over, to obviate any controversy in this regard, learned
Attorney General who appears for the respondent fairly states that when the
matter goes back to the Tribunal, the respondent is agreeable that the normal
trade discount may be allowed in those cases where the Indentor is also shown
as the purchaser in the concerned invoice. It is, however, submitted by learned
counsel for the appellant that although in some of the cases the Indentor might
not be shown as the purchaser and the purchaser shown is the different party,
yet the real nature of the transaction was that the Indentor purchased the
goods referred to in the said invoice and in turn sold it to a customer whose
name was shown as the purchaser in the invoice for the sake of convenience so
that the delivery could be directly effected to him. We are of the view that it
is not open to the appellant to raise this contention at this stage. No case
has ever been made out right upto the Tribunal and even before the Tribunal
that in respect of any particular invoice although the name of the purchaser
was other than that of the Indentor, it was really the Indentor who was the
purchaser and he in turn has sold the goods to the third party whose name was
shown as 324 purchaser or even that the Indentor had entered into the transaction
as the agent of the purchaser. If such a conten- tion had been raised, the
factual position could have been examined and different considerations might
have been ap- plied. But it is certainly not open to the appellant to raise
this contention at this stage, in this appeal, partic- ularly keeping in mind
that the Tribunal is the final fact- finding authority. No other contention has
been raised before us.
opinion, there is no merit in the appeal. There will, however, be one
clarification that, as agreed to learned Attorney General, if in any case the
purchaser named in the invoice is the same as the Indentor, normal trade
discount given to the Indentor will be allowed as a deduc- tion in the
determination of the normal price for the levy of excise duty subject to other
result, the appeal fails and is dismissed, save to the extent of the aforesaid
clarification. The appellant to pay the costs of the appeal to the respondent.
Appeal dis- missed.