ORDER
P.C. Jain, Member (T)
1. The appellants herein are manufacturers of linoleum which is liable to duty on the basis of value of the goods. In determining the value under Section 4 of the Central Excises and Salt Act, 1944, the lower authorities have disallowed certain deductions claimed by the appellants in the price lists submitted by them to the Revenue. After disallowing certain deductions, the original authority, namely, Asstt. Collector of Central Excise has confirmed a demand of Rs. 47,20,809.00 for the period 15-2-1979 to 28-2-1985. An order passed by the original authority has been confirmed by the lower appellate authority, namely, Collector of Central Excise (Appeals), Calcutta vide his order dated 16-5-1985. It is against the said order that the appeal has been filed before the Tribunal.
2. First plea made by the learned advocate, Shri S.K. Bagaria for the appellants is that confirmation of duty to the aforesaid extent by the original authority is beyond the show cause notice dated 28-2-1985 inasmuch as the said notice merely alleged disallowing of certain deductions claimed by the appellants in their price lists. It did not seek to demand any duty. In order to appreciate this pleading, we reproduce below the relevant portion of the show cause notice:-
“Please refer to your letter Ref. No. 134, dated 15-2-1985 enclosing the price lists stated above.
On examining of your papers pertaining to admissibility of cost of elements of deductions viz.
(a) Durable and Returnable special secondary packing (b) Cash discount (c) Transportation/freight charges (d) Transit Insurance (e) Selling Agent’s Commission (f) Turnover tax (g) Quality discount, it transpires that you have claimed the aforesaid deductions without observing the stipulations as contained under the provisions of section 4 of the Central Excises & Salt Act, 1944.
You are, therefore, requested to show cause to the undersigned as to why your claim for deduction of elements of above noted expenses should not be included in the determination of normal price/assessable value of your product falling under T.C. 22C.”
He has submitted that it is by now well settled by a number of judgments of the Supreme Court as also on the plain reading of 11A of the Act, no demand of duty can be made unless a show cause notice to that effect is given. He relies on-
(1) 1987 (28) E.L.T. 53 (S.C.) – (Gokak Patel Volkart v. CCE)
(2) 1988 (35) E.L.T. 349 (S.C.) – (U.O.I. v. Madhumilan Sijntex)
(3) 1988 (38) E.L.T. 739 (S.C.) – (U.O.I. v. Tata Yodogawa Limited)
(4) 1988 (38) E.L.T. 573 (S.C.) – (C.C.E. v. Kosan Metal Products Ltd. (SC)
He, therefore, submits that the impugned order is ex facie bad in law and liable to be set aside on this ground alone .
2.1 Learned SDR, Shri Prabhat Kumar for the Revenue concedes the aforesaid position.
2.2 We agree with the plea of the learned advocate of the appellants. On this ground alone the impugned order is liable to be set aside and we order accordingly. The Revenue is, however, at liberty to issue a fresh show cause notice for demand of duty.
2.3 Nevertheless, we will go on to examine the pleas on merits of the various deductions claimed by the appellants in their price lists. Each of the deduction claimed and in dispute before us is dealt with seriatim below :-
(1) COMMISSION PAID TO THE VARIOUS DISTRIBUTORS –
2.4 The appellants had appointed various distributors. Such distributors used to secure orders from the buyers. They also used to place orders for the excisable goods on their own account and buy the goods themselves. This is clearly provided in Clause 2 of the Agreements entered into with the distributors. The said clause 2, as set out in the order passed by the Assistant Collector is as follows :-
“Clause – 2 : You shall procure offers for sale of our products on the basis of the prices as may be intimated by us from time to time. All order will be subject to our acceptance and final confirmation in writing. No orders will be binding on us unless accepted by us. You may also place orders on your own account, subject to acceptance by us as aforesaid. You shall have no authority or power either to sell or enter into contract or sale on our behalf”
[emphasis supplied by ld. advocate.]
The appellant’s learned advocate in the course of his submissions has further given a data during the period 1979-80 to 1984-85 of total transactions through the distributors and the data of purchases made by the distributors themselves. This is as under :-
—————————————————————————-
Year Total transaction Purchases made by the
through the distributors. distributors themselves
(included in 2)
----------------------------------------------------------------------------
Rs. Rs.
1979-80 2,05,68,387 65,25,737
1980-81 2,59,08,998 86,47,384
1981-82 2,40,99,624 77,71,176
1982-83 2,57,92,582 87,93,133
1983-84 2,96,08,263 1,08,72,386
1984-85 3,07,55,308 1,02,33,369
Learned advocate has fairly conceded that so far as the commission paid to the distributors on account of the orders secured by them on behalf of the other dealers is concerned the same is not permissible in view of the Supreme Court’s judgment in the case of Coromandal Fertilisers relied upon by the lower authorities. He, however submits the proposition that if the distributors themselves have purchased the goods on a principle to principle basis from the manufacturers, the trade discount permissible to the dealers as allowed by the manufacturers should also be available to such distributors. In this connection, he relies on –
(1) 1990 (47) E.L.T. 202 (S.C.) (Seshasayee Paper & Boards Ltd. v. CCE)
(2) 1986 (23) E.L.T. 8 (S.C.) (Moped India Ltd. v. Assistant Collector)
(3) 1991 (54) E.L.T. 383 (Tribunal) (Hindustan Gas & Industries Ltd.)
It has been further urged that in respect of the subsequent period the said claim of the appellant was accepted and allowed by the learned Collector (Appeals) himself by an order-in-appeal No. 391-402/CAL-I/87, dated Sept. 18, 1987.
2.5 Learned SDR for the Revenue, on the other hand, opposes the contention of the learned advocate for the appellants. He has submitted that if commission is disallowed on a certain price that price is established under Section 4 (1) (a) of the Act. He relies on Supreme Court’s judgment in the case of Indian Oxygen Ltd. – 1988 (36) E.L.T. 723. He has further submitted that distributers cannot be classified as a separate class of buyers entitling them to a trade discount. He relies on Clause 6 of the Agreement between the distributors and the appellants which is reproduced below :-
“Clause 6 : In consideration of your rendering the aforesaid services, you shall be entitled for commission at the rate of 7.1/2 % only on the value of the goods sold against orders procured or placed by you or through your efforts. The commission will become due and payable only after the sale proceeds have been fully realised by us. The amount or excise duty, sales tax and other Govt. levy charges thereon and any rebate, discount and claims (including the value of goods returned) allowed to the buyers shall be deducted from the value of sales for the purpose of computing your commission.”
2.6 In his rejoinder, learned advocate for the appellants submits that the submission of the learned SDR is misconceived; that there are no two prices, there is only one uniform price whosoever buys whether it is a third dealer in respect of whom a distributor procures the order and passes on to the appellants to be executed by the latter or whether the distributor himself purchases the goods for the purposes of his own business/trade. He submits that the judgment of the Supreme Court in the case of Seshasayee Paper & Boards Ltd., supra is more appropriate to the facts and circumstances of this case.
2.7 We have carefully considered the pleas advanced on both sides on this issue. We are inclinded to agree with the learned advocate for the appellants. Relevant extracts from para 5 of the Supreme Court’s judgment in the case of Seshasayee Paper & Boards Ltd. are reproduced below :-
“5…There will, however, be one clarification that, as agreed to learned Attorney General, if in any case the purchaser named in the invoice is the same as the Indentor, normal trade discount given to the Indentor will be allowed as a deduction in the determination of the normal price for the levy of excise duty subject to other relevant considerations.”
Indentor referred to by the Apex Court in the case of Seshasayee Paper & Boards Ltd. has the same status as the distributor in the instant case. Therefore, wherever, the invoices indicate that the distributor himself has purchased the goods, the normal trade discount (although it might have been shown as a commission) which is passed on by the appellants to the dealer should be allowed to the distributor as well. However, the commission allowed to the distributors by the appellants in respect of orders procured by the distributor from other dealers shall not be allowed as a discount, as conceded to by the learned advocate for the appellants.
(2) COST OF SECONDARY PACKING & COST OF DURABLE AND RETURNABLE PACKING –
2.8 Learned advocate for the appellants has submitted that linoleum rolls are packed with the help of kraft paper are fully marketable in such packing. The RG 1 point in respect of linoleum is also reached immediately after it is packed with the help of Kraft Paper. Entries in its RG 1 register are being made by the appellants on the aforesaid basis ever since the levy of Central Excise Duty on linoleum in the year 1971 with full knowledge and approval of the Central Excise authorities. With a view to afford protection to the goods during transportation the customers request for providing special packing/secondary packing. Photostat copies of several such letters requesting for packing of Linoleum with special secondary packing consisting of Hessian, Card Board Discs, Paper Tubes etc. were duly filed by the appellants before the Assistant Collector along with its reply dated March 18, 1985 (pages 42 to 59 of Paper Book No. 3). The appellants had also filed before the Assistant Collector along with its said reply a copy of the Minutes of the 20th Annual Line Distributors Conference held on May 3, 1976 wherein in Paragraph 1 the point as regards the said requests for special secondary packing was specifically mentioned (Pages 60 to 63 of Paper Book No. 3).
2.9 Learned advocate has submitted that under the provisions of law it is not at all necessary that the buyers must supply any specifications of the secondary packing. In any event in so far as the materials used for the said secondary packing, namely, hessian, card board discs and paper tubes are concerned, these were clearly mentioned in the letters of the distributors who had written the said letters to the appellant as per the requests made by the dealers. It is well settled that the cost of packing which is primarily or mainly done for protecting the goods during transportation and not for making the goods marketable cannot be included in the assessable value. Reliance in this connection is being placed on, inter alia, the following :-
(1) 1985 (22) E.L.T. 306 (S.C.) - (GOI v. Godfrey Phillips India Ltd.}. (2) 1989 (43) E.L.T. 165 (S.C.) - (Hindustan Polymers v. CCE). (3) 1989 (44) E.L.T. 185 (S.C.) - (CCE v. Ponds India Ltd.}. (4) 1991 (51) E.L.T. 144 (Tribunal) - (CCE v. Shankar Novelities Glass Industries). (5) 1991 (52) E.L.T. 261 (Tribunal) - (P.P. Patel & Co. v. CCE).
The submissions of the appellants as regards the said secondary packing were accepted by the learned Collector (Appeals) himself in his Order-in-Appeal Nos. 391-402/Cal.-I/87 dated September 18, 1987 for the subsequent period. Alternatively he submits that the packings in question namely, hessian, paper cores and card board discs were of durable nature and were returnable by the buyers to the appellants and thus in any event the cost thereof was liable to be excluded from the assessable value. There was a clear agreement/arrangement between the appellants and its buyers that the said packing would be returnable by the buyers and in case they return the same, the appellants would accept such return and would refund the cost thereof to the buyers. The agreement/arrangement was clearly recorded in the letters of the distributors produced by the appellants before the Assistant Collector alongwith its reply dated March 18, 1985 (Pages 42 to 59 of Paper Book No. 3). The agreement/arrangement was also recorded in Para 31 of the said Minutes of the 20th Annual Line Distributors Conference held on May 3, 1976 (Pages 60 to 63 of Paper Book No. 3). The appellants had also issued circulars (at page 64 of Paper Book No. 3) to all the distributors and dealers stating inter alia that it would continue taking back the used packings. In such circulars full details used to be given about the amounts to be reimbursed to the buyers returning the said packings. The appellants also duly produced before the Asstt. Collector alongwith its said reply specimen copies of the documents (Pages 65 to 68 of Paper Book No. 3) showing the actual return of the said packing by several buyers and the payments made by the appellants for the packings so returned. These factual aspects of the matter have not been disputed by the Assistant Collector or the Collector (Appeals). The Assistant Collector, however, disallowed the claim of the appellants by alleging that the agreement/arrangement for return of packing was not between the appellants and the buyers directly but through the distributors and that at the time of return, the packing materials, such ashessian, paper cores, card board discs etc. were separated. The said finding was also wrongfully and illegally upheld by the Collector (Appeals). It is submitted that the said puported reasons given by the Assistant Collector and the Collector (Appeals) for rejecting the said claim of the appellants are no reasons at all. When the goods were being sold by the appellants through the distributors, there was nothing wrong in the said arrangement being entered into with the dealers through the distributors. Furthermore, in several cases, the distributors themselves were buying the goods. In so far as the return of the said packing materials in separate condition is concerned, this was obviously bound to be so inasmuch as the said packing materials were used in the same condition. Furthermore, as would be evident from the definition of the expression ‘packing’ in section 4(4)(d)(i), the said expression has been defined to mean wrapper, container, bobbin, pirn, spool, reel or wrap beam or any other thing in which or on which the excisable goods are wrapped, contained or wound. In such circumstances and in any event there is or can be no scope to allege that the said packing such as hessain, paper cores, card board discs etc. is not a packing covered by and contemplated under section 4(4)(d)(i) of the 1944 Act. As a matter of fact, the claim of the appellants as regards the said packing being of durable nature and returnable by the buyers was accepted by the Assistant Collector himself in an earlier order dated June 13, 1980. The said order was accepted by the Department also and no further appeal was filed and/or other proceeding was initiated for setting aside the same.
2.10 On the aforesaid submissions he urges that the cost of the aforesaid secondary packing consisting of Hessain, Card Board Discs, Paper Tubes etc., as aforesaid, should be excluded from the determined value of the aforesaid goods. He relies on –
(1) 1987 (27) E.L.T. 598 (SC) – (K. Radha Krishaiah v. Inspector of Central Excise)
(2) 1988 (36) E.L.T. 727 (SC) – (Mahalakshmi Glass Works Pvt. Ltd. v. CCE)
(3) 1989 (40) E.L.T. 139 (Tribunal) – [CCE v. EID Parry (India) Ltd.]
(4) 1991 (51) E.L.T. 281 (HC) – (Wipro Products Ltd. v. U.O.I.)
(5) 1992 (57) E.L.T. 173 (Tribunal) – (Maharashtra Vegetable Products Ltd. v. CCE)
2.11 Learned SDR, on the other hand, submits that all goods are being sold by the appellants in so-called secondary packing even in respect of sales to local dealers in Calcutta. Accordingly, he submits that the packing which is described by the appellants as a special secondary is really a packing necessary to put the goods into the wholesale market at the factory gate. He relies for his submission on –
(1) 1986 (26) E.L.T. 250 (Tribunal) – (Khaitan Fans v. CCE)
(2) 1989 (44) E.L.T. 185 (SC) – (Ponds India Ltd.), supra followed by the Tribunal in the case of Hindustan Lever Ltd. 1991 (54) E.L.T. 420
(3) 1988 (38) E.L.T. 513 (Tribunal) – (Kusum Products)
(4) 1989 (41) E.L.T. 651 (Tribunal) – (CCE v. Kerala Electric Lamp Works)
(5) 1987 (31) E.L.T. 756 (Tribunal) – (Rakesh Bulbs Industries v. Collector)
(6) 1989 (41) E.L.T. 376 (S.C.) – (Shiva Glass Works v. Collector)
Learned SDR apart from the aforesaid relies on the reasons given by the lower authorities to the effect that the circulars are from the distributors and not from the buyers who have actually purchased the goods. Agreement/arrangement between the appellants and the distributors has no meaning whatsoever. It cannot be treated as an agreement or arrangement between the appellants and the buyer of the goods.
2.12 We have carefully considered the pleas advanced on both sides on this issue. We are not impressed with the plea of the learned advocate for the appellants for either of the submissions regarding deduction of cost of secondary special packing or treating the impugned packing as durable and returnable one; that the letters from the distributors to the appellants or the decision taken at the distributors Conference available at pages 60 to 63 of the Paper Book 3 should be treated as an agreement between the manufacturers and the buyers. The sample letter received from the various representatives (distributors) by the appellants is reproduced below in order to understand the agreement between the appellants and the distributors :-
“We have been given to understand by our dealers that the Linoleum rolls despatched to them get impugned in initial packing and sometimes pilferage is also happening in transit. As such the dealers have adviced us to request you to despatch all Linoleum rolls with special secondary packing of hessian, cardboard discs, paper tube etc. to present the Linoleum rolls from damage due to handling in transit as well as pilerage. The cost of such special packing will be to the account of our dealers and in the event of any return of such durable packing materials to you, the cost of the same will have to be reimbursed by you to our dealers.”
It will be seen from the above that the understanding is between the distributors and the appellants although the distributors appear to be doing it on behalf of the dealers. Nothing has been brought on record, as claimed in this letter that the dealers in any way have agreed to get the goods in the so-called special secondary packing with the clear understanding of returning the said special packing against reimbursement of the cost of such special packing. Law on the subject is very clear that the arrangement or agreement for returnability of the goods has to be between the manufacturer (assessee) and the customer. That being so, in the present case the letters from dealers on behalf of the customers/buyers cannot be treated as creating an arrangement or agreement between the appellants and the buyers. It has also not been shown by the appellants that during the relevant period any clearance has been made of the goods without the so-called special secondary packing. In other words, the plea made by the learned SDR that all clearances during the relevant period have been made by the appellants in the so-called special secondary packing has not been rebutted by the appellants by any evidence at all. It cannot, therefore, be held on the basis of any evidence that excisable goods are placed in the wholesale market with packing of kraft paper alone and that the so-called special secondary packing is not necessary for putting the goods in the wholesale market at the factory gate. In fact, the entire evidence on record suggests that after the dealers conference in 1976, mentioned above, mode of packing of putting the goods in the wholesale market has undergone a total change. So-called special secondary packing has itself become the normal packing for sale of the goods in the wholesale market at the factory gate.
2.13 Nevertheless, the .letters of the various distributors regarding despatch of the goods in the so-called special packing which is also durable and returnable may be treated as an agreement or arrangement between the appellants and the buyers for returnability of the durable packing in respect of those distributors who have themselves purchased the goods on their own account and not on account of other customers. Benefit of not including the value of such packing in respect of such clearances, as mentioned above, should be extended to the appellants on account of durability and returnability of the packing. Original authority’s finding that the entire packing as such is not returnable and what is returnable are only the ingredients of packing, does not appeal to us. Durable and returnable packing in the instant case constitutes separate ingredients, namely, Hessian cloth, paper cores and card board discs. Hence the plea of the appellants is partially allowed as aforesaid.
(3) CASH DISCOUNT –
2.14 Learned advocate for the appellants, has submitted that the scheme as regards allowing cash discount to the buyers was introduced by the appellants with effect from December 1, 1981. The appellants duly issued circulars (pages 83, 84 of Paper Book No. 3) to all its distributors/dealers agreeing to allow 2% cash discount on the invoice price if the payment was made within a period of ten days. The said period was increased 15 days from May 4, 1982. All these circulars were duly produced by the appellants before the lower authorities. The said claim of the appellants was, however, rejected by the Asstt. Collector simply by alleging that cash discount was not availed by all the buyers. The Collector (Appeals) upheld the order passed by the Asstt. Collector by holding that cash discount is an incentive to encourage the buyers to make the payment within the stipulated time and that it was not being granted at the time of clearance of the goods and in respect of every clearance and as such it would not be allowed. It is submitted that the said reasons are no reasons at all. Cash discount was being uniformally allowed by the appellants to all its buyers in terms of the circulars issued from time to time wherein it was clearly agreed that if the payments were made within the stipulated period, cash discount would be allowed at the rate of 2%. The nature and extent of the said cash discount was known to all the buyers/dealers/distributers at or before removal of the goods from the factory. It was open to each of the buyers of the appellants goods to avail the said cash discount by making the payment within the stipulated period. In case, the payments were made in advance, the amount of cash discount used to be deducted in the invoice itself. In other cases where the payments were to be collected through the banks, on the bank advice itself (Page 86 of Paper Book No. 3), the following instructions to the bankers were printed :-
“Please allow discount of 2% (two percent) of payable amount if the drawee pays the bill within 15 days from the date of the bill, that is, by…”.
The aforesaid system and practice of allowing cash discount @ 2% was being uniformly followed by the appellants and was applicable to all its buyers.
2.15 Ld. advocate for the appellants has further submitted that the Collector (Appeals) has ignored the aforesaid relevant factual aspects of the matter. On the other hand by referring to another clause in the bank advices as regards interest @ 21.5% the Collector (Appeals) has held the cash discount claimed by the appellants was not allowable. The said clause as regards 21.5% as given in the bank advices had nothing to do with the cash discount nor was relevant in any manner whatsoever for deciding the claim of the appellants as regards deductions of cash discount. In the same bank advices it was clearly stated that cash discount @ 2% has to be allowed if payment of the bill was made within 15 days from the date of the bill. Such cash discount was actually being allowed by the appellants to all eligible buyers. There was absolutely no reason or justification to disallow the said claim of the appellants. As has been held by the Hon’ble Supreme Court in the case of UOI v. Bombay Tyre International Ltd. 1984 (17) E.L.T. 329, discounts allowed in the trade (by whatever name such discount is described) should be allowed to be deducted from the sale price having regard to the nature of the goods, if established under agreements or under terms of sale or by established practice, the allowance and the nature of the discount being known at or prior to the removal of the goods. It has further been held in the said decision that such discounts cannot be disallowed only because they are not payable at the time of each invoice or deducted from the invoice price. The aforesaid tests were and are fully satisfied in respect of the said cash discount. The said cash discount was being allowed by the appellants to its buyers under agreements or under terms of sale and the allowance and nature of the said discount was known at or prior to the removal of the goods. The said discount was uniformly being allowed to all the buyers making payment within the stipulated period. The deduction claimed by the appellant was only of the cash discount actually allowed by it to the buyers. It is submitted that the said discount could not be disallowed simply because it was not availed by all the customers. It is now well settled that deduction on account of the said discount is permissible even if it is not uniformly availed by all the customers. Reliance in this connection is being placed on the following decisions :-
(1) 1984 (17) E.L.T. 4 (HC) - Jenson & Nicholson India Ltd. v. UOI (2) 1986 (24) E.L.T. 269 (Mad. HC) - UOI v. SSM Bros. Pvt. Ltd. (3) 1988 (34) E.L.T. 373 (CEGAT) - Bhartia Cutler Hammer Ltd. v. CCE (4) 1986 (25) E.L.T. 1032 (Bom. HC) - Music India Ltd. v. UOI (5) 1992 (59) E.L.T. 23 (Mad. HC) - Rathana Fire Works Factory v. Supdt. of Central Excise 2.16 Learned SDR reiterates the findings of the adjudicating authority to the effect that this discount is not available inasmuch as it has not been extended to all the buyers. 2.17 We have carefully considered the pleas advanced on both sides. Nature of cash discount is such that it cannot be given to all the buyers. It is given to only such buyers who made prompt payments during the period stipulated by the assessee. The very reasoning of the adjudicating authority in not allowing the cash discount is faulty. The proposition of allowing cash discount is by now well settled to discuss and deny the same. Following respectfully the judgments relied upon by the learned advocate, as cited above, we allow the cash discount which has actually been passed on by the assessee to its customers as prayed for by them. (4) SPECIAL DISCOUNT - 2.18 Learned advocate has submitted that special discount was allowed by the appellants to its buyers in the invoice themselves. Pages 87 and 88 of Paper Book No. 3 are shown as samples. The nature and extent of the cash discount was fully known at or prior to the removal of the goods. The said special discount used to be allowed in respect of some particular goods and the reasons for the same, inter alia, included the designs becoming old, the stock lying unsold for a long period, excess production of any particular colour or shade or design etc. In respect of special discount no allegation whatsoever was made by the Asstt. Collector in the show cause notice. In such circumstances, the Asstt. Collector had no jurisdiction whatsoever to disallow the said claim, submits the learned advocate for the appellants. 2.19 The said discount was claimed by the appellants in the price list filed by them and all the conditions for deduction of the said discount in determination of the assessable value were and are fully satisfied. He, therefore, submits that a special discount passed on by the appellants to the customers should be allowed. 2.20 Opposing the contentions of the learned advocate, learned JDR submits that the sample invoices at pages 87, 88 and 90 of the Paper Book No. Ill reflect no policy of the appellants regarding giving of such discounts because different discounts are given for different reasons. He, therefore, prays for disallowing the same. 2.21 We have considered the submissions of both sides on this issue. The allowance and nature of discount is clearly known at the time of removal or prior to the removal of the goods. Special discount claimed by the appellants, therefore, fully satisfies the ruling given by the Supreme Court in its clarificatory order of [14th November, [1983] 1984 (17) E.L.T. 329 (S.C.). Therefore the special discount claimed by the appellants is allowed.