REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No.5282   OF 2005

M/s D.J. Malpani                                      ... Appellant(s)

Versus

Commissioner of Central Excise, Nashik  … Respondent(s)

J U D G M E N T  

S.A. BOBDE, J.

The  appellant-assessee  manufacture  goods  falling  under

Chapter  24  of  the  Schedule  of  The  Central  Excise  Act,  1944

(hereinafter  referred  to  as  “the  Act”).   While  selling  goods,  the

appellant-assessee charged the customers invoices for the price of

goods  plus  Dharmada,  a  charitable  donation.   According  to  the

appellant, the Dharmada was paid voluntarily by customers and

was  meant  for  charity.   It  was  accordingly  credited   

to charity.

2. However,  the Superintendent,  Central  Excise,  Nashik  issued

show cause notices  and raised a  demand of  duty  in  respect  of

Dharmada,  claiming  it  was  part  of  the  price  for  the  sale  of

manufactured  goods  and  included  it  for  computing  assessable

value.

Page 1 of 18

3. Initially,  the  Adjudicating Authority  held  that  the Dharmada

component was not part of the trading receipts and could not be

included  in  the  assessable  value  and  dropped  the  demand  for

excise duty and the penalty.

4.  However,  another  show  cause  notice  dated  3.8.2001  was

issued by the Commissioner of Central Excise, Aurangabad under

Section 4 of the Act calling upon the appellant to show cause as to

why penalty under Section 173Q and interest under Section 11AA

should  not  be  levied.   After  hearing  the  appellant,  the  Deputy

Commissioner  held  vide  order  dated 26.02.2002 that  Dharmada

cannot be considered as trading receipts and was not part of the

assessable  value.   Therefore,  no  duty  was  payable  on  the

component of Dharmada.

5. Thereafter, in an appeal filed by Revenue, the Commissioner

(Appeals),  however,  held  that  the  Dharmada  was  liable  to  be

included as a part of the assessable value and therefore the goods

were  liable  to  be  assessed  on  the  basis  of  their  price  plus

Dharmada.   

The Central  Excise and Service  Tax Appellant  Tribunal  (for

short “CESTAT”), in an appeal filed by the appellant, by judgment

dated 6.1.2005 partly allowed the appeal and held that the duty

amount needs to be recalculated.  The CESTAT however rejected

the  appellant’s  contention  that  Dharmada  was  not  part  of  the

transaction value.  The CESTAT purported to follow the judgment of

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this Court in Collector vs. Panchmukhi Engineering Works1, whereby

this Court held that Dharmada charged by the assessee is liable to

be included in the assessable value.   

6. In the appeal filed by the appellant before a Division Bench of

this  Court,  it  was  contended  that  the  decision  in  Panchmukhi

(supra) followed an earlier decision of Tata Iron & Steel Co. Ltd. vs.

Collector of Central Excise, Jamshedpur2 which did not apply to the

present case at all.  The Tata Iron & Steel case was a case where

steel  plants  added  a  surcharge  to  the  ex-works  price  at  the

instance of a committee under the Iron and Steel (Control) Order,

1956.  This surcharge was added to generate money for a steel

development  fund  to  implement  schemes  entrusted  to  the

committee by the Central Government.  The surcharge went to the

committee for use in its various schemes and for the expenditure

incurred towards discharge of the committee’s functions.  Thus, the

question before this Court was if surcharge being a charge that was

compulsorily payable by the customers could be considered as a

part of the price i.e. the assessable value.   

This Court held that the surcharge was a part of the price fixed

by the committee under the statutory provisions.  The appellant’s

contention  was  that  the  decision  in  Panchmukhi  (supra)  which

merely followed the decision in Tata Iron & Steel (supra) was no

authority for the proposition that Dharmada being a donation for

1 2003 (158) ELT 550 (SC) 2 2002 (146) ELT 3 (SC)

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charitable  purposes  was  liable  to  be  included in  the  assessable

value.

7. In addition, the appellant contended that this Court has clearly

held  in  the  case  of  The  Commissioner  of  Income  Tax  (Central)

Delhi,  New  Delhi  vs.  Bijli  Cotton  Mills  (P)  Ltd.  Hathras,  District

Aligarh3 that amounts received for Dharmada and earmarked for

charitable purposes are amounts received by the assessee under

an  obligation  to  spend  the  same  for  charitable  purposes.

Therefore,  these  receipts  cannot  be  regarded  as  income of  the

assessee.   

8. On noticing the above contentions, a Division Bench of this

Court  vide  order  dated  29.7.2015  has  referred  the  following

question to this larger Bench: -

Whether  the  Dharmada collected by  the  appellant  which  is

clearly an optional payment made by the buyer can be regarded as

part of the transaction value for the sale of goods.  

9. An important fact that needs to be noted at the outset is that

there is no dispute before us that though paid along with the sale

price,  the  payment  for  Dharmada  was  made  voluntarily  by  the

purchasers and that upon receipt was made over to charity.  There

is no challenge that it is in fact not voluntary.  There are certificates

on record by the chartered accountant that shows the Dharmada

collection was credited to a separate account  and donated to a 3 (1979) 1 SCC 496

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trust during the period of the show cause notices.   

10. The  only  question  that  arises  for  decision  is  whether  the

amount included as Dharmada by a manufacturer and credited for

charitable purposes is liable to be included in the assessable value

of manufactured goods; the seller having merely acted as conduit

between the purchaser and charity.

11. It is necessary to enquire into the nature of the transaction i.e.

what was sold, the price that was paid and the transaction value

for the purpose of arriving at the assessable value.

WHAT WAS SOLD

12. The appellant manufactured and sold chewing tobacco to their

customers.  A price was paid by the customers as ‘consideration’

for  these  goods  i.e.  transfer  of  property  of  the  goods  to  the

customers.  This is clear from the invoices.  

THE  ‘TRANSACTION  VALUE’  FOR  THE  PURPOSE  OF  ARIVING  AT ASSESSABLE VALUE

Sale and purchase have been defined vide Section 2 (h) to

mean any transfer of the possession of goods for payment or other

valuable consideration.  A contract of sale under The Sale of Goods

Act, 1930 means a contract whereby the seller transfers or agrees

to  transfer  the  property  in  goods  to  the  buyer  for  a  price  vide

Section 44.  The transaction in this case was the sale of chewing 4 Section 4 of The Sale of Goods Act, 1930

4.  Sale and agreement to sell.— (1) A contract of sale of goods is a contract whereby the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may be a contract of sale between one part-owner and another.

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tobacco.

13. Under  the  Act,  excise  duty  is  chargeable  with  reference  to

their value on removal of the goods.  In case of sale of goods where

price is the sole consideration for the sale, duty is charged on the

transaction value vide Section 45. Additional consideration if any is

also included in the duty payable on such goods vide explanation.  

“Transaction value” is defined vide Section 4(3)(d)  of  the Act to

mean “the price actually paid or payable for the goods, when sold,

and  includes  in  addition  to  the  amount  charged  as  price,  any

amount  that  the  buyer  is  liable  to  pay  to,  or  on  behalf  of  the (2) A contract of sale may be absolute or conditional. (3) Where under a contract of sale the property in the goods is transferred from the seller

to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to take place at a future time or subject to some condition thereafter to be fulfilled, the contract is called an agreement to sell.

(4) An agreement  to  sell  becomes a sale when the time elapses or  the conditions  are fulfilled subject to which the property in the goods is to be transferred. 5 Section 4 of The Central Excise Act, 1944

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 their value, then, on each removal of the goods, such value shall - (a) in a case where the goods are sold by the assessee, for delivery at the time and place

of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, be the transaction value;

(b)  in  any other  case,  including the case where the goods  are not  sold,  be the value determined in such manner as may be prescribed.  

Explanation. - For the removal of doubts, it is hereby declared that the price-cum-duty of the excisable goods sold by the assessee shall be the price actually paid to him for the goods sold and the money value of the additional consideration, if any, flowing directly or indirectly from the buyer  to  the assessee  in  connection  with  the  sale  of  such goods,  and  such  price-cum-duty, excluding sales tax and other taxes, if any, actually paid, shall be deemed to include the duty payable on such goods.

(2)     ……….  (3) (a)……….        (b)……….        (c) ……….        (d) “transaction value” means the price actually paid or payable for the goods, when

sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter; but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods.]

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assessee by reason of or in connection with the sale……., but does

not include the amount of duty of excise, sales tax and other taxes,

if any, actually paid or actually payable on such goods”.

14. In case of a sale of goods, excise duty is chargeable where

price  is  the  sole  consideration  of  a  sale  on  `Transaction  value’.

`Transaction value’ means the price actually paid or payable for

the goods and any additional amount the buyer is liable to pay to

the assessee or anyone on his behalf in connection with the sale

vide Section 4(3)(d) supra. Rule 6 of the Central Excise Valuation

(Determination of Price and Excisable Goods), Rules 20006 provides

that in case of a sale, the value of such goods shall be deemed to

be the transaction value and the amount of money value of any

considerations following directly or indirectly from the buyer to the

assessee.   Thus, duty is chargeable on the “price actually paid for

the  goods”,  in  other  words,  the  price  paid  as  consideration  for

transfer of property in the goods. The test for determining whether

in a transaction of sale any amount has been paid as price so that

it can be treated as transaction value is only whether, the money

was paid for the goods as consideration or the money value on any

additional consideration paid in connection with the sale of goods.

No amount not paid as consideration for the goods can go to make

transaction value.  

6 Rule 6 - Where the excisable goods are sold in the circumstances specified in clause (a) of sub section  (1)  of  section  4  of  the  Act  except  the  circumstance  where  the  price  is  not  the  sole consideration for sale,  the value of  such goods shall  be deemed to be the aggregate of  such transaction value and the amount of money value of any additional consideration flowing directly or indirectly from the buyer to the assessee.

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`Consideration’ means, vide Garner’s Dictionary of Legal Usage, 3rd

Edition: `the act, forbearance or promise by which one party to the

contract  keep  the  promise  of  another’.  The  term  valuable

consideration refers to an act, forbearance or promise having an

economic value. In this case, it is clear that only the money paid

for the  promise  of  transferring  goods  was  the  valuable

consideration contemplated by the Excise Act and the Rules.  The

transaction value was the sale of goods and the consideration was

the price or value paid for the goods.  The transaction value must

be construed accordingly.     

This fairly clears up the character of any other amount paid at

the time of the transaction of sale of goods.    Thus, if an amount is

paid at the time of the sale transaction for a purpose  other  than

the price of the goods, it cannot form part of the transaction value;

also for the reason that such payment is not for the transaction of

sale  i.e.  for  the  transfer  of  possession of  goods.   Any payment

made  along  side  such  a  transaction  cannot  be  treated  as

consideration for the goods.

DHARMADA

15. This takes us to the nature of  the “Dharmada” when given

along with the sale price of  goods.  Dharmada is well  known in

India  to  be  a  donation  or  an  offering  made for  the  purpose  of

charity  as  distinct  from  a  commercial  transaction.  This  Court

Page 8 of 18

considered the nature and character of Dharmada in  Bijli  Cotton

Mills  (supra).   That case arose under  the Income Tax Act.   The

assessee used to realise certain amounts on account of Dharmada

from his customers on sales of yarn and bales of cotton.  The rate

was one anna per bundle of ten pounds of yarn and two annas per

bale of cotton.  The receipts of Dharmada were not credited to the

trading account but the assessee maintained a separate account

known as the Dharmada account.  The authorities under the Act

held that the amounts held by the assessee could not be regarded

as having been held under trust for charitable purposes.

16. The High Court,  however,  held that  the impugned amounts

paid  as  Dharmada were  never  the  income of  the  assessee and

assessee  was  merely  acting  as  a  conduit  for  passing  on  the

amounts  to  the  objects  of  charity.   These  amounts  were  never

treated as trading receipts or as surcharge on the sale price which

was  evident  from  the  fact  that  such  realisations  were  never

credited to the trading account nor shown in the profit and loss

statement for any year.   

This Court considered the question in great detail  and after

referring  to  Professor  Wilson’s  Glossary  and  Molesworth’s

Dictionary observed that Dharmada means “an alms or a gift  in

charity”.  This Court observed that though there might be some

vagueness as a matter of law, in the word Dharma, there was none

in relation to Dharmada or Dharmadaya and such a payment would

Page 9 of 18

not be invalid for vagueness or uncertainty.  This Court accepted

the decision  of  the  Allahabad High  Court  in  Thakur  Das  Shyam

Sunder vs. Additional CIT7 and observed that “it cannot be disputed

that among the trading or commercial community in various parts

of  the  country,  a  gift  or  payment  for  Dharmada  is  by  custom

invariably regarded as a gift for charitable purposes”.  This Court

observed that the answer to the question depended on the nature

of the obligation created by the customer and approved the finding

of  the  Allahabad  High  Court  to  the  effect  that  merely  because

under the law relating to trust legal ownership over the trust fund

and  the  power  to  control  and  dispose  of  always  vest  in  the

trustees, the discretion vested in the trustee to spend the amount

over charities will not affect character of the deposit.  

17. This  Court  also  relied  on  CIT,  West  Bengal,  Calcutta  vs.

Tollygunge Club Ltd., Calcutta8.  In that case, the Court considered

the  nature  of  a  surcharge  of  eight  annas  over  and  above  the

admission fees into the enclosure of the club at the time of the

races.  The proceeds of this surcharge were to go to the Red Cross

Fund and other local charities.  This Court approved the decision of

the Calcutta High Court and held that the “surcharge was not part

of  the price for  admission but  made for  the specific purpose of

being applied to local charities”. It observed “the admission to the

enclosure  is  the  occasion  and  not  the  consideration  for  the

7 93 ITR 27 8 (1977) 2 SCC 790 : (1977) 107 ITR 776

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surcharge taken from the race-goer.  It rejected the contention that

the payment was involuntary, observing “that does not render the

payment of the surcharge involuntary, because it is out of his own

volition that he seeks admittance to the enclosure”.

Applying the above decisions to the case before it, this Court

held in Bijli Cotton Mills (supra) that Dharmada amounts cannot be

said to have been paid involuntarily by the customers and in any

case  the  compulsory  nature  of  the  payments,  if  there  be  any,

cannot  impress  the receipts  with  the character  of  being trading

receipts.

18. We find from the facts of the case before us that the receipts

on account of Dharmada were voluntary, earmarked for charity and

in fact credited as such.  Though the payment as Dharmada has

been found to be voluntary, it would make no difference to the true

character and nature of the receipts even if there were found to be

paid compulsorily because the purchaser, purchased the goods out

of their own volition.  The purchase of the goods is the occasion

and not consideration for the Dharmada paid by the customer as

held in Bijli Cotton Mills (supra) vide para 15: -

“15. ……  It  is  true  that  without  payment  of “Dharmada” amount the customer may not be able to  purchase the  goods  from the assessee but  that would not make the payment of “Dharmada” amount involuntary inasmuch as it is out of his own volition that he purchases yarn and cotton from the assessee. The “Dharmada” amount is, therefore, clearly not a part  of  the  price,  but  a  payment  for  the  specific purpose  of  being  spent  on  charitable  purposes.

Page 11 of 18

……...”

19. In this case, the CESTAT decided against the assessee relaying

on  Panchmukhi  (supra).   The case  of  Panchmukhi  (supra)  was

apparently  decided  not  after  a  discussion  on  facts  and  law but

because the counsel for the revenue submitted that the matter is

covered by the decision in Tata Iron & Steel (supra) and the counsel

for  the  assessee  “was  not  in  a  position  to  dispute  this  legal

position”.   The  judgment  in  Panchmukhi  (supra)  has  little

precedential  value.   The  point  whether  Dharmada  involved  in

Panchmukhi (supra) and the surcharge held as price in Tata Iron &

Steel  (supra)  were  identical  and  liable  to  be  included  in  the

transaction value passed sub-silentio.  Salmond on Jurisprudence

Twelfth  Edition  p.15h  states  that  a  decision  held  is  not  binding

since it was decided “without argument, without reference to the

crucial words of the rule, and without any citation of authority”,

therefore,  would  not  be  followed.   The  author  also  states  that

precedents sub-silentio and without arguments are of no moment.

This is enough reason for not  treating the decision in Panchmukhi

(supra) as a binding precedent.

It is, therefore, necessary to take a look at Tata Iron & Steel

(supra).  That was a case where the customer paid a surcharge on

the price of steel.  This surcharge was added to generate money

for a steel development fund to implement schemes entrusted to

the committee by the Central Government.  The surcharge went to

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the  committee  for  use  in  its  various  schemes  and  for  the

expenditure  incurred  towards  discharge  of  the  committee’s

function.

20. Nonetheless, the surcharge was part of the consideration paid

by the customer for  the price of  steel.   The notifications  under

which the surcharge was added clearly stated as follows: -

(i) “The  Committee  may add  an  element  to  the  ex-

works prices determined ……..”   

and

(ii) “The Committee may require members steel plants

to add the elements listed below to their ex-works………”

The purpose of this addition was to constitute a steel development

fund  for  modernisation,  research  &  development,  diversification

etc.  for  improving  the  quantum of  technology  and  efficiency  of

production of iron and steel and their quality.

21. The  other  objects  of  the  fund,  were  to  implement  specific

schemes entrusted to the Committee by the Central Government

and towards the Engineering Goods Export Assistance Fund.  This

Court  considered  the  question  whether  the  addition  would  fall

under the meaning of the term “other taxes” within the meaning of

Section 4 (ii) which excluded the amount of other taxes payable on

such goods from value.  It was contended on behalf of the assessee

that they were compelled by law to collect this charge over and

above the price without the right to appropriate it for themselves

Page 13 of 18

and with a duty of making it over to a third party and therefore the

charges could not be regarded as part of the consideration of the

sale price of goods.   

This  Court  held  that  the charges were clearly  added as  an

element of price and observed, “thus what was being added was to

the price”.  Another aspect to be kept in mind is that the ultimate

beneficiaries of these amounts are the steel plants themselves.

22. We  find  that  the  decision  in  Tata  Iron  &  Steel  (supra)  is

completely inapposite to the circumstances of the case before us.

The reliance placed on Tata Iron & Steel (supra) and Panchmukhi

(supra) which was a case of Dharmada, is misplaced.  Panchmukhi

(supra) cannot be said to be good law.

23. In the circumstances we hold that when an amount is paid as

Dharmada along with the sale price of goods, such payment is not

made in consideration of the transfer of goods. Such payment is

meant for charity and is received and held in trust by the seller.  If

such amounts are meant to be credited to charity and do not form

part of the income of the assessee  they cannot be included in the

transaction value or assessable value of the goods.  

24. Thus,  the  answer  to  the  question  referred  by  the  Division

Bench is as follows: -

“The  Dharmada  collected  by  the  appellant  which  is  clearly  an

optional payment made by the buyer cannot be regarded as part of

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the transaction value for the sale of goods.”

25. The judgment of the CESTAT is accordingly set aside.  

The appeal is allowed.  

….………………………………..J.   [S.A. BOBDE]

….………………………………..J.         [DEEPAK GUPTA]

….………………………………..J.         [VINEET SARAN]

NEW DELHI  APRIL 9, 2019

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REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL  APPEAL No.531   OF 2008

Commissioner of Central Excise and Customs, Bangalore                               ... Appellant(s)

Versus

M/s JSW Steel Ltd. (formerly known as Jindal Vijayanagar Steel Ltd.)      … Respondent(s)                                 

J U D G M E N T  

S.A. BOBDE, J.

The Revenue-Appellant has come in appeal against the

order of the Central Excise and Service Tax Appellant Tribunal (for

short “CESTAT”) dated 04.04.2007. The Respondent manufactured

goods  falling  under  Chapter  72 of  The Central  Excise Tariff  Act,

1985. The Respondent manufactured Pig Iron and HR Coil Sheets.

While selling the goods they raised invoices on the price of goods

plus ‘Dharmada’ a charitable donation from customers. According

to the Respondent, the Dharmada was meant for charity and was

accordingly credited to charity.  

2. However, show cause notice dated 19.03.2004 was issued by

the  office  of  the  Deputy  Commissioner  of  Central  Excise  and

Customs,  Bellary  under  Section  4  of  the  Act  calling  upon  the

Page 16 of 18

Respondent  to show cause as to why penalty  under Rule 25 of

Central Excise Rules, 2002 and interest under Section 11AB of the

Central  Excise Act,  1944 should not be levied. After hearing the

Respondent,  the  Deputy  Commissioner  vide  order  dated

10.09.2004  held  that  the  Dharmada  is  to  be  added  to  the

assessable value for the payment of central excise duty.  

3. Thereafter,  in  an  appeal  filed  by  the  Respondent,  the

Commissioner  (Appeals),  confirmed  the  decision  of  the  Deputy

Commissioner  and rejected the  appeal  and held  that  Dharmada

should  be  added  to  the  assessable  value.  Therefore,  the  goods

were  liable  to  be  assessed  on  the  basis  of  their  price  plus

Dharmada.  

The CESTAT in an appeal filed by the Respondent, by judgement

dated  04.04.2007,  allowed  the  appeal  and  set  aside  the  order

passed by Commissioner (Appeals) dated 29.03.2005.  The CESTAT

purported to follow its  judgment in  the case of  Mohan and Co.,

Madras vs. CCE Madras, which was affirmed by the Supreme Court

in appeal, whereby this Court held that Dharmada was not liable to

be added in the assessable value.  

4. Thereafter, in Civil Appeal No.531 of 2008 before this Court, it

was contended by the Appellant before a Division Bench of this

Court,  that the decision in  Collector vs.  Panchmukhi Engineering

Works9 was to be followed. Thus, contending that Dharmada should

9 2003 (158) ELT 550 (SC)

Page 17 of 18

be a part of the assessable value.  

5. The present case has been tagged with the case of M/s D.J.

Malpani vs. Commissioner of Central Excise, Nashik which has been

referred to this Bench vide order dated 29.07.2015.  We have held

that  the  amount  of  Dharmada  cannot  be  included  in  the

transaction value for the purposes of assessments.

6. In view of the judgment in the case of Civil Appeal No. 5282 of

2005, M/s D.J. Malpani vs. Commissioner of Central Excise, Nashik,

we hereby dismiss the present appeal.  

….………………………………..J.   [S.A. BOBDE]

….………………………………..J.         [DEEPAK GUPTA]

….………………………………..J.         [VINEET SARAN]

NEW DELHI  APRIL 9, 2019

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