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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 1959 OF 2006

M/S PUROLATOR INDIA LTD.             …APPELLANT    VERSUS

COMMISSIONER OF CENTRAL EXCISE,     DELHI – III ...RESPONDENT

J U D G M E N T  

R.F. Nariman, J.

1. M/s Purolator India Limited (hereinafter referred to

as  the  appellant)  is  engaged  in  the  manufacture  of

excisable  goods,  namely  Filter  Elements,  Inserts,  and

Cartridges  and  Components.  These  goods  are  either

cleared by the appellant to various vehicle manufacturers

or stock transferred to depots from where they are further

stock transferred to clearing and forwarding agents.  

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2. For  effecting  stock  transfers,  the  appellant  filed

declarations under Rule 173C with the excise department.

In  these  declarations,  the  appellant  claimed  deduction

towards Sales Tax, Cash Discount and Volume Discount on

excise duty payable to arrive at the assessable value under

Section 4 of the Central Excise and Salt Act, 1944.  

3.  Apart from undertaking manufacturing activities, the

appellant at times also receives goods from customers for

repair  in  case of  defects  noticed by the customers.  The

customers either reject the entire lot or a particular box etc.

if they notice any defect, so that their time is not wasted in

checking each and every item and thus,  goods are sent

back to the appellant. On receipt of such consignments, the

appellant  checks  the  same  for  defects  indicated  and

undertakes  necessary  repairs.  Thereafter,  the  finished

products  are  returned  to  customers.  The  appellant  was

filing  the  necessary  D-3  declarations  for  receipt  of  such

returned goods and was maintaining the register required

in  Form  V  for  the  said  purposes  and  was  thereafter

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returning such repaired items under the provisions of Rule

173H without payment of duty thereon.  

4. A Show Cause Notice dated 2.4.2002 was issued

wherein it was alleged that the appellant is not eligible for

the  various  deductions  claimed  on  account  of  volume

discount, sales tax and cash discount. Besides this it was

also alleged that the appellant has removed new finished

excisable goods instead of old/repaired goods.  

5. The  appellant  filed  a  detailed  reply  to  the  show

cause  notice  countering  each  and  every  allegation.  The

Commissioner of Central Excise, Delhi-III passed an Order

dated 31.12.2003 dropping the duty  demands on all  the

issues for  the period April  1996 to February 1997, being

more  than  five  years  old.  Further,  he  dropped  the  duty

demand on the issue of cash discount for the period prior to

July  2000.  However,  on  the  remaining  issues,  the

Commissioner  has  confirmed  duty  demand  of  Rs.

44,66,247/-  and also imposed penalty of Rs. 49,66,247/-

on the appellant as follows:-

“ORDER

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With  a  view  to  the  discussion  and  findings recorded above  

(i)  invoke  extended  period  of  limitation provided in first  proviso to Section 11A(1) of the Central Excise Act, 1944, and determine the following amounts in terms of provisions of Section 11A and direct  the assessee to pay the same forthwith.  

(a)  Rs.  13,43,046/-  towards  duty involved  on  replaced  goods  cleared between March 1997 to March 2001.  

(b)  Rs.  14,27,483/-  towards  duty computed for the period of March 1997 to March, 2001 on volume discount.  

(c)  Rs,  11,96,601/-  towards  duty computed for the period of March 97 to March,  2001  on  Sales  Tax  deduction and  

(d)  Rs.  4,99,117/-   towards  duty  on cash  discount  for  the  period  of  July 2000 to   March, 2001  

(ii)  confirm  that  the  interest  in  terms  of provisions of Section 11AB ibid is payable by the assessee on the amounts of (i) (a) to (i) (d) above;  

(iii)  impose  a  penalty  of  Rs.  44,66,247/-  on assessee  under  the  provisions  of  Section 11AC ibid;  

(iv)  impose  a  penalty  of  Rs.  5  lakhs  on assessee in terms of provisions of Rule 173Q of the Central Excise Rules, 1944 and Rule 25 of the Central Excise Rules,  2001 both read

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with  section  38A of  the  Central  Excise  Act, and

(v)  appropriate the amounts of  Rs. 29,140/-, Rs.  38,896/-,  Rs.  42,728/-  and  Rs.  19,443/- which were voluntarily paid by the assessee on account of duty on handling charges and differential duty.  

It is clarified that the amount of penalty in (iii) above shall be reduced to 25% thereof if the assessee deposits  the  amounts  of  the  duty, interest  and  penalty,  determined  vide  this order  within  30  days  from  the  date  of communication of  this  order;  and that  if  the assessee has already deposited /paid  some amount  in  relation  to  the  dues  determined above, then such payment shall be adjusted against the dues.”

6. When it came to cash discount, the Tribunal upheld

the finding of the Commissioner on the following basis:-

“10.  Regarding  cash  discount,  it  is  not  in dispute that the duty has been demanded in respect  of  cash  discount  which  was  not actually  passed  on  to  the  customers.  The learned Advocate has relied upon the decision in  Pace  Marketing  Specialities  Ltd,  supra, wherein it has been held by the Tribunal that cash discount is a discount allowed for prompt payment for the goods and when this discount is reduced from the invoice price, transaction value  at  the  time  of  delivery  of  goods  is obtained,  otherwise,  the  invoice  price  is  a future price and as the assessable value is to be determined with regard to time of removal

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financing and other cost cannot form part of the  assessable  value.  With  due  regard,  we find ourselves unable to agree with this view. The measure for valuation under New Section 4 of the Central Excise Act (with effect from 1.7.2000)  is  the  "transaction  value"  and  not the "deemed value" which was the case under the  Old  Section  4  of  the  Act.  Under  Old Section 4 the value shall be deemed to be the normal price, that is to say, the price at which such  goods  are  ordinarily  sold  by  the assessee  to  a  buyer  in  the  course  of wholesale  trade  or  delivery  at  the  time and place  of  removal.  In  view  of  this  clear language  of  the  Section  itself,  the  Bombay High Court in the case of Jenson & Nicholson (India) Ltd. Vs. Union of India, 1984 (17) ELT 4  (Bom.)  has  filed  that  the  wholesale  cash price  on  which  the  excisable  duty  is assessable  will  naturally  be the price  minus the cash discount allowed in the invoice. The Hon'ble  High  Court  has  proceeded  on  the basis that the sales are effected on the basis of the price basis which themselves mention the various terms subject to which the sales are  effected.  The  Tribunal  followed the  said Judgment  in  CCE,  Meerut  Vs.  Station Shox Ltd. 1996 (85) ELT 139 (T). The provision of Section 4 of the Central Excise Act have since then completely changed. As per new Section 4. Value shall "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 buyers of the goods are not related and the price is the sole consideration for the sale, be the transaction value." Thus in the present matter, the value for the purpose of Section 4 shall be the transaction value which has been defined  in  clause  (d)  of  sub-section(3)  of Section 4 of the Act as under:-  

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''transaction  value"  means  the  price actually paid or payable for the goods, when sold,  and includes in  addition to amount charged as priced, any amount that they 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  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."  

11. Thus the value has under gone a complete change.  The  question  to  be  asked  for determination of the assessable value under new  Section  4  is  what  is  the  "transaction value" of the goods that is "the price actually paid  or  payable  for  the  goods  when  sold." Contrary  to  these  provisions,  under  the  old Section 4 the value was a deemed one, that is to say, the price at which goods a ordinarily sold  in  the  course  of  wholesale  trade.  Now under New Section 4, one has not to look as to  what  is  the  price  at  which  goods  are ordinarily  sold  in  the  course  of  wholesale trade. The price actually paid or payable is to be taken up as the assessable value. In the present matter, the transaction value has to be taken for the purpose  of assessment of duty under Section 4 of the Central Excise Act and as  admittedly  no  cash  discount  has  been

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given to the customers, the actual price paid by them shall be the assessable value.  

12. Accordingly, we reject the appeal as far as it  relates  to  the  allowance  of  deduction  on account of cash discount. In respect of volume discount  and  sales  tax  and  duty  liability  in respect  of  returned  goods,  the  matter  is remanded  to  the  jurisdictional  Adjudicating Authority  for  re-adjudication  in  terms  of  our direction.  We  leave  the  issue  regarding imposition of penalty open to be decided by the Adjudicating Authority.”

7. Shri  Lakshmikumaran,  learned  counsel  for  the

appellant, has argued that Section 4 of the Central Excise

and  Salt  Act,  1944  as  amended  in  2000,  has  made  no

change in the situation qua cash discount as it  obtained

under the old Section 4.  According to him, what has to be

seen in  order  to  arrive  at  the correct  value of  excisable

goods under Section 4 is such value at the time of removal,

and this being so under both the old Section and the new

Section, cash discount has to be allowed as has been held

in Union of India  v. Bombay Tyre International Limited,

1984  (17)  ELT 329  (SC),  and  Government  of  India  v.

Madras Rubber Factory Ltd., 1995 (77) ELT 433 (SC).  

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8. Further,  according  to  the  learned  counsel,

“transaction value” which was introduced for the first time

into the amended Section 4 does not  make any change

with regard to the fact that such transaction value is only at

the time of  removal  from the factory or  depot,  being the

time  of  clearance  of  excisable  goods  from  the  factory

premises or depot as the case may be. According to him,

every agreement of sale entered into by the assessee with

its buyers makes it  known before the goods are cleared

that there is to be a cash discount insofar as the appellant’s

goods are concerned. Therefore, this being the case, it is

clear that at the time of clearance of the excisable goods

from the appellant’s factory, such discounted price alone

has  to  be  the  value  of  the  goods  cleared  from  the

appellant’s factory even under the amended Section 4.

9. Ms.  Pinky  Anand,  learned  Additional  Solicitor

General,  has,  on  the  other  hand,  stated  that  the

introduction  of  “transaction  value”  into  the  amended

Section 4 makes a world of difference and that therefore

only what is actually paid ultimately is to be looked at for

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the purpose of valuation of the appellant’s goods.  If it is

found  that  what  is  “actually  paid”  is  not  the  discounted

price,  then the transaction value cannot  possibly  include

cash  discount.   For  this  purpose,  she  relied  upon  the

decision in Commissioner of Central Excise, Jaipur-II v.

Super Synotex (India) Ltd. and Ors., 2014 (301) ELT 273

(SC).  

10. We have heard learned counsel for the parties.  In

order to better appreciate the arguments on both the sides,

it is necessary to set out Section 4 of the Central Excise

and Salt Act as it obtained prior to the amendment made in

1973,  the  amendment  made  in  1973;  and  finally  the

amendment made in 2000.

11. Section 4, prior to its amendment in 1973, read as

follows:- “4.  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 or production, or if  a whole the

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place  of  manufacture  or  production,  or  if  a wholesale  market  does  not  exist  for  such article  at  such  place,  at  the  nearest  place where such market exists, or

(b) Where such price is not  ascertainable, the price at which an article of  the like kind and quality is sold or is capable of being sold by the manufacturer or producer, or his agent, at  the  time  of  the  removal  of  the  article chargeable  with  duty  from  such  factory  or other  premises  for  delivery  at  the  place  of manufacture or production, or if such article is not  sold  or  is  not  capable  of  being  sold  at place at any other place nearest thereto.

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.”

12.  After the amendment of 1973, Section 4 reads as

follows:-

“4. Valuation of excisable goods for purposes of  charging  of  duty  of  excise.-  (1)  Where under  this  Act,  the  duty  of  excise  is chargeable  on  any  excisable  goods  with reference to value, such value, shall, subject to  the  other  provisions  of  this  section,  be deemed to be –  (a) the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of

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wholesale trade for  delivery at  the time and place  of  removal,  where  the  buyer  is  not  a related  person  and  the  price  is  the  sole consideration for the sale:

Provided that -  

(i)  where,  in  accordance  with  the  normal practice of the wholesale trade in such goods, such  goods  are  sold  by  the  assessee  at different prices to different classes of buyers (not  being related persons)  each such price shall,  subject  to  the  existence  of  the  other circumstances  specified  in  clause  (a),  be deemed to be the normal price of such goods in relation to each such class of buyers;  (ia) where the price at which such goods are ordinarily sold by the assessee is different  for different  places of  removal,  each such price shall,  subject  to  the  existence  of  other circumstances  specified  in  clause  (a),  be deemed to be the normal price of such goods in relation to each such place of removal;

(ii)  where  such  goods  are  sold  by  the assessee in the course of wholesale trade for delivery at the time and place of removal at a price fixed under any law for the time being in force or at a price, being the maximum, fixed under  any  such  law,  then,  notwithstanding anything  contained  in  clause  (iii)  of  this proviso,  the price or  the maximum price,  as the case may be, so fixed, shall, in relation to the  goods  so  sold,  be  deemed  to  be  the normal price thereof;  

(iii) where the assessee so arranges that the goods  are  generally  not  sold  by  him  in  the course of wholesale trade except to or through a  related  person,  the  normal  price  of  the

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goods  sold  by  the  assessee  to  or  through such related person shall be deemed to be the price at which they are ordinarily sold by the related  person  in  the  course  of  wholesale trade at the time of removal, to dealers (not being related persons) or where such goods are not sold to such dealers, to dealers (being related persons), who sell such goods in retail;

(b) where the normal price of such goods is not  ascertainable  for  the  reason,  that  such goods are not sold or for any other reason, the nearest  ascertainable  equivalent  thereof determined  in  such  manner  as  may  be prescribed.  

(2) Where, in relation to any excisable goods the price thereof for  delivery at  the place of removal is not known and the value thereof is determined  with  reference  to  the  price  for delivery  at  a  place  other  than  the  place  of removal,  the  cost  of  transportation  from the place of removal to the place of delivery shall be excluded from such price.   (3)  The  provisions  of  this  section  shall  not apply  in  respect  of  any excisable  goods for which  a  tariff  value  has  been  fixed  under sub-section (2) of section 3.  

(4) For the purposes of this section, -

(a) "assessee" means the person who is liable to pay the duty of excise under this Act and includes his agent;  

(b) "place of removal" means-  

(i) a factory or any other place or premises of production  or  manufacture  of  the  excisable goods;  

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 (ii)  a  warehouse  or  any  other  place  or premises  wherein  the excisable  goods  have been  permitted  to  be  deposited  without payment of duty;  

(iii) a depot, premises of a consignment agent or any other place or premises from where the excisable  goods  are  to  be  sold  after  their clearance from the factory and,

from where such goods are removed;  

(ba)  "time  of  removal",  in  respect  of  goods removed from the place of removal referred to in  sub-clause  (iii)  of  clause  (b),  shall  be deemed to be the time at which such goods are cleared from the factory;

(c) "related person" means a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of  each  other  and  includes  a  holding company,  a  subsidiary  company,  a  relative and  a  distributor  of  the  assessee,  and  any sub-distributor of such distributor.  

Explanation. -  In  this  clause  "holding company",  "subsidiary  company"  and "relative” have the same meanings as in the Companies Act, 1956 (1 of 1956);  

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

(i) where the goods are delivered at the time of removal in a packed condition, includes the cost  of  such packing except  the cost  of  the packing which is  of  a durable nature and is returnable by the buyer to the assessee.  

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Explanation.  – In this sub-clause, “  packing” means  the  wrapper,  container,  bobbin,  pirn, spool, reel or warp beam or any other thing in which  or  on  which  the  excisable  goods  are wrapped, contained or wound;  

(ii) does not include the amount of the duty of excise,  sales  tax  and  other  taxes,  if  any, payable on such goods and, subject to such rules  as  may  be  made,  the  trade  discount (such discount  not  being  refundable  on  any account  whatsoever)  allowed  in  accordance with  the  normal  practice  of  the  wholesale trade at the time of removal in respect of such goods sold or contracted for sale.  

Explanation.  -  For  the  purposes  of  this sub-clause, the amount of the duty of excise payable on any excisable goods shall be the sum total of –  

(a)  the  effective  duty  of  excise  payable  on such goods under this Act; and  

(b)  the  aggregate  of  the  effective  duties  of excise  payable  under  other  Central  Acts,  if any, providing for the levy of duties of excise on such goods,  

and the effective duty of excise on such goods under  each  Act  referred  to  in  clause  (a)  or clause (b) shall be,-  

(i)  in  a  case  where  a  notification  or  order providing  for  any  exemption  (not  being  an exemption for giving credit with respect to, or reduction of duty of excise under such Act on such goods equal to, any duty of excise under such Act, or the additional duty under section 3 of the Customs Tariff Act, 1975 (51 of 1975),

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already  paid  on  the  raw   material  or component  parts  used  in  the  production  or manufacture of such goods) from the duty of excise under such Act is for the time being in force,  the  duty  of  excise  computed  with reference to the rate specified in such Act, in respect  of  such goods as reduced so as to give  full  and  complete  effect  to  such exemption; and  

(ii)  in  any  other  case,  the  duty  of  excise computed with reference to the rate specified in such Act in respect of such goods.

(e) "wholesale trade" means sales to dealers, industrial  consumers,  Government,  local authorities  and  other  buyers,  who  or  which purchase their requirements otherwise than in retail.”

13. Section 4, as it reads after the amendment of 2000,

is as follows:-

“4. Valuation of excisable goods for purposes of charging of duty of excise.-

(1) Where under this Act, the duty of excise is  chargeable  on  any  excisable  goods  with reference to 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;

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(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.  

(2) The provisions of this section shall  not apply  in  respect  of  any excisable  goods for which  a  tariff  value  has  been  fixed  under sub-section (2) of section 3.

(3) For the purpose of this Section,-

(a) “assessee”  means  the  person  who  is liable to pay the duty of excise under this Act and includes his agent;

(b) persons shall be deemed to be “related” if-

(i)    they are inter-connected undertakings;

(ii)     they are relatives;

(iii) amongst  them  the  buyer  is  a relative and a distributor of the assessee, or a sub-distributor of such distributor; or

(iv) they  are  so  associated  that  they have interest,  directly  or  indirectly, in  the business of each other.  

Explanation. – In this clause –

(i) “inter-connected  undertakings”  shall have the meaning assigned to it in clause (g) of section 2 of the Monopolies and Restrictive Trade Practices Act, 1969 (64 of 1969); and  

(ii) “relative”  shall  have  the  meaning assigned to it in clause (41) of section 2 of the Companies Act, 1956 ( 1 of 1956);

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(c) “place of removal” means -

(i) a factory or any other place or premises of  production  or  manufacture  of  the excisable goods;  

(ii)  a  warehouse  or  any  other  place  or premises  wherein  the  excisable   goods have  been  permitted  to  be  deposited without payment of duty,  

from where such goods are removed;  

(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.”  

14. It  can  be  seen  that  the  common  thread  running

through Section  4,  whether  it  is  prior  to  1973,  after  the

amendment in 1973, or after the amendment of 2000, is

that  excisable  goods  have  to  have  a  determination  of

“price” only “at the time of removal”.  This basic feature of

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Section 4 has never changed even after two amendments.

The “place of  removal”  has been amended from time to

time so that  it  could be expanded from a factory or  any

other  premises  of  manufacture  or  production,  to

warehouses or depots wherein the excisable goods have

been permitted to be deposited either with payment of duty,

or from which such excisable goods are to be sold after

clearance from a factory. In  fact,  Section 4(2)  pre-  2000

made it clear that where the price of excisable goods for

delivery at the place of removal is not known, and the value

thereof is determined with reference to the price for delivery

at  a  place  other  than  the  place  of  removal,  the  cost  of

transportation  from the  place of  removal  to  the  place of

delivery is to be excluded from such price. This is because

the value of  excisable goods under  the Section is to  be

determined only at  the time and place of  removal.  Even

after  the  amendment  of  Section  4  in  2000,  the  same

scheme continues. Only, Section 4(2) is in terms replaced

by Rule 5 of the Central Excise Valuation (Determination of

Price of Excisable Goods) Rules, 2000.   

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15. Post  1973,  this  Court  has in  two of  its  decisions,

namely, in Union of India  v. Bombay Tyre International

Limited, 1984 (17) ELT 329 (SC), clearly held as follows:- “Trade Discounts.  –  Discounts  allowed in  the Trade  (by  whatever  name  such  discount  is described)  should  be allowed to  be deducted from the sale price having regard to the nature of the goods, if established under agreements or  under  terms  of  sale  or  by  established practice,  the allowance and the nature of  the discount being known at or prior to the removal of  the goods. Such Trade Discounts shall  not be  disallowed  only  because  they  are  not payable at the time of each invoice or deducted from the invoice price.” (at para 1)

16. In the second judgment in Government of India v.

Madras Rubber Factory Ltd.,  1995 (77) ELT 433 (SC),

what has been held is as follows:-

“Year  Ending  Discount  and  Prompt Payment Discount:  What is called 'Year-ending discount' is really a bonus given by Madras Rubber Factory to its dealers @ Rupees fifty per tyre in respect of a particular type of tyres. This discount is payable only where the payments are actually received within forty five days from the date of the invoice. Under this scheme, it appears that a  declaration  is  to  be  received  dealer-wise and thereafter provision is to be made at the head  office  of  MRF  for  the  bonus.  The Assistant  Collector  has  found  that  this discount was allowed by the assessee not out

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of  any  extra-commercial  considerations  but that they were meant only to boost the sales particularly in the year 1981-82 in respect of Leader Tyre in order to achieve the target of sales for that year. He has recorded a finding that  "such  a  system of  grant  of  discount  is prevalent in normal trade practice and the only difference  may  be  that  MRF  limited  have granted the  discount  only  at  the end of  the year and not at the time of actual sales". The learned Additional  Solicitor  General  disputed the  correctness  of  the  basis  on  which  the Assistant Collector has allowed this deduction. He  commended  for  our  acceptance  the reasoning in Para 13(ii) of the judgment dated December  20,1986  (Assistant  Collector  of Central  Excise  v.  Madras  Rubber  Factory.) The reasoning in the said order runs thus:

“The allowance of the discount is not known at or prior to the removal of the goods.  The  calculations  are  made at the end of the year and the Bonus at the  said  rate  is  granted  only  to  a particular  class  of  Dealers.  This  is computed  after  taking  stock  of  the accounts  between  MRF  and  its dealers.  It  is  not  in  the  nature  of  a discount but is in the nature of a Bonus or an incentive much after the invoice is raised and the removal of the goods is complete. In the circumstances, we are  of  the  opinion  that  MRF  is  not entitled to deduction under this head.”

We are,  however, of  the respectful  opinion that the said reasoning cannot be accepted in view  of  the  clear  finding  recorded  by  the Assistant  Collector  that  this  system  of discount  is  prevalent  in  the  industry  and  is known and understood at the time of removal

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of  particular  goods,  though  the  amount  is quantified later. In view of the said finding and in  the  light  of  the  clarificatory  Order  in Bombay Tyre International, we hold that this claim  has  been  rightly  allowed  by  the Assistant Collector.

So  far  as  the  prompt  payment  discount  is concerned,  it  is  payable  under  a  scheme called  'prompt  payment  discount  scheme' which  is  applicable  only  to  up-country non-RCS  dealers  (except,  of  course,  the Government  and  DGS&D  accounts).  The discount is @ 0.75% on the total value of the invoice  including  sales  tax,  surcharge  etc. provided the bill is cleared/paid within 26 days from  the  date  of  invoice.  The  case  of the Union of India  is  that  this  discount  is limited only to certain varieties of products as explained  in  the  scheme  document  and  is valid only for  a limited period. The Assistant Collector,  however,  dealt  with  this  discount along  with  the  year  ending  discount  and allowed  it  on  the  same  reasoning  as  is applicable to the year ending discount.

In  view  of  the  findings  recorded  by  the Assistant Collector and the clarificatory order in  Bombay  Tyre  International this  claim  too must be held to have been rightly allowed by the Assistant Collector.”       (at paras 59 to 62)

17. The only question that falls for our determination is

whether Section 4 as amended in the year 2000 makes no

change to the aforesaid position.

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18. It  can  be  seen  that  Section  4  as  amended

introduces  the  concept  of  “transaction  value”  so  that  on

each removal of excisable goods, the “transaction value” of

such  goods  becomes  determinable.  Whereas  previously,

the value of such excisable goods was the price at which

such goods were ordinarily sold in the course of wholesale

trade,  post  amendment  each transaction is  looked at  by

itself.   However,  “transaction  value”  as  defined  in

sub-clause (3)(d) of Section 4 has to be read along with the

expression “for delivery at the time and place of  removal”.

It  is  clear,  therefore,  that  what  is  paramount  is  that  the

value  of  the  excisable  goods  even  on  the  basis  of

“transaction value” has only to be at the time of removal,

that  is,  the  time  of  clearance  of  the  goods  from  the

appellant’s  factory  or  depot  as  the  case  may  be.  The

expression “actually paid or payable for the goods, when

sold” only means that whatever  is agreed to as the price

for the goods forms the basis of value, whether such price

has been paid, has been paid in part, or has not been paid

at  all.  The  basis  of  “transaction  value”  is  therefore  the

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agreed contractual  price.   Further, the expression “when

sold” is not meant to indicate the time at which such goods

are sold, but is meant to indicate that goods are the subject

matter of an agreement of sale.  Once this becomes clear,

what  the  learned  counsel  for  the  assessee  has  argued

must necessarily be accepted inasmuch as cash discount

is something which is “known” at or prior to the clearance of

the  goods,  being  contained  in  the  agreement  of  sale

between the assessee and its buyers, and must therefore

be deducted from the sale price in order to arrive at the

value of excisable goods “at the time of removal”.

19. We were referred to  the Central  Board of  Excise

and Customs Bulletin for the period January-March, 1975

in which the Board laid down:- “Cash Discounts

That is, discounts for prompt payment of price of goods on delivery, are admissible in arriving at the assessable value if they are available to all buyers.  This aspect has been dealt with in detail under the heading “price”.

“…Some assessee may give to all his buyers cash discount,  that  is  a  discount  for  prompt payment.   In  other  words,  they  charge  a somewhat  lesser  price  where  there  is  cash payment,  but  charge  a  higher  price  (i.e.

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without deduction of the cash discount) if the payment is not made in cash. In such cases, the  cash  discount,  if  allowed,  will  be admissible on the principle that  only the net price  obtained  after  deduction  of  the  cash discount is the price of the goods.”

“Illustrations.

(iv) Assessee A sells the goods at Rs. 100 per unit  but  given  a  cash  discount  of  2%  if payment  is  made  at  the  time of  delivery  or within a specified period. Such cash discount will  be  admissible  and the  price  will  be  Rs. 100 per unit minus 2%.”

20. This understanding of the Board would necessarily

continue in  view of  what  is  said  above as regards cash

discounts  even after the amendment of Section 4 in the

year 2000.

21. We were referred to the judgment of this Court in

Deputy  Commissioner  of  Sales  Tax  (Law)  Board  of

Revenue  (Taxes),  Ernakulam  v.  Advani  Oorlikon  (P)

Ltd., 1981 (8) ELT 801 (S.C.), in which it was stated:-

“…  Cash  discount  is  allowed  when  the purchaser makes payment promptly or within the period of  credit  allowed.  It  is  a discount granted  in  consideration  of  expeditious payment. A trade discount is a deduction from the  catalogue  price  of  goods  allowed  by

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wholesalers to retailers engaged in the trade. The allowance enables the retailer to sell the goods at the catalogue price and yet make a reasonable  margin  of  profit  after  taking  into account  his  business expense.  The outward invoice sent by a wholesale dealer to a retailer shows the catalogue price and against that a deduction of the trade discount is shown. The net amount is the sale price, and it is that net amount which is entered in the books of the respective parties as the amount realisable.” (at para 5)

22. This judgment arose in the context  of the Central

Sales Tax Act, but it  is instructive only in that it  makes it

clear  that  a  cash  discount  is  the  discount  granted  in

consideration  of  expeditious  payment,  and  is  therefore

directly related to price.  

23. It  only  remains  to  discuss  the  sheet  anchor  of

revenue’s  case,  namely,  the  judgment  of  this  Court  in

Commissioner  of  Central  Excise,  Jaipur-II  v.  Super

Synotex (India) Ltd. and Ors. (supra). The said judgment

was concerned with sales tax incentives that were given

under the Rajasthan Sales Tax Incentives Scheme. On the

facts of that case, 25% of the sales tax was paid to the

Government, and 75% of the said amount of sales tax was

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retained  by  the  assessee  and  became  the  assessee’s

profit. Under the earlier Board’s circulars that were issued

by the Central Board of Excise and Customs, the amount of

75% of sales tax that was never paid to the Government

but  retained  by  the  assessee  was  also  liable  to  be

deducted  from  “price”  under  the  old  Section  4,  that  is,

Section 4 before its amendment in  the year  2000.   This

Court held that the amended Section 4 would require that

such  amount  of  75%  is  not  deductible  as  sales  tax

because,  according  to  this  Court,  only  sales  tax  that  is

“actually  paid”  could  be  deducted  post  Section  4  as

amended in 2000. This Court said:-

“It is evincible from the language employed in the aforesaid circular that set off is to be taken into  account  for  calculating  the  amount  of sales  tax  permissible  for  arriving  at  the "transaction value" under Section 4 of the Act because the set off does not change the rate of sales tax payable/chargeable, but a lower amount  is  in  fact  paid  due to  set  off  of  the sales tax paid on the input. Thus, if sales tax was  not  paid  on  the  input,  full  amount  is payable and has to be excluded for arriving at the "transaction value". That is not the factual matrix in the present case. The assessee in the  present  case  has  paid  only  25%  and retained  75%  of  the  amount  which  was

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collected  as  sales  tax.  75%  of  the  amount collected was retained and became the profit or the effective cost paid to the assessee by the purchaser. The amount payable as sales tax  was  only  25%  of  the  normal  sales  tax. Purpose and objective in defining "transaction value" or value in relation to excisable goods is  obvious.  The  price  or  cost  paid  to  the manufacturer constitutes the assessable value on  which  excise  duty  is  payable.  It  is  also obvious that the excise duty payable has to be excluded  while  calculating  transaction  value for  levy of  excise duty. Sales tax or  VAT or turnover  tax  is  payable or  paid  to  the State Government  on  the  transaction,  which  is regarded as sale, i.e., for transfer of title in the manufactured  goods.  The  amount  paid  or payable  to  the  State  Government  towards sales tax, VAT, etc. is excluded because it is not  an  amount  paid  to  the  manufacturer towards  the  price,  but  an  amount  paid  or payable to the State Government for the sale transaction,  i.e.,  transfer  of  title  from  the manufacturer to a third party. Accordingly, the amount paid to the State Government is only excludible from the transaction value. What is not  payable  or  to  be paid  as sales tax/VAT, should  not  be  charged  from  the  third party/customer,  but  if  it  charged  and  is  not payable or paid, it is a part and should not be excluded from the transaction value.  This  is the position after the amendment, for as per the amended provision the words "transaction value" mean payment made on actual basis or actually paid by the assessee. The words that gain  signification  are  "actually  paid".  The situation  after  1.7.2000  does  not  cover  a situation which was covered under the circular dated 12.3.1998. Be that as it may, the clear legislative  intent,  as  it  seems  to  us,  is  on

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"actually  paid".  The  question  of  "actually payable" does not arise in this case.” (at para 22)

24. It  will  be noticed that  this Court  did not  deal  with

Section 4(1)(a) as amended in the year 2000 insofar as it

speaks  of  delivery  of  goods  at  the  time  and  place  of

removal.   This  Court  was  only  concerned  with  whether

sales  tax  is  to  be  deducted  from “transaction  value”  as

newly  defined.   We have  already  seen  that  “transaction

value” specifically  states that  it  will  not  include sales tax

“actually paid or actually payable on such goods”.  On the

facts of that case, this Court was not concerned with the

expression  “actually  payable”  as  it  did  not  arise  in  that

case.  This  Court  was only  concerned with sales tax  not

“actually paid” to the Rajasthan Government, and therefore

held  that  since  75%  of  sales  tax  was  retained  by  the

assessee, the said amount could not be deducted as only

amounts payable to the State Government as sales tax can

be deducted. This was so held on an interpretation of the

last part of the definition of “transaction value”. The facts of

the present case are concerned with the first  part of the

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definition of “transaction value” which has to be read with

Section 4(1)(a) as has been stated above.

25. This judgment does not in any manner deviate from

the  settled  legal  position  so  far  as  cash  discounts  are

concerned as has been laid down in  Union of India  v.

Bombay Tyre International  (supra) and  Government of

India  v. MRF (supra).  In  fact,  as  has  been  pointed  out

earlier, this judgment did not concern itself with the “price”

of  excisable goods that  must  be ascertained only at  the

time of removal from the factory gate.  Since this Court was

only concerned with whether or not certain amounts by way

of sales tax were or were not to be deducted from “price”,

the said judgment has little application to the facts of the

present case.

26. In view of what has been said above, it is clear that

“cash discount” has therefore to be taken into account in

arriving  at  “price”  even  under  Section  4  as  amended  in

2000.   

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27. Insofar  as the other  point  of  defective goods and

volume discount  on sales tax is  concerned,  the Tribunal

has stated:-

“8.  We have  considered  the  submissions  of both the sides. Regarding defective goods, we observe from the statement dated 9.10.2000 of Shri R.K. Gulati that he has clearly deposed therein  that  "the  goods  so  received  from various  customers  under  the  said  D3s,have not  actually  been  rectified  and  entire  new finished products have been sent to the buyer taking it as the goods rectified." This is clear admission  on  the  part  of  the  authorized signatory  for  Excise  matters  that  new excisable  goods  were  cleared  in  place  of defective goods received back. This statement has not  been retracted by Shri  Gulati  at  all. The  certificate  given  by  the  Chartered Engineer  is  dated  5.7.2002  which  is  much after the period involved in the present matter before  us  and  cannot  overcome  the  clear admission by the authorized signatory of the Appellant company. We also do not find any force  in  the  submission  that  Shri  Gulati's statement can be relied upon only in respect of Khandsa factory not in respect of factory at Mehrauli Road since no such qualification has been attached by Shri Gulati in his statement. Further,  if  the  defective  goods  were substituted by new goods at one factory, it is reasonable to include that the same practice would be prevalent at the other factory of the same manufacturer. We,  therefore,  hold that the  Appellants  were  removing  the  new excisable goods to their customers in lieu of defective goods received back by them. We,

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however,  find  force  in  the  contention  of  the learned  Advocate  that  duty  cannot  be demanded in respect of  the defective goods against  which  no  excisable  goods  were cleared  by  the  Appellants.   This  aspect  is being  remanded  to  the  jurisdictional Adjudicating  Authority  for  reconsideration  of the material/evidence that  may be produced by the Appellants within two months of receipt of this Order.  

9. Regarding volume discount and sales tax, the  dispute  is  not  with  regard  to  their deduction  but  the  actual  amount  of  volume discount passed or sales tax paid. In our view the actual amount of volume discount passed on by the Appellant and actual amount of sale tax paid/payable have to be deducted from for the  purpose  of  determining  the  assessable value of  the goods.  This  is  a factual  matter which  has  to  be  looked  into  again  by  the jurisdictional  Adjudicating  Authority  after considering  the  material  adduced  by  the Appellants within two months of receipt of this Order.”

28. Both  parties  have  requested  us  that  since  the

matter is going to be remanded in terms of the Tribunal’s

order  on  these  issues,  the  remand  should  be  an

open-ended one, namely, that both parties should be free

to  argue afresh on all  points  that  arise  insofar  as  these

issues  are  concerned.  We  therefore,  while  affirming  the

Tribunal’s order of remand, allow both parties to argue all

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points  that  may  arise  insofar  as  these  issues  are

concerned.   So  far  as  the  cash  discount  issue  is

concerned, we set aside the Tribunal’s order.

29. Appeal is disposed of accordingly.     

……………………J. (A.K. Sikri)

……………………J. (R.F. Nariman)

New Delhi; August 25, 2015.

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ITEM NO.1B            COURT NO.13               SECTION III (FOR JUDGMENT)                S U P R E M E  C O U R T  O F  I N D I A                        RECORD OF PROCEEDINGS

Civil Appeal  No(s).  1959/2006 M/S. PUROLATOR INDIA LTD.                      Appellant(s)                                 VERSUS COMMNR. OF CENTRAL EXCISE, DELHI-III          Respondent(s)

Date : 25/08/2015  This  appeal  was  called  on  for pronouncement of Judgment today. For Appellant(s)    Mr. Rajesh Kumar,Adv.           

For Respondent(s) Ms. Pinky Anand, ASG Ms. Nisha Bagchi, Adv.  Ms. Snidha Mehra, Adv.  Ms. Aruna Gupta, Adv.  

                   Mr. B. Krishna Prasad,Adv.

Hon'ble Mr. Justice Rohinton Fali Nariman pronounced the Judgment of the Bench comprising Hon'ble Mr. Justice A.K.Sikri and His Lordship.  

The  appeal  is  disposed  of  in  terms  of  the  signed reportable judgment.  

Pending application(s), if any, stand disposed of.  

(Ashwani Thakur)   (Renu Diwan)  COURT MASTER   COURT MASTER

(Signed reportable judgment is placed on the file)

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