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CASE NO.: Appeal (civil) 2579  of  2000 Appeal (civil)  3160     of  2000

PETITIONER: COMMISSIONER OF CENTRAL EXCISE, NEW DELHI

       Vs.

RESPONDENT: M/S VIKRAM DETERGENT LTD.

DATE OF JUDGMENT:       16/01/2000

BENCH: S.P.Bharucha, Doraswamyy Raju, Ruma Pal

JUDGMENT:

     RUMA PAL,J       In  both  these appeals, the appellant has  challenged the  decision  of  the Customs, Excise  and  Gold  (Control) Appellate  Tribunal holding that bank charges for collection of  sale  proceeds  and discount for damages  are  allowable deductions  in computing the value of the manufactured goods under  Section  4 of the Central Excise and Salt Act,  1944. Civil  Appeal  No.   2579  of   2000  In  this  appeal,  the respondent,  M/s  Vikram Detergent Ltd.  is engaged  in  the packing  of  detergent  powder  received   by  it  from  M/s Hindustan  Lever  Ltd.  (HLL).  After the goods are  packed, they  are  cleared from the factory by HLL and sold  through its  clearing  and forwarding agents from their depots  all over  the  country  to  wholesale buyers who  are  known  as Redistribution  Stockists.   The Department  calculated  the excise  duty  payable on the detergent powder on  the  price charged  by  HLL from the Redistribution  Stockists.   Civil Appeal  No.   3160  of 2000 M/s IPF Vikram India  Ltd.,  the respondent in this appeal produces detergent under agreement with  M/s  Indexport Ltd.  (IEL) and Stepan  Chemicals  Ltd. (SCL)   under  the  brand   name  Wheel.   The  respondent despatches  the goods manufactured by it to the destinations specified by IEL/SCL.  According to this respondent, IEL and SEL send the goods to clearing and forwarding agents depots from  where  the  goods  are   sold  and  delivered  to  re- distribution  stockists.   The  price  lists  filed  by  the respondent  with the excise authorities are according to the advice  of IEL/SCL and reflect the price charged by them for the  goods  in the wholesale market.  Both  the  respondents inter  alia claimed deduction on account of damage  discount and  bank  charges  on  outstation cheques  from  the  price charged in arriving at the assessable value of the goods for the purposes of excise duty.  It is not necessary to set out in  detail the proceedings before the authorities under  the Act  except  to state briefly that in the first appeal,  the Assistant Commissioner disallowed the respondents claim but the  Commissioner  allowed  the  respondents  appeal.   The Tribunal  affirmed  the  Commissioners  decision.   In  the second  appeal,  both  the Assistant  Commissioner  and  the Commissioner  had  disallowed  this respondents  claim  for discount  of  damaged goods and bank charges relying on  the

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decision  of this Court in Government of India V.  MRF  1995 (77) ELT 433.  The respondent challenged the decision before the  Tribunal.   The Tribunal allowed the appeal.  Both  the orders  of  the  Tribunal  are now  the  subject  matter  of challenge  before  us.   The  issues are the  same  in  both appeals as are the relevant facts.  We have heard one set of arguments  and  our  decision   disposes  of  both  matters. According  to  the  appellant, the discount on  the  damaged goods  could not be known at the time of their removal  from the factory and as such was not admissible as a deduction on the  wholesale  price.   It  was  contended  that  what  the respondents  claimed as discount was in fact a refund to the buyers  for  receiving goods damaged in transit.  As far  as Bank  collection  charges  are concerned, according  to  the appellant,  these were neither cash discounts nor any  other discount  within  the  meaning  of   the  word  in   Section 4(4)(d)(ii) of the Act.  It was submitted by the respondents that  deduction on account of damages represented  discounts allowed  to  the whole- sellers for damages suffered by  the goods cleared from the factory during transit there being no sale  at  the factory and were incurred in lieu  of  transit insurance.   Bank  collection  charges,   according  to  the respondents  were  post manufacturing expenses and had  been correctly held to be deductible from the assessable value of the  goods.  The issue of value depends on the  construction of  Section 4 of the Central Excise Act, 1944 ( referred  to as  the Act).  The relevant extract of the Section for the purposes  of this judgment 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 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.

     xxx xxx xxx xxx

     (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) xxx xxx xxx xxx

     (4) For the purpose of this section, -

     xxx xxx xxxxxx@@                  III

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

     xxx xxx xxx xxx

     (ii)  does  not  include  the amount of  the  duty  of excise,  sales tax and other taxes, if any, payable on  such

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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.

     The  normal  price  in this case, would have  to  be determined  with reference to the time and place of  removal of  the  goods from the respondents  respective  factories. Since  the  price in both cases was fixed with reference  to the  sale  at  the depots to the  Redistribution  Stockists, clearly  in  terms  of  sub-Section (2) of  Section  4,  the respondent  would  be entitled to deduction of the  cost  of transportation  from the factory to the selling depots.   It has  been  so held in Union of India and Others  V.   Bombay Tyre  International Ltd.  and Others 1984 (1) SCC 467=  1984 (17)  ELT 329 (SC) as well as Assistant Collector of Central Excise  and  Others  V.  Madras Rubber  Factory  Ltd.   1986 (Supp.)SCC  751  as well as Government of India  V.   Madras Factorey Ltd.  (1995) 4 SCC 349, 359 .  These decisions also held  that the cost of transportation would include cost  of insurance  on  the freight for transportation of  the  goods from the factory gate to the place or places of delivery but would  not  include compensation for defective  goods.   The position  was  further  clarified in  Collector  of  Central Excise,  Meerut V.  Surya Roshni Ltd.  2000 (122) ELT 3 (SC) where it was held that:  The payment made by the respondent to  its customers for breakages and losses cannot tantamount to  insurance.  Nor can, by any means, such compensation  be treated  as  a part of the cost of transportation;  it is  a clear case of making up to the customer by means of a credit note  the monies that it has lost on account of breakages or losses in transit.

     The  respondents sought to distinguish the decision in Surya  Roshni case (supra) by contending that the claim  for deduction  on account of damaged goods was a claim not under sub-Section  (2)  of Section 4 as being part of the cost  of the  transportation  but  under  sub-Section  4(d)  (ii)  of Section  4 as a trade discount.  We are unable to accept the submission.    The  object  of   damage  discount  is   to compensate  the  buyer for the damaged goods and  logically, compensation  for  damaged  goods  could not  feature  as  a relevant  consideration  for  determining the price  of  the goods as manufactured at the time of clearance of the goods. The  discount is admittedly on account of damages suffered by  goods  after  removal  from   the  factory.   A  similar deduction  claimed as a warranty discount was negatived in the two Madras Rubber Factory judgments referred to earlier. Bhagwati  C.Js dictum in the first of such judgments  which was quoted with approval in the second was:  what is really relevant  is the nature of the transaction.   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. a  compensation  in  the nature  of  warranty  allowance on a defective  tyre.   The finding  of  the Tribunal on this issue therefore cannot  be sustained.   On the question of bank charges, however we are of  the  view that bank charges being in the nature of  post clearing  expenses  are  deductible  while  calculating  the assessable  value  of the goods.  In Assistant Collector  of Central  Excise and Others v.  Madras Rubber Factory (supra)

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and  Shriram Fertilizers & Chemicals V.  Union of India 1997 (96)  ELT  12(SC)  and  Government of India  and  Others  V. Madras  Rubber  Factory Ltd.  and Others 1995 (4)  SCC  349, this  Court has held that interest on receivables earned  on account  of the time lapse between the delivery of the goods and  the  realisation of the monies is deductible  from  the assessable  value  of the goods at the time of removal  from the  respondents  factories.   For the  same  reason,  bank charges  included  in the price on account of  clearance  of outstation  cheques  cannot  form part of the price  of  the goods at the time of removal and are as such excludible from the  price  while  calculating the assessable value  of  the goods.   The  Tribunal had, as such, correctly allowed  this deduction.  In the circumstances, the appeals are allowed to the  extent  of  disallowing   the  respondents  claim  for deduction  on account of damage discount and dismissed in so far as the respondents claims for deduction of bank charges are concerned.  There will be no order as to costs.