CASE NO.: Appeal (civil) 6938 of 1999 PETITIONER: Kirloskar Brothers Ltd. RESPONDENT: Commissioner of Central Excise, Pune DATE OF JUDGMENT: 07/03/2005 BENCH: Ruma Pal & Arijit Pasayat & C.K. Thakker JUDGMENT:
JUDGMENT
ARIJIT PASAYAT, J.
Appellant calls in question legality of the judgment rendered by the West
Regional Bench at Mumbai of the Customs Excise and Gold (Control) Appellate
Tribunal (in short the `CEGAT’).
The factual position giving rise to the controversy is as follows:
The appellant (also described as `assessee’) had filed a price list in Part
I of the Format prescribed for determination of value under Section 4 of
the Central Excise and Salt Act, 1944 (in short the `Act’) for the
compressors manufactured by it. It also filed price list in Part II for the
same kind of compressors showing a lesser price of Rs. 150 of assessable
value per compressor than in the Part I price list for sales to alleged
bulk buyers. Notice was issued proposing disallowance of the lower price on
the ground that the bulk buyers did not constitute a different class of
buyers and cannot be distinguished from other wholesale buyers; there
cannot be more than one price for the same class of buyers. In the notice
it was alleged that the claim for lower price on the ground that the bulk
buyers purchased a substantial quantity had not been justified. The
Assistant Collector declined to accept the assessee’s contention that the
price was on account of the fact that the bulk buyers constituted a
different class because of the quantity of compressors that they purchased
and higher purchases in the past than other buyers. He confirmed the
proposal in the notice.
On appeal by the assessee, the Collector (Appeals) accepted the contention
of the assessee that the bulk buyers were a different class and that the
lower price was permissible.
An appeal was preferred by the present-respondent questioning correctness
of the order of the Collector (Appeals). Stand of the Revenue was that
normal price applicable to wholesale dealer should be made applicable to
the so-called bulk buyers and the Collector (Appeals) erred in concluding
that there can be more than one class of dealers. CEGAT by the impugned
judgment held that there can be different class of buyers. While it is open
to the assessee to classify buyers according to commercial consideration,
the classification has to be rational and identifiable based on commercial
consideration and it cannot be arbitrary. According to the CEGAT it is not
possible to see the existence of any rational or commercial consideration
to distinguish the bulk buyers from any other buyers. The existence of any
relationship with a customer to prove business consideration was also not
established.
Accordingly, Revenue’s appeal was allowed.
In support of the appeal, learned counsel for the appellant submitted that
CEGAT has missed the most relevant factor that the Revenue’s case was not
that any extra commercial consideration existed so far as the present
appellant is concerned. That being so, the presumption is that the price
fixed was rational and the Collector (Appeals) had rightly decided in
favour of the appellant. The beneficiaries were clearly identifiable. The
names of the persons belonging to different regions were noted. Taking into
account the previous periods’ turnover, the price concession was given. The
authorities were clearly in error by observing that classifications cannot
be made on regional basis. The comparison of the sales figures has been
made by the authorities and CEGAT by taking all the regions together and
not inter-zones. Merely because no minimum number of sales was indicated
while deciding the persons to whom concession is to be given, that does not
per se make the claim irrational. Reliance was placed on Metal Box India
Ltd. v. Collector of Central Excise, Madras, [1995] 2 SCC 90 to submit that
even a single individual whose transactions were considerable can
constitute a class for granting discount. As discount was not based on any
extra commercial consideration it was deductible in terms of Section 4(1)
(a) (proviso) (i) of the Act. Reference was also made to a decision of the
Special Bench of CEGAT, New Delhi in Gora Mal Hari Ram Ltd. v. Collector of
Central Excise, Delhi (1994) 69 ELT 269 to contend that where there is a
rational differentia based on valid commercial consideration which has been
established, the Revenue cannot refuse to recognize the same unless it is
established that the transactions were not at arm’s length and in the usual
course of business. It was further submitted that the dealers as referred
to in Section 4(4)(c) of the Act do not constitute a class different from
other buyers as noted in the definition of “wholesale trade”. The Revenue
Authorities were not justified in holding that the dealers constituted a
class and there cannot be class within the class. To justify its claim that
grant of such discount was a normal trade practice, the price-list of
another manufacturer M/s Sriram Refrigeration Industries Ltd., Hyderabad,
was filed with all relevant details. CEGAT came to an incorrect conclusion
that the details were not filed.
In response, Mr. K. Swami, learned counsel for the respondent submitted
that mere absence of any extra commercial considerations does not per se
entitle an assessee to the benefit in terms of Section 4(1)(a) (proviso)
unless an intelligible rationale for choosing differently between different
groups of buyers is established. The assessee was granted an opportunity to
justify the ground for granting discount to the named persons. Except
stating that the management had taken a decision in that regard, no other
material was placed for consideration. It was, therefore, contended that
the Revenue Authorities and the CEGAT were justified in rejecting claim
made by the assessee-appellant.
We are concerned with clause (i) of the proviso to Section 4(1)(a). The
relevant provision reads as under:
“Section 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
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 a 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:
Provided that –
(i) where, in accordance with the normal practice of the wholesale trade in
such goods, such goods are sold by the assessee at different prices of
different classes of buyers (not being related persons) each such price
shall, subject to the existence of the other circumstances specified in
clause (a), be deemed to be the normal price of such in relation to each
such class of buyers.”
The expression “wholesale dealer” is defined in Section 2(k). Section 4(4)
(e) defines “wholesale trade” and the same reads as under:
“Wholesale trade” means sales to dealers, industrial consumers,
Government, local authorities and other buyers, who or which purchase their
requirements otherwise than in retail.”
In order to get benefit of Section 4(1)(a) (proviso) (i) the assessee has
to establish that discount claimed was in accordance with the normal
practice of wholesale trade in the concerned goods sold to different
classes of buyers, and it shall be subject to the existence of other
circumstances specified in clause (a). Such circumstances are: (a) Charging
of normal price at which such goods are ordinarily sold; (b) sale must be
to a buyer in the course of wholesale trade; (c) the sale must be in the
wholesale trade for delivery at the place and time of removal; (d) the
buyer is not a related person; and (e) the price is the sole consideration
for the sale. In order to show that the goods are sold to different class
of buyers in accordance with normal practice it has to be established that
same was the normal practice of the wholesale trade in such goods. One or
two instances cannot be termed as the normal practice of the wholesale
trade. It essentially depends upon number of persons engaged in such trade.
By way of illustration it can be said that if out of ten dealers engaged in
the wholesale trade in the concerned goods only two give discount while
others do not it cannot certainly be normal practice of the wholesale trade
in such goods. It would depend upon the question whether majority of the
persons engaged in the wholesale trade grant such discount. The question
has to be adjudicated on the factual premises. In the instant case the
assessee-appellant has not placed on record the number of persons engaged
in the wholesale trade.
We need not go into the broader question as to whether the “dealers”
referred to in clause (e) of Section 4(4) only refers to those who buy in
bulk for trading and whether the bulk purchasers constitute a different
class amongst the class of buyers as referred to in Section 4(4)(e).
It is true, classification can be made on the basis of region depending
upon the quantum of turnover in a particular region and special factors
relatable to that region. It cannot be said that the discount should be
uniform in all circumstances in all categories of buyers all over the
country. But discount has to be as per the normal practice of the wholesale
trade in such goods and the discount cannot be given on extraneous
considerations and has to be founded on some rational basis.
The expression “rational” means as per The Law Lexicon, Second Edition
1997, “endowed with reasons”.
The expression “Irrational” means as per The Law Lexicon, Second Edition
1997, illogical not endowed with reason, insane.
There may be cases, where in a particular region there is a scope for
increasing the turnover by giving incentive to some. But there must be some
intelligible criteria for treating the benefited persons differently from
others. It is true that comparison can or may be made intra-region and not
by taking all regions together. But even then the appellant has not shown
the justification for wide variation within the same region. For example,
in region where transactions are substantial i.e. Delhi the variation is
between 546 and 1523. Similar is the position in Ahmedabad Zone where the
variation is between 414 and 1541. In Madras Zone it varies between 52 to
368. No reason was indicated as to why the named persons were chosen. Even
though it is open to the assessee to chose the persons, it cannot be left
to its ipse dixit. No rational basis for selecting the persons was
established. On considering the relevant factors, the authorities and CEGAT
have recorded finding of fact that no rational basis has been established.
The scope for interference with findings recorded by the Tribunal if it
has kept in view the correct legal position, has been dealt with by this
Court in many cases. The position was illuminatingly stated by this Court
in Collector of Customs, Bombay v. Swastic Woollens (P) Ltd. and Ors.,
[1988] Supp. SCC 796 as follows:
“9. The expression “wool wastes” is not defined in the relevant Act
or in the notification. This expression is not an expression of
art. It may be understood, as in most of financial measures where
the expressions are not defined, not in a technical or preconceived
basis but on the basis of trade understanding of those who deal
with these goods as mentioned hereinbefore. The Tribunal proceeded
on that basis. The Tribunal has not ignored the Technical
Committee’s observations. We have noted in brief the Tribunal’s
handling of that report. The Tribunal has neither ignored the
observations of CCCN nor the Board’s Tariff Advice. These
observations have been examined in the light of the facts and
circumstances of the case. One of the basis factual disputes was
long length of sliver tops. Having regard to the long length, we
find that the Tribunal was not in error. Whether a particular item
and the particular goods in this case are wool wastes, should be so
considered or not is primarily and essentially a question of fact.
The decision of such a question of fact must be arrived at without
ignoring the material and relevant facts and bearing in mind the
correct legal principles. Judged by these yardsticks the finding of
the Tribunal in this case is unassailable. We are, however, of the
view that if a fact finding authority comes to a conclusion within
the above parameters honestly and bona fide, the fact that another
authority be it the Supreme Court or the High Court may have a
different perspective of that question, in our opinion, is no
ground to interfere with that finding in an appeal from such a
finding. In the new scheme of things, the Tribunals have been
entrusted with the authority and the jurisdiction to decide the
questions involving determination of the rate of duty of excise or
to the value of goods for purposes of assessment. An appeal has
been provided to this Court to oversee that the subordinate
tribunals act within the law. Merely because another view might be
possible by a competent court of law is no ground for interference
under Section 130-E of the Act though in relation to the rate of
duty of customs or to the value of goods for purposes of
assessment, the amplitude of appeal is unlimited. But because the
jurisdiction is unlimited, there is inherent limitation imposed in
such appeals. The Tribunal has not deviated from the path of
correct principle and has considered all the relevant factors. If
the Tribunal has acted bona fide with the natural justice by a
speaking order, in our opinion, even if superior court feels that
another view is possible, that is no ground for substitution of
that view in exercise of power under clause (b) of Section 130-E of
the Act.”
The position was reiterated in West Bengal Electricity Regulatory
Commission v. CESC Ltd., [2002] 8 SCC 715, Commissioner of Customs, Chennai
v. Adani Exports Ltd. and Anr., [2004] 4 SCC 367 and recently in
Commissioner of Customs, Mumbai v. M/s Bureau Veritas and Ors., JT (2005) 2
SC 348.
Above being the position, we find no merit in this appeal which is
accordingly dismissed with no order as to costs.