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PETITIONER: COLLECTOR OF CENTRAL EXCISE, INDORE.

       Vs.

RESPONDENT: M/S.HINDUSTAN LEVER LTD., CHHINDWARA.

DATE OF JUDGMENT:       03/08/2000

BENCH: S.P.Bharucha, R.C.Lahoti, N.S.Hegde

JUDGMENT:

SANTOSH HEGDE, J.

     In  the  above  appeals, common questions of  law  are involved, hence these appeals are disposed of by this common order.   For  the purpose of convenience, we shall refer  to the facts of the case as found in C.A.  Nos.303-304 of 1999. The  respondent  in  the  above appeals is  engaged  in  the manufacture  of  Toilet  Soaps and  organic  surface  active agents.   It submitted various price lists under Rule  173-C of  the  Central Excise Rules, 1944 (for short the  Rules) claiming   deductions  from  the   assessable  value.    The Assistant  Collector provisionally approved the prices after disallowing some of the deductions claimed.  Being aggrieved by  the  said  order of disallowing some of  the  deductions claimed  by it, the respondent preferred appeals before  the Commissioner  of Appeals who allowed most of the  deductions sought  by  the respondent except three items out  of  which discount damages was one of the items.  In an appeal filed to  the  Customs  Excise Gold (Control)  Appellate  Tribunal (CEGAT),  the Tribunal allowed the said appeal following its earlier  orders  in  Assam   Valley  Plywood  Pvt.Ltd.   vs. Collector  of  Central  Excise  (1989   (43)  ELT  360)  and Tungbhadra Industries Ltd.  vs.  Collector of Central Excise (1992  (60) ELT 512) and directed the original Authority  to consider  afresh claim for deduction in accordance with  law in  the  light of observations contained in the said  order. On  remand, the original Authority again disallowed some  of the  deductions  claimed  by the  respondent  including  the deductions  in  regard  to damages.  Having  failed  in  the appeal  before  the  Appellate   Authority,  the  respondent approached  the Tribunal once again and the Tribunal by  the impugned  order  allowed the appeal of the  respondent  once again  solely  relying on its judgments in Assam Valley  and Tungbhadra  Industries cases (supra) and held that  discount should  be  allowed in regard to the value  of  compensation paid to the buyers in lieu of damages caused to goods during transit depending on the nature and extent of damage.  It is against this order of the Tribunal, the Collector of Central Excise  has  preferred the above appeals.  Learned  Attorney General for India appearing for the appellant contended that the  Tribunal erred in placing reliance on Assam Valley  and Tungbhadra Industries cases (supra) as they had no relevance whatsoever  to  the facts of the case in hand.   He  further contended  that the deduction claimed being in the nature of a  post- manufacturing deduction, under Section  4(4)(d)(ii)

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of  the Central Excise Act, 1944 (hereinafter referred to as the  Act), the same is not deductible from the  assessable value.    He   also  contended   that  assuming  that   such post-manufacturing  expenses  are deductible,  the  assessee will  have to establish that such deduction is being claimed because  same  is a part of the trade discounts  allowed  in accordance  with  normal  practice of that  wholesale  trade which  fact,  according  to learned  Attorney  General,  the respondent has failed to establish.  He also argued that the contention of the respondent that, as a matter of fact, such a  practice  existed stood belied by the  agreement  entered into  by  the respondent with its buyers.  Shri Anil  Divan, learned  senior counsel appearing for the respondent firstly contended  that  the appellants should not be  permitted  to question the finding of the Tribunal as to the deductibility of  the damage discount because this question was  finally adjudicated  and decided by the Tribunal in the first  round of  litigation  between the parties and the  appellants  did not,  at  that stage, question the finding of  the  Tribunal which  remanded the matter back to the original Authority to decide  certain  other questions.  Hence, the issue in  hand having  attained finality, the same should not be  permitted to  be  reopened  by  way of the present  appeal.   He  also defended  the  impugned order of the Tribunal on the  ground that  the  deductions permissible under Section  4(4)(d)(ii) are not confined only to deductions available at the time of removal  of  the  goods from the factory-gate but  are  also available  to  such of those deductions whose  existence  in practice  has been established even though they get computed subsequent  to  the  removal of the goods from  the  factory gate.   He also contends that the respondent has established the normal practice of the wholesale trade with reference to this  deduction  by  filing  affidavits of  its  buyers  and certificates  of  the Chartered Accountants.   He  contended that  the  respondent  is  not relying  upon  the  agreement referred  to by the learned Attorney General for the purpose of  claiming the deductions in question.  We will first deal with the objection of Shri Divan which is in the nature of a preliminary  objection.   As  noted, he contended  that  the issue  in  question is finally decided inter se between  the parties  in an earlier proceedings which was not  challenged by  the  Department;   therefore, so far as the  parties  to these appeals are concerned, the matter stands concluded and the  parties cannot reopen the said issue.  It is true  that this  issue was decided by the Tribunal in the earlier round of  litigation primarily relying upon two orders to which we have  already  made  reference;   the  correctness  of  that finding  was not challenged in this Court because the matter stood  remanded to the original Authority.  Inspite of  this finding  of  the  Tribunal, the parties again  joined  issue before  the  original Authority on this issue  by  producing materials  like affidavits and made their submissions  based on  which the original Authority gave a finding against  the respondent,  who  took  the  matter  in  appeal  before  the Appellate  Commissioner and having lost before the Appellate Commissioner,  the  respondent  once again took  the  matter before  the  Tribunal.  From the materials on record, we  do not  find  any  argument based on finality of  the  decision having  been  urged  before the Tribunal  nor  the  Tribunal having  decided this issue on that basis.  On the  contrary, it  seems that the Tribunal considered the issue afresh but, relying  on the two decisions referred to above, once  again decided  to hold in favour of the respondent which  decision is  now  under  challenge before us.  Therefore,  on  facts, finality is not the ground on which the Tribunal allowed the

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appeal.   That  apart, even in law, so far as this Court  is concerned,  it  is not bound by the finding of the  Tribunal rendered  in the first instance while remanding the case  to the  lower authorities because this Court is now hearing  an appeal  against  the  order  of the Tribunal  in  which  the earlier  order has merged.  This Court in the case of Jasraj Inder  Singh vs.  Hemraj Multanchand {(1977) 2 SCC 155}  has held  :- In an appeal against the High Courts finding  the Supreme Court is not bound by what the High Court might have held  in  its remand order.  It is true that  a  subordinate court  is  bound by the direction of the High Court.  It  is equally true that the same High Court, hearing the matter on a second occasion or any other court of coordinate authority hearing the matter cannot discard the earlier holding, but a finding in a remand order cannot bind a higher Court when it hears the matter in appeal. (emphasis supplied).

     Therefore,  the above contention of the respondent has to  be  rejected.   In support of the contention as  to  the applicability of Section 4(4)(d)(ii) of the Act, the learned Attorney  General relied on the observation of this Court in the  case  of Assistant Collector of Central Excise  &  Ors. vs.   Madras  Rubber Factory Ltd.  (1986 Supple.   SCC  751) wherein  this  Court held at para 9 of the said report  that trade  discounts  of  any  nature should be  allowed  to  be deducted  provided,  however,  the discount is known  at  or prior  to  the  removal of the goods.  Taking  support  from these  observations, learned Attorney General contended that the  discounts in regard to which the deduction is sought by the  respondent  pertain to the damages to the  goods  which have  occurred  in transit, admittedly after the goods  were removed  from the factory-gate;  therefore, such a deduction is not permissible in law.  He also relied upon a subsequent decision  of  this  Court  in  Madras  Rubber  Factory  case reported  in  (1995)  4 SCC 349, at page 384)  wherein  this Court after referring to the judgment in the earlier case of M.R.F.   (supra)  held:   -  As   rightly  pointed  out  by Bhagwati,  C.J.   in  the order dated 20.12.1986,  what  is really  relevant  is  the nature of  the  transaction  (SCC p.760,  para  8).   The learned Chief  Justice  pointed  out further  that  the warranty is not a discount on  the  tyre already  sold,  but  relates to the goods  which  are  being subsequently  sold  to  the same customers.   It  cannot  be strictly  called as discount on the tyre being sold.  It  is in  the nature of a benefit given to the customers by way of compensation  for the loss suffered by them in the  previous sale  (SCC  p.760,  para  8).  He characterised  it  as  a compensation  in  the  nature  of warranty  allowance  on  a defective  tyre  (SCC  p.760,  para 11).   We  express  our respectful concurrence with the said observations.

     Therefore,  it  is  contended that the  claim  of  the respondent  for  deduction  being  one   arising  out  of  a post-manufacturing  situation,  the  same   is  outside  the purview  of  Section  4(4)(d)(ii) of the  Act.   He  further contended  that the claim of the respondents based on normal practice of the wholesale trade is also unacceptable in view of  the  agreement  between the respondent  and  its  buyers wherein  at  Clause 14 of the agreement it is  unequivocally stated  that  the claim for damages in transit to the  goods sold  will  be borne by the buyer.  Therefore, according  to the  appellant,  the  respondent   cannot  claim  any  trade practice  in  regard  to reimbursement of any value  of  the goods which have suffered damage in view of Clause 14 of the

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said agreement.  He further contended that the affidavits of the  buyers  filed by the respondents which are contrary  to the terms of the agreement are neither admissible nor can be relied upon.  Shri Anil Divan, per contra, contends that the deductions contemplated under Section 4(4)(d)(ii) of the Act are   not  confined  only  to   deductions  that  could   be attributable  to  a stage prior to the removal of the  goods from  the  factory gate only.  According to him, even  those expenses  which  have occurred subsequent to removal of  the goods  from the factory gate have been held to be deductible expenditure  from the assessable value of the goods by  this Court.   As  an  example,  he submitted  that  the  expenses incurred  on  the  insurance  of   the  goods,  year  ending discount,  interest  on  receivables etc.  even  though  are expenses  incurred  after the removal from the factory  gate have  been  accepted  as deductible expenditure  by  various pronouncements  of  this Court;  on this basis  he  contends that  the respondents are entitled for damage deduction.  In support  of  this  contention,  Mr.   Divan  relied  on  the judgments  of  this Court in Assistant Collector of  Central Excise  & Ors.  vs.  Madras Rubber Factory Ltd.  (1986 Supp. SCC  751),  Government of India & Ors.  vs.   Madras  Rubber Factory Ltd.  & Ors.  (1995 (4) SCC 349), Guljag Chemicals & Plastics  Pvt.Ltd.   vs  Collector of Central  Excise  (1993 (63)ELT 710) and Authorised Officer (Land Reforms) vs.  M.M. Krishnamurthy  Chetty (1998 (9) SCC 138), wherein this Court according  to  Shri Divan has allowed deductions  which  are referable  to  expenditure occurring after the removal  from the  factory.  He laid special emphasis on deduction allowed on  account  of insurance.  He said that the deductions  now sought  by  the  respondent  are similar  to  the  insurance deductions  and  as a matter of fact in the instant case  in effect the company is acting as an insurer of its own goods. We  will  now  consider the correctness  of  the  Tribunals finding  based on its earlier two decisions in the cases  of Assam  Valley  Plywood Pvt.Ltd.  and  Tungbhadra  Industries Ltd.   (supra).  The Tribunal was of the view that the  said decisions  fully  covered  the  issue  that  arose  for  its consideration  in  the  impugned  order.   In  Assam  Valley Plywood  Pvt.Ltd., the Tribunal at para 6 of its order  held thus:   In  Appeal  No.E-396/80-A, there is  an  additional point  of dispute.  It relates to the quantum of discount or reduction  in  value  for  damaged   goods  cleared  by  the appellants.   The lower authorities have allowed the minimum discount  of  25%.   Before  the  Appellate  Collector,  the appellants claimed that they had allowed 40% to 50% discount for  the  damaged  goods.  In the appeal before  us,  it  is contended  that  there  was reduction of upto  75%  in  some cases.   The appellants explained that the nature and extent of  damage  on  different pieces of their products  was  not uniform  and hence the price reduction for the damaged goods could   not   be   uniform.    They  had   allowed   varying discount/reduction  depending upon the nature and extent  of the   damage  in  each  case   and  they  prayed  that   the discount/reduction so actually allowed from case to case may be accepted after necessary verification by the authorities. The learned representative of the department had no comments to  make.   We find the appellants request quite  fair  and reasonable, and allow it.

     From  a  perusal  of this part of the  order,  we  are unable  to  deduce any principle either in law or  in  facts decided  by the Tribunal so as to make it applicable to  the issue  that  arose before it in the case with which  we  are concerned.  None of the questions which are addressed before

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us  or decisions cited have been considered by the  Tribunal in  the  said order in Assam Valley case.   After  carefully considering  the said order, we are unable to agree with the Tribunal that those cases either wholly or in part cover the issue  involved  in the present case.  While in the case  of Tungbhadra  Industries  case (supra), the Tribunal  held  in para  19 of its order thus:  Admittedly, the appellants are giving  discount  for  damages to the  goods  caused  during transit.   Shri Beri relied on the order on this Tribunal in Assam  Valley  (P)  Ltd.case reported in 1989 (43)  ELT  360 (Tri.).   According  to  the said  order,  varying  discount reduction  depending upon the nature and extent of damage in each case is admissible.  It is also a case of damage caused to  the goods during transit.  Following the above order, we direct  the  A.C.   to  verify the  nature  and  quantum  of discount  for damage caused to the goods in the transit  and allow the same.

     It is seen that this order of the Tribunal is based on certain admissions made by the parties and reliance was once again  placed on the order in Assam Valley which,  according to us, does not lay down any principle in law.  Tribunal, in our opinion, erred in applying the orders delivered by it in the  cases of Assam Valley and Tungbhadra Industries to  the facts of the present case.

     This,  however, will not assist us to dispose of these appeals  finally.   When the original Authority took up  the matter  for consideration after remand, the respondent filed certain affidavits of its buyers who in their own words have stated  that  some trade practice was existing  whereby  the respondent  company was reimbursing the loss suffered by the buyers  due  to  the damages caused to the  goods.   Learned Attorney  General has argued that these affidavits cannot be relied  upon.  He also urged that the appellant has produced a  copy  of  the agreement between the  respondent  and  its buyers  which, according to him, belies the existence of the trade  practice  as claimed by the respondent.  Even  though this  document  was  produced only at  the  first  appellate stage,  we  find  it has direct bearing on the  question  in issue  in  view  of the contents of clause 14  of  the  said agreement.   Based  on this clause, it is contended for  the appellant  that  no  trade  practice in  regard  to  damage deduction is in existence.  On behalf of the respondent, it is  contended that they are not relying on the agreement  to establish  the trade practice;  still, to rebut the argument of  the appellant based on clause 14 of the agreement.   the respondent  places  reliance  on  clause   15  of  the  said agreement  which,  according to the respondent,  creates  an obligation  on  the respondent to compensate the buyers  for the loss suffered by them due to damage to the goods.  We do not want to express any opinion in regard to these arguments addressed  by  the parties.  The authorities below have  not gone into the impact of the various clauses of the agreement on  the claim of the respondent as to the existence of trade practice  in  the  wholesale market.  We  feel  this  raises primarily  a question of fact and is a matter which goes  to the  root  of the claim, therefore, it should be decided  in the first instance by the original Authority.  Therefore, we consider  it  appropriate to remand the matter back  to  the original  Authority directing it to decide the matter afresh after  giving  the  parties   concerned  an  opportunity  of producing  such evidence as they desire to produce and after hearing  the  parties.   We make it clear that we  have  not

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expressed   any  opinion  with   reference  to  the  various arguments  addressed before us and referred to in this order of  ours except to the extent of the finding delivered by us in  regard  to the finality of the decision rendered by  the Tribunal  in the earlier round of proceedings and in  regard to the correctness of the reliance placed by the Tribunal on the  two orders of its own while allowing the appeal of  the respondent, which according to us, is unsustainable.

     For  the  reasons stated above, the impugned order  is quashed,  the  matter is remitted to the original  Authority for  fresh disposal in accordance with the observations made hereinabove.  The appeals are disposed of accordingly.