A METAL BOX INDIA LTD.  v.  

THE COLLECTOR OF CENTRAL EXCISE, MADRAS  

JANUARY 10, 1995  

B  (B.P. JEEVAN REDDY AND S.B. MAJMUDAR, JJ.]  

Central Excises and Salt Act, 19#-Ss.4(l)(a), 4(4)(d)(ii), llA--Ex- cisable good:r-Valuation of for charging excise duty-Recovery of duties short  levied-Limitation for-Assessee-manufacturer receiving interest free advances  

C of large amounts from its wholesale buye~evenue 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  buyer-Held, notional rate of interest on advances given by buyer to manufac- turer should be reloaded in the price so as to reflect correct price of goods  

D sold by manufacture,.._f'or 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 normal price  of goods-Manufacturer while submitting price lists suppressed details of in- terest 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 bnsiness 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 dnty 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 wherennder 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 Collec- tor 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

MET AL BOX v. COLLECTOR OF C. EXCISE 137  

be added thereto in order to arrive at the assessable value. Accordingly, 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  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 boyer-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.  Aggrieved, the assessee filed the appeals.  

B  

c  

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  assessee's claim regarding rebates and discounts given to the buyer-com- pany 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(l)(a) of the Central p  Excise and Salt Act, 1944. It bas 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 tl,1e appellant. If the buyer-company had not advanced  interest free amounts to the appellant, it would have been required to G  borrow these amounts for purchasing raw materials and other accessories  from outside on large amounts of interest which would have got refiected  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(l)(a) of the Act envisages that normal price would be the price which H

138 SUPREME COURT REPORTS [1995) 1 S.C.R.  

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  lo a particular transaction is not the sole consideration flowing directly  

or Indirectly from the buyer to the assessee-manufactllf'er, 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  discount 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 boyer of the goods of the assessee during the relevant periods  of assessment. Such boyer would certainly form a separate and distinct  class. lo view of s.4(1)(a) of the Act, concession by way of trade discount  given by the appellant to the said wholesale boyer coooot be said to be in  

D any way uncalled for or a speclal treatment contrary to trade practice. In  view ors. 4(4)(d)(li), that amount cannot be included in the value or the  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 meot of clause (ii) of Section 4(4)(d) of the Act. [146-F, 145-C, 146-B]  

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

3. The Tribunal was right in holding that a longer period of Hmita- F tlon 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 submitted 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  

G of wilful suppression of relevant facts by the assessee. This finding is well  sustained on record and calls for no interference. [142-D)  

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

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

METAL BOX v. COLLECTOR OFC.EXCISE fMAJMUDAR, 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 A.K. Sinha for the Appellant.  

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

Respondent. B  

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, C  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 Mis 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 carryitig 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 F  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 !he 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 sttpply of containers for its aforesaid  business approached the appellant by way of an arrangement under which H

140 SUPREME COURT REPORTS [1995] 1 S.C.R.  

A the appellant was to manufacture 'containers as per the specification sup- plied 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 made 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 issued by the Assistant Collec-

D tor of Central Excise, Madras, on 27th June, 1984, calling upon the appel- lant 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  

E value and why the adtitional consideration by way of interest accruing on  the advances made by Ponds (1) Limited 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?  

G  

(3) Why the consequential duty should not be demanded from the appel- lant 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 Novemb~r

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  

material facts in order to evade payment of duty and consequently held B  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  (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) Ud. but rejected the appellant's contention relating to the  inclusion of rebates and discounts given to Poinds (I) Limited. The appel- E  !ant, 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

142 SUPREME COURT REPORTS [ 1995] 1 S.C.R.  

A limitation was available to the bepartment to raise such a demand.  

B  

c  

(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 on advances made by Ponds (I) Limited to the  assessee.  

(3) The Tribunal equally erred in law in rejecting the appellant's contention  regarding 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 Depart- ment 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 that too interest free advances of huge amounts were all sup- pressed 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 Tribunal that longer period of limitation is available to the Department.  

F  

We reject contention No.l.  

So far as contention No. 2 is concerned, it is true that Ponds (I)  Limited was almost a wholesale buyer of the appellant's goods, namely,  metal containers manufactured by it as it was lifting 90 per cent of the total  

production of tho appellant. For that purpose 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 from normal price then  the material aspect that Ponds (I) Limited had advanced large amounts  free of interest had necessarily entered into consideration between the  

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 been required to pay large amounts of  

H interest which naturally would have got reflected in the purchase price to

METAL BOX v. COLLECTOR OF C.EXC!SE IMATMUDAR,J.) 143  

be charged from the buyers as it would be a part of cmt of production A  which was to he passed on to the customers of the appellant's goods. It has  

been laid down by Section 4(1)(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 only  

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 C  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 as 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 by 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 F  large amounts to the appellant free of interest for purchasing raw materials  and accessories for manufacturing the containers 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 G  the interest amount payable on the advance which had Mis Metal Box India  Limited obtained from any other source with interest bearing loan, would  have been loading on the cost of manufacturer and sale price of the metal  containers naturally increasing the concessional price charged from Ponds  

(I) Limited.  H

144 SUPREME COURT REPORTS (1995] 1 S.C.R.  

A On the facts on record, therefore, it must be held that the Tribunal  was perfectly justified in taking the view that charging a separate price for  the metal containers supplied to Mis 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  by the assessee on interest free loan was required to be reloaded by hiking  

B 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 made by Ponds (1) I..imited 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 si~uation 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 manufac- tured by the appellant were supplied to this wholesale buyer, Ponds (I)  

F Limited. Now the question whether Ponds (I) Limited was also a fmancier  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 (1) 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

METAL BOX v. COLLECTOR OF C.EXC!SE [MAIMUDAR, 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 conten- tion No.2 is rejected then for deciding contention No.3 the proviso to  Section 4(1)(a) would directly get attracted. Learned counsel for the B  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 C  purchases small quaotities of goods may staod in different class as com- pared to a buyer who purchases 90 per cent of maoufactured 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  dab le on aoy account whatsoever) allowed in accordaoce 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 appellaot  was maoufacturing the goods which were offered for sale in wholesale to  Ponds (I) Limited, a buyer also in wholesale aod 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  aod has to be deducted for computing the normal price of the goods  concerned.  

Learned counsel for the Department vehemently contended that F  such a discount to be admissible has firstly to be uniformally made available  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 ao 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 aoy way ao impermissible trade  practice. In fact such type of concessions are usually given by manufac- turers whose goods are lifted by whole-buyers whose availability avoids lot  of marketing aod advertising costs for the maoufacturer aod also ensures H

146 SUPREME COURT REPORTS ( 1995] 1 S.C.R.  

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 be said that it is not in accordance with normal practice  of wholesale trade. It is not in dispute that Ponds (I} Limited has not  

B refunded such discount on any account. Therefore, it satisfies the require- ment of clause (ii) of Section 4( 4)( d) of the Act. Learned counsel for the  appellant 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., (1980) 6 Excise Law Times 397. The Division Bench of the Gujarat  

C High Court consisting !Jf P.O. Desai and G.T. Nanavati, JJ., interpreting  the scope of Section 4 of the Act laid down that Section 4 of the Central  Eidcse Act does not in terms enact the trade discount in order to qualify  for deduction thereunder should be on a uniform basis to all wholesale  purchasers at the factory gate. Any such view would require the addition  of would 'uniform' before the 'trade discount' occurring in Section 4 which  

D is not evidently permissible. Nor it would be advisable to read the require- ment of uniformity even by implication. Even 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 asses- sable value so long as the lack of uniformity is not founded on any extra  

E commercial considerations. To ignore the deduction of trade discount  would amount to adding a non-existent fraction to the manufacturing profit  which will artificially inflate 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 must be held that the Tribunal was in error in taking the view that as  trade discount 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 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 extent of the disallowance of the trade disoount offered to the  

H

METAL BOX v. COLLECTOR OF C.EXCISE [MAIMUDAR, J.] 147  

wholesale buyers Ponds (I) Limited by the assessee, the decision of the A  Tribunal is set aside and accordingly the original 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.