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Seshasayee Paper & Boards Limited, Erode Vs. Collector of Central Excise, Coimbatore [1990] INSC 35 (13 February 1990)

Kania, M.H. Kania, M.H. Verma, Jagdish Saran (J)

CITATION: 1990 AIR 974 1990 SCR (1) 320 1990 SCC (2) 146 JT 1990 (1) 197 1990 SCALE (1)164

ACT:

Central 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.

HEAD NOTE:

The 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.

Having 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.

It was 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'.

It was 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.

Dismissing the appeal, this Court,

HELD: (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., [1984] 17 E.L.T. 329 (S.C.) and Coromandel Ferti- lizers Limited v. Union of India & Ors., [1984] 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]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 32 17 of 1988.

From the 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.

Soli J. Sorabjee, Attorney General, V.C. Mahajan, R.P. Srivastava and P. Parmeshwaran for the Respondent.

The 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 said Tribunal"].

As the controversy before us is an extremely limited one, we propose to set out only the facts necessary for appreciating that controversy.

The 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 excise.

Under 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.

It is 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., [1984] 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., [1984] 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.

In our 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 relevant considerations.

In the 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.

R.S.S. Appeal dis- missed.

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