METAL BOX INDIA LTD. v.

THE COLLECTOR OF CENTRAL EXCISE, MADRAS

JANUARY 10, 1995

[B.P. JEEVAN REDDY AND S.B. MAJMUDAR, JJ.)

......

Central Excises and Salt Act, 1944-Ss.4(l)(a), 4(4)(d)(ii), JJA-Ex-

tcisable good~Valuation off or charging excise dutyRecove1y of duties short c

levied--Limitation f 01~Assessee-manufacturer rec; eiving interest free advances of large amounts from its wholesale buye~Revenue reloading purchase price by notional interest on advances made to manufacturer and rejecting assessee's claim for deductions of rebates and discounts given to wholesale

buye~Held, notional rate of interest on advances given by buyer to manufacturer should be reloaded in the price so as to reflect correct price of goods D sold by manufacturer--For a wholesale buyer concession by way of trade discount cannot be said to be uncalled for or a special treatment contrary to trade practice and the amount has to be deducted for computing nonnal price

of goo~Manufacturer while submitting price lists suppressed details of interest free advances made to it by buyer which resulted in short levy of duty

E Revenue justified in invoking period of limitation under proviso to s.11-A.

The appellant-company carried on the business of manufacturing and marketing metal containers which were classified under Tariff Item No. 46 of the Schedule to the Central Excises & Salt Act, 1944, and were liable to excise duty ad volorem. The goods were manufactured as \'.er F individual customers' requirement. One of such customer (the buyer com- ?· pany) entered into an agreement with the appellant whereunder the latter . was to be paid as advance certain amount in consideration of maintaining a steady and regular supply of containers to the former allowing it certain discounts from the gross price of the containers. The appellant submitted

G to the Assisstent Collector of Central Excise, a price list in which the contract price of the goods sold to the buyer-company was shown as net price after deducting the discounts and the rebates. The Assistant Collector of Central Excise issued a notice datd 27.6.1984 to the appellant to ·>.. show cause as to why the gross price indicated in the agreement should not be treated as the true price and the additional consideration by WflY of

H interest accruing on the advances made by the buyer-company should not 136

METAL BOX v. COLLECTOR OF C. EXCISE 137

be added thereto in order to arrive at the assessable value. Accordingly, a A

A'. demand-cum-show cause notice was issued to the appellant where under the appellant was to pay basic excise duty and special excise duty for the period July 1, 1980 to November 30, 1984. After hearing the appellant, the Assistant Collector, Central Excise, confirmed the demand of duty and the special excise duty. On appeal, the Collector of Central Excise allowed the B claim of the assessee relating to loading of ad hoc interest on the advance made by the buyer-company, but did not allow its claim regarding rebates

-+. and discounts given to the buyer-company. The assessee as well as the revenue filed appeals before the Customs, Excise and Gold (Control) Appellate Tribunal, which allowed the appeal of the revenue and dismissed that of the assessee, confirming the entire order of the Assistant Collector. c Aggrieved, the assessee filed the appeals.

It was contended for the appellant that the Tribunal had patently erred in restoring the loading of purchase price by the ad hoc interest on advance made by the buyer-company to the asessee and in rejecting the D Jr" assessee's claim regarding rebates and discounts given to the buyer-company for being deducted from the gross price. It was also contended that only a shorter period of limitation was available to the revenue and the revenue authorities were not right in invoking the period of five years under the proviso to Section llA of the Act.

E Allowing the appeals in part, this Court

HELD : 1. The Tribunal was perfectly justified in holding that charging a separate price for the goods supplied to the buyer-company could not stand justified under the proviso to s.4(1) (a) of the Central F Excise and Salt Act, 1944. It has rightly confirmed the decision of the Assistant Collector, Central Excise to the efftct that notional rate of interest on the advances given by the buyer-company to the appellant should be reloaded in the price so as to reflect the correct price of the goods sold by tbe appellant. If the buyer-company had not advanced G interest free amounts to the appellant, it would have been required to

~ borrow these amounts for purchasing raw materials and other accessories from outside on large amounts of interest which would have got reflected in the purchase price to be charged from the buyers as it would be a part of cost of production which was to be passed on to the customers. Section 4(1) (a) of the Act envisages that normal price would be the price which H

A must be the sole consideration for the sale of goods and there could not be other consideration except the price for the sale of goods. If the price ..,.. in a particular transaction is not the sole consideration flowing directly

\ or indirectly from the buyer to the assessee-manufacturer, either in cash or any other form, the additional consideration quantified in terms of

B money value is to be added to the price declared by the assessee for determining the normal price of goods. [143-C, 142-G-H, 143-B]

2. The Tribunal, however, erred in taking the view that as trade .-rdiscount was uniformly not given to all its customers by the assessee, it was not a permissible deduction and it had to be 'reloaded in the price of c the excisable goods. The buyer company, which lifted 90% of the goods manufactured by the appellant in its factory at Madras, was almost a wholesale buyer of the goods of the assessee during the relevant periods of assessment. Such buyer would certainly form a separate and distinct class. In view of s.4(1) (a) of the Act, concession by way of trade discount

D given by the appellant to the said wholesale buyer connot be said to be in any way uncalled for or a special treatment contrary to trade practice. In view of s. 4(4)(d)(ii), that amount cannot be included in the value of the 't

excisable goods and has to be deducted for computing the normal price of the goods concerned. It is not in dispute that the buyer company has not refunded such discount on any amount. Therefore, it satisfies the require- E ment of clause (ii) of Section 4(4)(d) of the Act. [146-F, 145-C, 146-B]

(Jujarat State Fertilizers Co. Ltd. v. Unlon of India and Ors., (1980) 6 Exsise Law Times 397, approved.

3. The Tribunal was right in holding that a longer period of limita- ., F tion as envisaged by the proviso to s.llA of the Central Excises and Salt Act, 1944 was available to the revenue. It has been found on record that in the price lists submitied by the appellant details of interest free advances of huge amounts made by the buyer-company were suppressed. The revenue has, therefore, held that the duty have been short levied on account of wilful suppression of relevant facts by the assessee. This finding is well '"" G ' sustained on record and calls for no interference. [142-D]

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CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 215-16 of 1989.

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H From the Judgment and Order dated 11.10.88 of the Central Cus-

METAL BOX v. COLLECTOR OF C.EXCISE (MAJMUDAR, J.) 139

toms Excise and Gold (Control) Appellate Tribunal, New Delhi in A.No. A

E/1656/86-A & 1688/87-A with E/COD/557/87-A & E/Misc./234 of 1987-A.

Soli J. Sorabjee, D.A. Dave and AK. Sinha for the Appellant.

M. Gaurishankar Murthy, P. Narasimhan and V.K. Verma for the Respondent.

The Judgment of the Court was delivered by

MAJMUDAR, J. These two appeals are filed by the assessee, Metal Box India Limited, under Section 35-L of the Central Excise & Salt Act, 1944 read with Order XX-A & B of the Supreme Court Rules, 1966, challenging the order of the Customs, Excise & Gold (Control) Appellate Tribunal, New Delhi, in two appeals filed by the appellant-assessee on the one hand and the Collector of Central Excise, Madras, on the other. The appellant is aggrieved by the aforesaid decision of the Tribunal by which

it was held that the Department was entitled to reload the price of the D concerned goods manufactured by the assessee and sold to M/s Ponds (I) Limited by ignoring the deduction claimed by the assessee by way of trade discount and also by adding the interest accruing on advances made by the said buyer, Ponds (I) Limited to the assessee during the relevant years of assessment. A few relevant facts may be stated at the outset. The appellant E is a Public Limited Company carrying on the business of maufacturing and marketing metal containers which were classified under tariff item No. 46 of the erstwhile schedule to the Central Excise & Salt Act, 1944 and liable to excise duty ad valorem. The Company for the purpose of its aforesaid business has factories in several parts of the country including Madras. The present appeals relate to the Madras factory.

That the appellant is manufacturing goods as per the individual customers' requirements and supplies to the customers against negotiated . prices which are printed in the contract. It is the case of the appellant that

one such customer is Ponds (I) Limited, an independent corporate body, G which is neither related to the appellant nor has it any interest either directly or indirectly in the business of th_e appellant. The said Ponds (I) Limited which is engaged in the business, inter alia, of marketing cosmetic products being in need of steady supply of containers for its aforesaid business approached the appellant by way of an arrangement under which H

A the appellant was to manufacture containers as per the specification supplied by the Ponds (I) Limited and in consideration of the appellant's "- maintaining a steady and regular supply of the containers, the Ponds (I) Limited agreed to pay as advance certain amounts with a view to seeing that ready stocks of raw materials and components were mae available by B the appellant to meet the demands of containers as put forward by Ponds (I) Limited. An agreement was entered into between the parties about certain discounts to be given to Ponds (I) Limited which were to be deducted from the gross price which reflected various factors that went into the determination of a negotiated contract price.

C The appellant submitted the price list in Part-II in respect of its sales to Ponds (I) Limited in which the contract price of the goods sold was shown as net price after deducting discounts and rebates as appearing in schedule II. .. Earlier these price lists were approved by the appropriate Officer. However, a show cause notice was iij>sued by the Assistant Collec- D tor of Cental Excise, Madras, on 27th June, 1984, calling upon the appellant to show cause :-

(1) Why the gross price indicated in the aforesaid agreements should not be treated as the true price for the purpose of arriving at the assessable value and why the ad9itional consideration by way of interest accruing on the advances made by Ponds (I) Liihited should not be added to arrive at the assessable value for the period of July 1, 1983 onwards?

(2) Why the gross prices should not be arrived at after adding the interest accruing on the advances and the assessable value arrived at on this basis ')"- F for the period from July 1, 1983?

(3) Why the consequential duty should not be demanded from the appellant under the proviso to sub-rule (1) of Rule 10 of the Central Excise Rules, 1944, and under the proviso to Section llA of the Central Excise & Salt Act.

The appellant replied to said show cause notice. Another notice was issued on 18th January, 1985 in the nature of a demand-cum-show cause notice whereby the appellant was called upon to show cause as to why basic excise duty in the sum of Rs. 23,50,031.40 paise and special excise duty in H the sum of Rs. 1,17,500.68 paise for the the period July 1, 1980 to Novembr

METAL BOX v. COLLECTOR OF C.EXCISE [MAJMUDAR, J.] 141

30, 1984 should not be demanded from the appellant. The appellant replied A

-¥ to the said notice on January 18, 1985.

After hearing the appellant, the Assistant Collector, Central Excise, Madras, by his decision dated 27th May, 1985, held against the appellant on all counts. The Assistant Collector held that the appellant suppressed B material facts in order to evade payment of duty and consequently held that the extended period of limitation was available to the Department. The

.....

Assistant Collector also added the rebates and discounts mentioned in the agreements between Ponds (I) Limited to the contract price between the appellant and Ponds (I) Limited to arrive at the assessable value. The Assistant Collector also added ad hoc interest on the advances received by c the appellant and added the same to the gross price for arriving at the assessable value. Accordingly, the demand of duty and special excise duty was confirmed.

The appellant preferred an appeal to the Collector of Central Excise D j, . (Appeals), Madras. The Collector of Central Excise (Appeals), Madras after hearing, partly allowed the appeal by accepting the contention of the appellant relating to loading of ad hoc interest on the advances made by Ponds (I) Ltd. but rejected the appellant's contention relating to the inclusion of rebates and discounts given to Poinds (I) Limited. The appel- E lant, thereafter, preferred appeals to the Tribunal, as stated above. The Department also filed cross appeal against that portion of the order of the Collector of Central Excise (Appeals), Madras, whereby he had accepted the appellant's contention relating to the loading of ad hoc interest. " The Tribunal heard both the sides, allowed the Department's appeal F and dismissed two appeals of the appellant and consequently the entire order of the Assistant Collector was confirmed. That is how the appellant is before this Court in the present appeals.

We have hear.cl learned counsel for the parties in support of their G respective cases. Mr. Sorabjee assisted by Mr. D.A. Dave, learned counsel, raised the following contentions in support of the appeals.

(1) That the proceedings consequent to the show cause notice inasmuch as they sought to invoke the period of five years under the proviso to Section llA of the Act were misconceived and only shorter period of H

l .'

'"~-· '-, .

I~<:'\ ·~

A limitation ws aVailble. to th~ Oepartment to raise such a deand.

(2) In any case even on merits the Tribunal had patently erred in law in allowing the Department's appeal and in restoring the loading of purchase price by the ad hoc interest cin advances made by Ponds (I) Limited to the asscssee . . -··· B '

(3) The Tribunal equally erred in law in rejecting the appellant's contention regarcfuig "rebates and .. discounts. given . to Ponds (I) Limited for being deducted from the gross price. We shall deal with these contentions seriatim. '

. '

So far as contention No.1 is concerned, it is obvious that the Department invoked proviso to Section llA on the ground that while 'submitting the price list, the appellant had suppressed material facts. It has been found on record that in the price lists submitted by the appellant details of advances made by Ponds (I) Limited, the wholesale buyer of appellant's

D goods and ihat too interest free advances of huge amounts were all suppressed from the Department and, therefore, it has to be held that the duty have been short levied on account of wilful suppression of relevant facts by the assessee. This finding is well sustained on record and calls for no . interference. We, therefore, concur with the conclusion reached by the E Tn"bunal that longer period of limitation is available to the Department.

We reject contention No.l. . .

So far as cotention No. 2 is concerned, it is u;, e that .Ponds (I) Limited was. almost a wholesale buyer of fue appellant's goods, namely, metal containers manufactured by it as it was lifting 90 per cent of the total F production of the appellant. For. that prpose huge amounts were being ·

advanced free of interest by Ponds (I) Limited to the appellant. When Ponds (I) Limited was given 50 per cent discount froill normal price then . the material aspect that Ponds (I) Limited had advanced large amounts free of interest had necessarily entered into consideration between ihe

G parties. Therefore, special treatment was given by the assessee to Ponds

(I) Limited. It has to be appreciated that if Ponds (I) Limited had not given these amounts, the appellants would have been required to borrow these amounts for purChasing raw materials and other accessories from outside like banks etc. and would have beeri required to pay large amounts of r' H interest whiCh turally would have got reflected in the purchase price to

METAL BOX v. COLLECTOR OF C.EXCISE [MATMUDAR, J.] 143

be charged from the buyers as it would be a part of wst of production A which was to be passed on to the customers of the appellant's goods. It has been laid down by Section 4(l)(a) that normal price would be price which must be the sole consideration for the sale of goods and there could not be other consideration except the price for the sale of the goods and oply under such a situation sub-section (1) (a) would come into play. If the price B in a particular transaction is not the sole consideration flowing directly or indirectly from the buyer to the assessee-manufacturer, either in cash or any other form, the additional consideration quantified in terms of money value is to be added to the price declared by the assessee for determining the normal price of the goods. In these circumstances the Tribunal was perfectly justified in upsetting the decision of the Collector and confirming the decision of the Assistant Collector when the latter held that notional rate of interest on the advances given by the wholesale buyer, Ponds (I) Limited, to the appellant should be reloaded in the price so a, s to reflect

the correct price of the goods sold by the appellant. The Tribunal was right when it considered the fact that after agreement entered l;>y the appellant D with Ponds (I) Limited, the appellant got large amounts of Rs. 75 lakhs in 1980, Rs. 100 lakhs in 1981 and Rs. 200 lakhs in 1982 free of interest and these advances were maintained at the same level on the first working day of every month as specifically provided for in the agreement column 9 as the special agreement between the parties and it had a direct impact on E the pegging down of purchase price which ultimately was charged by the appellant from the wholesale buyer, Ponds (I) Limited. The said price charged by the appellant from Ponds (I) Limited could not be said to be normal price of containers on account of extraneous reason, namely, that a favoured treatment was given to Ponds (I) Limited which had given such p large amounts to the appellant free of interest for purchasing raw materials and accessories for manufacturing the C\mtainers which were ultimately sold by the appellant to the Ponds (I) Limited. The Tribunal has also noted the reasoning of the Assistant Collector on this aspect to the effect that the extent of such deduction in the price can reasonably be attributed to the interest amount payable on the advance which had Mis Metal Box India G Limited obtained from any other source with interest bearing loan, would have been loading on the cost of manufactll{er and sale price of the metal containers naturally increasing the concessional price charged from Ponds (I) Limited.

A On the facts on record, therefore, it must be held that the Tribunal was perfectly justified it1 taking the view that charging a separate price for '- the metal containers supplied to M/s Ponds (I) Limited could not stand justified under Section 4(1)(a) proviso and, therefore, to that separate .

price charged from the Ponds (I) Limited, the extent of benefit obtained

B by the assessee on interest free loan was required to be reloaded by hiking the price charged from Mis Ponds (I) Limited to that extent. Contention No. 2 also, therefore, fails and is rejected.

).- This takes us to the last contention. On this contention the appellant is on a better footing. The Ponds (I) Limited was almost a wholesale buyer c of the metal containers of the assessee during the relevant periods of assessment. Out of the total metal containers manufactured by the assessee in its factory at Madras, 90 per cent were lifted by Ponds (I) Limited. In such a situation the question arises whether the proviso to Section 4(1)(a) can be made applicable after taking out the consideration of interest free D advance Jllade by Ponds (I) Limited to the appellant. As we have rejected contention No. 2 and allowed reloading of purchase price by the notional

value of interest on the advances made by Ponds (I) Limited to the assessee, that aspect now has to be kept out of picture. In that light we may visualise the sitpation prevailing at the relevant time. It becomes clear ·

E that the assessee came forward to give special rebate in the purchase price to an almost wholesale buyer of its goods and when it had to meet the demand for metal containers as placed in advance by such a bulk buyer. It is not in dispute that 90 per cent of metal containers which were manuf actured by the appellant were supplied to this wholesale buyer, Ponds (I) Limited. Now the question whether Ponds (I) Limited was also a financier >-- F becomes irrelevant as that aspect is taken care of by our decision on point No. 2 and the price charged by the appellant from Ponds (I) Limited has got reloaded by the amount of notional interest which the appellant had to pay to Ponds (I) Limited for utilising its money for purchasing raw materials etc. Therefore, the net picture which emerges is that here was a G wholesale buyer claiming discount because it avoided the botheration of the appellant by way of advertising cost for marketing its products as 90

"'- per cent of its product were guaranteed to be lifted by Ponds (I) Limited.

For such a buyer if a concession by way of trade discount is given, may be to the extent of 50 per cent though in fact now it will not be to the extent H of 50 per cent but much less as we have permitted reloading of the contract ,

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METALBOXv. COLLECTOROFC.EXCISE[MAJMUDAR, J.] 145

price between the parties by the notional value of interest on advances A received by the assessee from Ponds (I) Limited during the relevant time, such a trade discount cannot be said to be in any way uncalled for or a special treatment contrary to trade practice. Therefore, once the contention No.2 is rejected then for deciding contemion No.3 the proviso to Section 4(1)(a) would directly get attracted. Learned counsel for the respondent contended that for attracting the said proviso it should be shown that in accordance with normal practice of wholesale trade different prices are charged from different classes of buyers. That a buyer who purchases 90 per cent of the goods cannot be said to form a different class of buyers. It is difficult to agree with this contention. The buyer who purchases small quantities of goods may stand in different class as compared to a buyer who purchases 90 per cent of manufactured goods. He would certainly form a separate and distinct class. In this connection, we

may usefully refer to the term "value" as mentioned in Section 4, sub-section 4(d). It is subject to deductions envisaged by Section 4(4)(d)(ii) which include amongst others the trade discount (such discount not being refun- D dable 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. It cannot be gainsaid that the appellant was manufacturing the goods which were offered for sale in wholesale to Ponds (I) Limited, a buyer also in wholesale and it lifted 90 per cent of E the manufactured goods. For such a buyer if the manufacturer offers trade discount that amount cannot be included in the value of the excisable goods and has to be deducted for computing the normal price of the goods concerned.

Learned counsel for the Department vehemently contended that such a discount to be admissible has firstly to be uniformally made available F

to all customers like concessional sales of goods on festivals like Diwali or Christmas etc. It may be that such general concessions are given on such occasions to all customers but it cannot be said that if a special trade discount is given to such an esteemed customer who is a buyer of 90 per G cent of goods, it would amount to trade practice which would not be a normal trade practice but would be in any way an impermissible trade practice. In fact such type of concessions are usually given by manufacturers whose goods are lifted by whole-buyers whose availability avoids lot of marketing and advertising costs for the manufacturer and also ensures H

A a guaranteed quantity of sales year after year. In order to keep such a wholesale nonopolistic buyer attached to it, if under such circumstances by way of business expediency, the manufacturer offers him a special trade discount, it cannot he said that it is not in accordance with normal' practice of wholesale trade: rt is not in dispute that Ponds (I) Limited has not ·.; B refunded such dise'ount o~ any account. Therefore, it satisfies the require- 'ment of clause (ii) ot'Section 4(4)(d) of the Act. Learned counsel for. the appeJfant in this connection invited our attention to the decision of the Gujarat High Court in Gujarat State Fertilizers Co. Limited v: Union of India & Ors.,· (i980) 6 Excise Law Times 397. The Division Bench of the Gujarat

~ High Court consisting 9f P.D.' Desai and G.T. Nanavati, JJ., interpreting

-'C . the scope of Section 4 of the Act laid do"Wn that Section 4 of the Central Exitse' Act does not iri terms enact the trade discount in order to qualify .for dei:luction thereunder should be on a uniform basis to all wholesale plircnasers at the factory gate. Any such view would require the addition .. ofwould"uniforin' before the 'trade discount' occurring in Section 4 which D ''is not 'evidently permissible. Nor it would be advisable to read the require-

" inerit of uniformity' even by implication: Everi if trade discount is not uniformly given or is given at different rates to different purchasers, it

cannot by itself disqualify if from being excluded for arriving at the assessable 'value so-long as the lack of uniformity is not founded on any extra E cominercial' considerations. To ignore the dednction of trade discount

j would amonnt to adding anon-xistent fraction to the manufacturing profit ' . which Will artificially illtlate the net assessable value' for the levy of excise ''duty which is not legally permissible having regard to the basic concept of excise levy. We concur with the aforesaid view on the scope and ambit of

. F trade discount envisaged for Section 4. In view of the aforesaid discussion, . it rii.ust be held that the Tribunal was in' error in taking the view that as ' trade diseount was uniformly not given to 'ai1 its customers by the assessee, it was 'not a permissible deduCtion and it had to be reloaded in the price ; f the excisable goods. We, therefore, accept the last, contention. In the : result these appeals are partly allowed, the order of the Tribunal will stand G confirmed insofar as period of limitation applicable herein and reloading of the purchase price by the notional value of interest on advances made by wholesale buyer Ponds (I) Limited to the assessee is concerned and to that extent Assistant Collector; s order will stand untouched. However, to the ' exteiit' oi' the 'disallowance 'of the trade discount offered to the

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METALBOXv. COLLECTOROFC.EXCISE[MATMUDAR, J.] 147

wholesale buyers Ponds (I) Limited by the assessee, the decision of the A Tribunal is set aside and accordingly the oriinal order passed by the Assistant Collector to that effect will also stand set aside. In the facts and circumstances of the case, there will be no order as to costs.

The liability of the appellant for the demanded duty in the show cause notice will have to be re-calculated in the light of the present B judgment.

R.P.

Appeals allowed .