Case: Coromandel Fertilizers Limited Vs. Union of India and Others

The broad facts about which there does not appear to be any serious dispute may be briefly noticed.The appellant carries on business as manufacturers of diverse kinds of fertilizers at the factory situated at Vishakhapatnam. The appellant considered that it would be advisable to entrust the sale of its products to organisations with experience in the sale of fertilizers, instead of the appellant itself organising sales of the fertilizers manufactured. Accordingly, the appellant appointed M/s. E.I.D. Parry Limited and M/s. Rallis India Ltd, as their selling agents and entered into agreements with them for sale of fertilizers manufactured by the appellant on terms and conditions mentioned in the agreements entered into by the appellant with the selling agents. Under the terms of the agreements the selling agents were appointed by the appellant and the selling agents were entrusted with the task of arranging the sale of the fertilisers for and on behalf of the appellant in consideration of receiving a commission of 3 1/2% calculated on the net realisable value, i.e., upon the gross sales realisation less excise duty and sales tax, freight expenses and discount and rebate. This commission is the remuneration paid by the appellant to the selling agents for discharging the obligation of the selling agents under the agreement of selling the fertilisers. In the absence of any such agreement the appellant would have been obliged to carry on the activity of organising the sales of its products on its ownThe Central Government issued a notification bearing No. 25/70 dated 1.3.70 which reads as follows:-"In exercise of the powers conferred by sub-rule (1) of rule 8 of the Central Excise Rules, 1944, the Central Government hereby exempts mixed fertilizers, falling under item No. 14HH of the First Schedule tothe Central Excises and Salt Act, 1944 (1 of 1944) manufactured with the aid of power, from two or more fertilizers on all of which the appropriate amount of the duty of excise or, as the case may be, the additional duty under section 2 A of the Indian Tariff Act, 1943 (32 of 1934), has already been paid, from the whole of the duty of excise leviable thereon. Explanation: For the purpose of this notification, the term mixed fertilizers means mixtures of fertilizers containing more than one nutrient (nitrogen, phosphate or potash) and does not include single nutrient fertilizers like super phosphate manufactured from rockn the basis of this notification the appellant had asked for exemption from the imposition of excise duty on fertilisers manufactured by it, claiming such fertilisers to be mixed fertilisers within the meaning of this Notification. The appellant had also claimed deduction of the selling agency commission paid by the appellant to its selling agents for sale of the fertilisers manufactured by the appellant as trade discount in the matter of computation of excise duty payable on the fertilisers manufactured by the appellant. The claims on both these accounts were disallowed by the Assistant Collector whose decisions were upheld by the Appellate Collector. Aggrieved by the decisions of the authorities concerned, the appellant filed writ petitions in the High Court. As we have earlier observed, the High Court by its common judgment refused to entertain the claims of the appellant under these two heads and dismissed all the writ petitions filed by the appellant in the High Court. Against the decision and judgment of the High Court disallowing these claims these appeals with special leave granted by this Court have been filed by the appellant.

Court's reasoning:
Firstly, it must be a deduction in any transaction in respect of commercial crops. If it is deduction out of the price or commodity agreed to be paid or transferred, it would be a trade allowance. On the other hand, if the payment is de hors the terms of the transaction but made towards consideration for the use of the premises or services rendered, it would not be a deduction from the price or in anye observations were made in the context of the provisions of the Act and while construing the same. They are of no assistance in considering the question raised in the present case. It may further be noticed that in the instant case, there is no sale by the appellant to the agents to whom the commission is paid by way of remuneration for services rendered as agents of the appellantIn the case of Relicenced Victuallers Mutual Trading Association Exparte Audain (supra), the Court of Appeal in England on a construction of the agreement observed that the word discount in the agreement must be construed as commission so that the agreement was not one to issue shares at a discountIt is possible that in a given case, payment of what is termed as commission may, depending on the facts and circumstances of the case be in the nature of trade allowance, But ever y kind of trade allowance does not necessarily qualify for deduction in assessment of excise duty. Commission paid to an agent for services rendered by him in the matter of sale or the product of the appellant on behalf of the appellant on the basis of the agreement the appellant had with its selling agents cannot be considered to be in the nature of such trade discount as may qualify for deduction in the computation of the assessable value of the goods for the purpose of levy of excise duty. The commission paid to the selling agents is not a trade discount given either to the wholesale buyer or to the retail buyer. It is not given to the consumer or the trader. The commission paid on the basis of the agreement to the selling agent by way of remuneration for services rendered by the agent cannot by any process of reasoning be said to be trade discount payable or paid at the time of removal of the goods from the factory or any other premises of manufacture or production for delivery at the place of manufacture or production. The amount of commission paid to the selling agents, therefore, is not trade discount within the meaning of the Explanation to section 4 of the Act and does not qualify for any deduction. In our view the High Court was clearly justified in rejecting this claim of the appellant.Both the claims made by the appellant,