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PETITIONER: METAL BOX INDIA LTD.

       Vs.

RESPONDENT: C.C.E.

DATE OF JUDGMENT10/01/1995

BENCH: MAJMUDAR S.B. (J) BENCH: MAJMUDAR S.B. (J) JEEVAN REDDY, B.P. (J)

CITATION:  1995 AIR  750            1995 SCC  (2)  90  JT 1995 (1)   479        1995 SCALE  (1)109

ACT:

HEADNOTE:

JUDGMENT: 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 Excises and Salt Act, 1944 read with Order XX-A  and 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  goods   concerned manufactured  by  the  assessee and sold to  M/s  Ponds  (1) 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  (1) Limited  to  the  assessee  during  the  relevant  years  of assessment.   A  few  relevant facts may be  stated  at  the outset.  The appellant is a Public Limited Company  carrying on  the  business  of  manufacturing  and  marketing   metal containers which were classified under Tariff Item No. 46 of the erstwhile 92 schedule  to  the  Central Excises and 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. 2.   That  the appellant is manufacturing goods as  per  the individual  customer’s  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 (1) Limited,  an  independent  corporate body,  which is neither related to the appellant nor has  it any  interest either directly or indirectly in the  business of  the  appellant.   The said Ponds (1)  Limited  which  is

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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 the appellant was  to  manufacture containers  as per the specification supplied by  Ponds  (1) Limited and in consideration of the appellant’s  maintaining a steady and regular supply of the containers, the Ponds (1) 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 the appellant to meet the demands  of containers  as  put  forward  by  Ponds  (1)  Limited.    An agreement was entered into between the parties about certain discounts to be given to Ponds (1) Limited which were to  be deducted  from  the  gross  price  which  reflected  various factors  that  went into the determination of  a  negotiated contract price. 3.   The  appellant submitted the price list in Part  11  in respect  of  its  sales to Ponds (1) Limited  in  which  the contract  price  of the goods sold was shown  as  net  price after  deducting  discounts  and  rebates  as  appearing  in Schedule 11. Earlier these price lists were approved by  the appropriate  officer.   However,  a  show-cause  notice  was issued by the Assistant Collector of Central Excise, Madras, on 27-6-1984, 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  additional               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 1-7-1983 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 for the period  from               1-7-1983?               (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  11-A of the Central Excises and  Salt               Act? 4.   The  appellant  replied  to  said  show-cause   notice. Another  notice was issued on 18-1-1985 in the nature  of  a demand-cum-show-cause notice 93 whereby  the appellant was called upon to show cause  as  to why  basic excise duty in the sum of Rs  23,50,013.40  paise and special excise duty in the sum of Rs 1, 17,500.68  paise for the period 1-7-1980 to 30-11-1984 should not be demanded from  the  appellant.   The appellant replied  to  the  said notice on 18-1-1985. 5.   After  hearing the appellant, the Assistant  Collector, Central  Excise,  Madras, by his decision  dated  27-5-1985, 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 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  (1) Limited  to  the contract price between  the  appellant  and Ponds  (1) Limited to arrive at the assessable  value.   The Assistant  Collector  also  added ad  hoc  interest  on  the advances received by the appellant and added the same to the

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gross   price   for  arriving  at  the   assessable   value. Accordingly, the demand of duty and special excise duty  was confirmed. 6.   The  appellant preferred an appeal to the Collector  of Central Excise (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 (1) Limited but rejected the appellant’s contention relating to the inclusion of rebates and discounts given to Ponds (1) Limited.   The appellant, 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. 7.   The   Tribunal  heard  both  the  sides,  allowed   the Department’s  appeal  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. 8.   We  have  heard  learned counsel  for  the  parties  in support of their 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  11-A of  the,  Act  were               misconceived   and  only  shorter  period   of               limitation was available to the Department  to               raise such a demand.               (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(1)    Limited               to the assessee.               (3)   The  Tribunal  equally erred in  law  in               rejecting the appellant’s contention regarding               rebates and discounts given to Ponds (1)               94               Limited  for  being deducted  from  the  gross               price.   We shall deal with these  contentions               seriatim. 9.   So far as Contention 1 is concerned, it is obvious that the Department invoked proviso to Section 11-A 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 (1) Limited, the wholesale buyer  of appellant’s  goods  and that too interest-free  advances  of huge  amounts were all suppressed from the  Department  and, therefore,  it has to be held that the duty had  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 Tribunal that longer  period  of limitation  is  available  to  the  Department.   We  reject Contention 1. 10.  So  far as Contention 2 is concerned, it is  true  that Ponds  (1)  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 the  appellant.   For that purpose huge amounts  were  being

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advanced  free  of  interest by Ponds  (1)  Limited  to  the appellant.   When  Ponds (1) Limited was given 50  per  cent discount  from  normal price then the material  aspect  that Ponds  (1)  Limited  had  advanced  large  amounts  free  of interest had necessarily entered into consideration  between the parties.  Therefore, special treatment was given by  the assessee  to  Ponds (1) Limited.  It has to  be  appreciated that  if Ponds (1) 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 interest which naturally 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 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 subsection (1)(a) would come into play.  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 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 (1) 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  with Ponds (1) 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 95 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  the  pegging  down  of  purchase  price   which ultimately  was charged by the appellant from the  wholesale buyer,  Ponds  (1) Limited.  The said price charged  by  the appellant  from  Ponds (1) 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  (1) Limited which had given such 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 Ponds (1) 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 M/s  Metal Box  India Limited had obtained from any other  source  with interest-bearing loan, would have been loaded on the cost of manufacture and sale price of the metal containers naturally increasing  the  concessional price charged from  Ponds  (1) Limited. 11.  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  M/s  Ponds (1) Limited could not stand  justified  under

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Section  4(1)(a)  proviso and, therefore, to  that  separate price  charged  from the Ponds (1) Limited,  the  extent  of benefit  obtained by the assessee on interest-free loan  was required to be reloaded by hiking the price charged from M/s Ponds  (1)  Limited  to that  extent.   Contention  2  also, therefore, fails and is rejected. 12.  This  takes  us  to  the  last  contention.   On   this contention the appellant is on a better footing.  The  Ponds (1)  Limited  was  almost a wholesale  buyer  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  (1) 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  advance  made  by Ponds (1)  Limited  to  the appellant.   As  we have rejected Contention 2  and  allowed reloading  of  purchase  price  by  the  notional  value  of interest  on the advances made by Ponds (1) Limited  to  the assessee, that aspect now has to be kept out of picture.  In that light we may visualise the situation prevailing at  the relevant  time.   It becomes clear 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 manufactured by  the  appellant were  supplied to this wholesale buyer, Ponds  (1)  Limited. Now  the  question  whether Ponds (1)  Limited  was  also  a financier becomes irrelevant as that aspect is taken care of by  our  decision on Point 2 and the price  charged  by  the appellant  from  Ponds (1) Limited has got reloaded  by  the amount  of notional interest which the appellant had to  pay to Ponds (1) Limited for 96 utilising  its  money  for  purchasing  raw  materials  etc. Therefore, the net picture which emerges is that here was  a 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 (1) 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 of 50 per cent but much less as we have permitted  reloading  of  the  contract  price  between  the parties  by  the  notional value  of  interest  on  advances received  by the assessee from Ponds (1) 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 Contention 2  is  rejected then  for  deciding  Contention 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

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amongst  others 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.   It  cannot  be  gainsaid  that  the  appellant   was manufacturing  the  goods  which were offered  for  sale  in wholesale  to Ponds (1) Limited, a buyer also  in  wholesale and  it lifted 90 per cent of 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. 13.Learned  counsel for the Department vehemently  contended that  such  a discount to be admissible has  firstly  to  be uniformly 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 an esteemed customer who  is a buyer of 90 per 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  wholesale  buyers whose  availability avoids lot of marketing and  advertising costs  for  the manufacturer and also ensures  a  guaranteed quantity of sales year after year.  In order to keep such  a wholesale  monopolistic buyer attached to it, if under  such circumstances   by   way   of   business   expediency,   the manufacturer offers him a special trade discount, it 97 cannot  be  said that it is not in  accordance  with  normal practice  of  wholesale trade.  It is not  in  dispute  that Ponds  (1)  Limited has not refunded such  discount  on  any account.  Therefore, it satisfies the requirement 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 Fertilisers Co. Ltd. v. Union of India1.  The Division Bench of the Gujarat High Court consisting of RD.  Desai and  G.T. Nanavati,  JJ., interpreting the scope of Section 4  of  the Act laid down that Section 4 of the Central Excise Act  does not  in  terms  enact that 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  word  ’uniform’ before "trade discount" occurring in Section 4 which is  not evidently  permissible.  Nor would it be advisable  to  read the requirement 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  it  from  being excluded  for  arriving  at  the assessable  value so long as the lack of uniformity  is  not founded  on any extra-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 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

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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 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 (1) Limited to the assessee is concerned  and  to that extent Assistant  Collector’s  order will   stand   untouched.   However,  to   the   extent   of disallowance of the trade discount offered to the  wholesale buyers  Ponds (1) Limited by the assessee, the  decision  of the 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. 14.The  liability of the appellant for the demanded duty  in the  showcause  notice will have to be recalculated  in  the light of the present judgment. 1 (1980) 6 ELT 397 (Guj) 98