Paragraph numbers below are the court’s original numbering, recovered from the source text.
15. Post 1973, this Court has in two of its decisions, namely, in Union of India v. Bombay Tyre International Limited, 1984 (17) ELT 329 (SC), clearly held as follows:- "Trade Discounts. – Discounts allowed in the Trade (by whatever name such discount is described) should be allowed to be deducted from the sale price having re- gard to the nature of the goods, if es.tablished under H agreements or under terms of sale or by established prac- tice, the allowance and the nature of the discount being known atorpriortothe removal of the goods. Such Trade Discounts shall not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice price." (at para 1)
16. In the second judgment in Government of India v. Madras Rubber Factory Ltd., 1995 (77) ELT 433 (SC), what has been held is as follows:- c "Year Ending Discount and Prompt Payment Discount: What is called 'Year-ending discount' is really a bonus given by Madras Rubber Factory to its dealers@Rupees fifty per tyre in respect of a particular type of tyres. This discount is payable only where the payments are actually received within forty five days from the date of the invoice. Under this scheme, it appears that a declaration is to be received dealer-wise and thereafter provision is to be made at the head office of MRF for the bonus. The Assistant Collector has found that this discount was allowed by the assessee not out of any extra-commercial considerations but that they were meant only to boost the sales particularly in the year 1981-82 in respect of Leader Tyre in order to achieve the target of sales for that year. He has recorded a finding that "such a system of grant of discount is prevalent in normal trade practice and the only difference may be that MRF limited have granted the discount only at the end of the year and not at the time of actual sales". The learned Additional Solicitor General disputed the correctness of the basis on which the Assistant Collector has allowed this deduction. He commended for our acceptance the reasoning in Para 13(ii) of the judgment dated PUROLATOR INDIALTD. v. COMMNR. OF CENTRAL EXCISE DELHI-Ill [R.F. NARIMAN, J.] December 20, 1986 (Assistant Collector of Central A Excise v. Madras Rubber Factory.) The ~easoning in the said order runs thus: "The allowance of the discount is not known at or prior to the removal of the goods. The calculations are made B at the end of the year and the Bonus at the said rate is granted only to a particular class of Dealers. This is computed after taking stock of the accounts between MRF and its dealers. It is not in the nature of a discount but is in the nature· of a Bonus or an incentive much C after the invoice is raised and the removal of the goods is complete. In the circumstances, we are of the opinion that MRF is not entitled to deduction under this head." We are, however, of the respectful opinion that the said reasoning cannot be accepted in view of the clear finding recorded by the Assistant Collector that this system of discount is prevalent in the industry and is known and understood at the time of removal of particular goods, though the amount is quantified later. In view of the said finding and in the light of the clarificatory Order in Bombay Tyre lntemational, we hold that this claim has been rightly allowed by the Assistant Collector. So far as the prompt payment discount is concerned, !t is payable under a scheme called 'prompt payment discount scheme' which is applicable only to up-country non-RCS dealers (except, of course, the Government and DGS&D accounts). The discount is@ 0.75% on the G total value of the invoice including sales tax, surcharge etc. provided the bill is cleared/paid within 26 days from the date of invoice. The case of the Union of India is that this discount is limited only to certain varieties of products as explained in the scheme document and is valid only H for a limited period. The Assistant Collector, however, dealt with this discount along with the year ending discount and allowed it on the same reasoning as is applicable to the year ending discount. In view of the findings recorded by the Assistant Collector and the clarificatory order in Bombay Tyre International this claim too must be held to have been rightly allowed by the Assistant Collector." (at paras 59 to 62) c
17. The only question that falls for our determination is whether Section 4 as amended in the year 2000 makes no change to the aforesaid position.
18. It can be seen that Section 4 as amended introduces the concept of "transaction value" so that on each removal of excisable goods, the "transaction value" of such goods be- comes determinable. Whereas previously, the value of such excisable goods was the price at which such goods were or- dinarily sold in the course of wholesale trade, post amend- E ment each transaction is looked at by itself. However, "trans- action value" as defined in sub-clause (3)(d) of Section 4 has to be read along with the expression "for delivery at the time and place of removal". It is clear, therefore, that what is para- mount is that the value of the excisable goods even on the F basis of "transaction value" has only to be at the time of re- moval, that is, the time of clearance of the goods from the appellant's factory or depot as the case may be. The expres- sion "actually paid or payable for the goods, when sold" only means that whatever is agreed to as the price for the goods G forms the basis of value, whether such price has been paid, has been paid in part, or has not been paid at all. The basis of "transaction value" is therefore the agreed contractual price. Further, the expression "when sold" is not meant to indicate the time at which such goods are sold, but is meant to indicate H that goods are the subject matter of an agreement of sale. PUROLATORINDIALTD. v. COMMNR. OF CENTRAL 833 .. EXCISE DELHI-Ill [R.F. NARI MAN, J.] Once this becomes clear, what the learned counsel for the A assessee has argued must necessarily be accepted inasmuch as cash discount is something which is "known" at or prior to the clearance of the goods, being contained in the agreement of sale between t~e assessee and its buyers, and must there- fore be deducted from the sale price in order to arrive at the B value of excisable goods "at the time of removal".
19. We were referred to the Central Board of Excise and Customs Bulletin for the period January-March, 197!;> in which the Board laid down:- "Cash Discounts That is, discounts for prompt payment of price of goods on delivery, are admissible in arriving at the assessable 0 value if they are available to all buyers. This aspect has been dealt with in detail under the heading "price". " … Some assessee may give to all his buyers cash dis- count, that is a discount for prompt payment. In other . words, they charge a somewhat lesser price where there is cash payment, but charge a higher price (i.e. without deduction of the cash discount) ifthe payment is not made in cash. In such cases, the cash discount, if allowed, will be admissible on the principle that only the net price obtained after deduction of the cash discount is the price of the goods." "//lustrations. (iv) Assessee A sells the goods at Rs. 100 per unit but G given a cash discount of 2% if payment is made at the time of delivery or within a specified period. Such cash discount will be admissible and the price will be Rs. 100 per unit minus 2%."
20. This understanding of the Board would necessarily continue in view of what is said above as regards cash dis- counts even after the amendment of Section 4 in the year 2000.
21. We were referred to the judgment of this Court in Deputy Commissioner of Sales Tax (Law) Board of Rev- enue (Taxes), Ernakulam v. Advani Oorlikon (P) Ltd., 1981 (8) ELT 801 (S.C.), in which it was stated:- " … Cash discount is allowed when the purchaser makes payment promptly or within the period of credit allowed. It is a discount granted in consideration of expeditious payment. A trade discount is a deduction from the catalogue price of goods allowed by wholesalers to o retailers engaged in the trade. The allowance enables the retailer to sell the goods at the catalogue price and yet make a reasonable margin of profit after taking into account his business expense. The outward invoice sent by a wholesale dealer to a retailer shows the catalogue price and against that a deduction of the trade discount is shown. The net amount is the sale price, and it is that net amount which is entered in the books of the respective parties as the amount realisable." (at para 5)
22. This judgment arose in the context of the Central Sales Tax Act, but it is instructive only in that it makes-it clear that a cash discount is the discount granted in consideration of ex- peditious payment, and is therefore directly related to price.
23. It only remains to discuss the sheet anchor of revenue's case, namely, the judgment of this Court in Commissioner of Central Excise, Jaipur-II v. Super Synotex (India) Ltd. and Ors. (supra). The said judgment was concerned ~ith sales tax incentives that were given under the Rajasthan Sales Tax ln- H centives Scheme. On the facts of that case, 25% of the sales PUROLATOR INDIALTD. v. COMMNR. OF CENTRAL EXCISE DELHI-Ill [RF. NARIMAN, J.] tax was paid to the Government, and 75% of the said amount A of sales tax was retained by the assessee and became the assessee's profit. Under the earlier Board's circulars that were issued by the Central Board of Excise and Customs, the amount of 75% of sales tax that was never paid to the Govern- ment but retained by the assessee was also liable to be de- ducted from "price" under the old Section 4, that is, Section 4 before its amendment in the year 2000. This Court held that the amended Section 4 would require that such amount of 75% is not deductible as sales tax because, according to this Court, only sales tax that is "actually paid" could be deducted post C Section 4 as amended in 2000. This Court said:- "It is evincible from the language employed in the aforesaid circular that set off is to be taken into account for calculating the amount of sales tax permissible for D arriving at the "transaction value" under Section 1 of the Act because the set off does not change the rate of sales tax payable/chargeable, but a lower amount is in fact paid due to set off of the sales tax paid on the input. Thus, if sales tax was not paid on the input, full amount is payable E and has to be excluded for arriving at the "transaction value". That is not the factual matrix in the present case. The assessee in the present case has paid only 25% and retained 75% of the amount which was collected as sales tax. 75% of the amount collected was retained and became the profit or the effective cost paid to the assessee by the purchaser. The amount payable as sales tax was only 25% of the normal sales tax. Purpose and objective in defining "transaction value" or value in relation to excisable goods is obvious. The price or cost paid to the manufacturer constitutes the assessable value on which excise duty is payable. It is also obvious that the excise duty payable has to be excluded while calculating transaction value for levy of excise duty. Sales tax or VAT c [2015) 9 S.C.R. or turnover tax is payable or paid to the State Government on the transaction, which is regarded as sale, i.e., for transfer of title in the manufactured goods. The amount paid or payable to the State Government towards sales tax, VAT, etc. is excluded because it is not an amount paid to the manufacturer towards the price, but an amount paid or payable to the State Government for the sale transaction, i.e., transfer of title from the manufacturer to a third party. Accordingly, the amount paid to the State Government is only excludible from the transaction value. What is not payable or to be paid as sales taxNAT, should not be charged from the third party/customer, but if it charged and is not payable or paid, it is a part and should not be excluded from the transaction value. This is the position after the amendment, for as per the amended provision the words "transaction value" mean payment made on actual basis or actually paid by the assessee. The words that gain signification are "actually paid". The situation after 1. 7 .2000 does not cover a situation which was covered under the circular dated 12.3.1998. Be that as it may, the clear legislative intent, as it seems to us, is on "actually paid". The question of "actually payable" does not arise in this case." (at para 22)
24. It will be noticed that this Court did not deal with Sec- tion 4(1 )(a) as amended in the year 2000 insofar as it speaks of delivery of goods at the time and place of removal. This Court was only concerned with whether sales tax is to be de- ducted from "transaction value" as newly defined. We have G already seen that "transaction value" specifically states that it will-not include sales tax "actually paid or actually payable on such goods". On the facts of that case, this Court was not concerned with the expression "actually payable" as it did not arise in that case. This Court was only concerned with sales H tax not "actually paid" to the Rajasthan Government, and there- PUROLATOR INDIA LTD. v. COMMNR. OF CENTRAL EXCISE DELHI-Ill [R.F. NARIMAN, J.] fore held that since 75% of sales tax was retained by the as- sessee, the said amount could not be deducted as only amounts payable to the State Government as sales tax can be deducted. This was so held on an interpretation of the last part of the definition of "transaction value". The facts of the present case ar~ concerned with the first part of the definition of "trans- action value" which has to be read with Section 4(1 )(a) as has been stated above.
25. This judgment does not in any manner deviate from the settled legal position so far as cash discounts are con- cerned as has been laid down in Union of India v. Bombay Tyre International (supra) and Government oflndia v. MRF (supra). In fact, as has been pointed out earlier, this judgment did not concern itself with the "price" of excisable goods that must be ascertained only at the time of removal from the fac- tory gate. Since this Court was only concerned with whether or not certain amounts by way of sales tax were or were not to be deducted from "price", the said judgment has little applica- tion to the facts of the present case.
26. In view of what has been said above, it is clear that "cash discount" has therefore to be taken into account in arriv- ing at "price" even under Section 4 as amended in 2000.
27. Insofar as the other point of defective goods and vol- ume discount on sales tax is concerned, the Tribunal has stated:- "8. We have considered the submissions of both the sides. Regarding defective goods, we observe from the G statement dated 9.10.2000 of Shri R.K. Gulati that he has clearly deposed therein that "the goods so received from various customers under the said.D3s,have not actually been rectified and entire new finished products have been sent to the buyer taking it as the goods c [2015) 9 S.C.R. rectified." This is clear admission on the part of the authorized signatory for Excise matters that new excisable goods were cleared in place of defective goods received back. This statement has not been retracted by Shri Gulati at all. The certificate given by the Chartered Engineer is dated 5.7.2002 which is much after the period involved in the present matter before us and cannot overcome the clear admission by the authorized signatory of the Appellant company. We also do not find any force in the submission that Shri Gulati's statement can be relied upon only in respect of Khandsa factory not in respect of factory at Mehrauli Road since no such qualification has been attached by Shri Gulati in his statement. Further, if the defective goods were substituted by new goods at one factory, it is reasonable to include that the same practice would be prevalent at the other faetory of the same manufacturer. We, therefore, hold that the Appellants were removing the new excisable goods to their customers in lieu of defective goods received back by them. We, however, find force in the contention of the learned Advocate that duty cannot be demanded in respect of the defective goods against which no excisable goods were cleared by the Appellants. This aspect is being remanded to the jurisdictional Adjudicating Authority for reconsideration of the material/ evidence that may be produced by the Appellants within two months of receipt of this Order. 9. Regarding volume discount and sales tax, the dispute is not with regard to their deduction but the actual amount of volume discount passed or sales tax paid. In our view the actual amount of volume discount passed on by the Appellant and actual amount of sale tax paid/payable have to be deducted from for the purpose of determining the assessable value of the goods. This is a factual matter PUROLATOR INDIALTD. v. COMMNR. OF CENTRAL EXCISE DELHI-Ill [R.F. NARIMAN, J.] which has to be looked into again by the jurisdictional A Adjudicating Authority after considering the material adduced by the Appellants within two months of receipt of this Order." 28. Both parties have requested us that since the matter s is going to be remanded in terms of the Tribunal's order on these issues, the remand should be an open-ended one, namely, that both parties should be free to argue afresh on all points that arise insofar as these issues are concerned. We therefore, while affirming the Tribunal's order of remand, allow C both parties to argue all points that may arise insofar as these issues are concerned. So far as the cash discount issue is concerned, we set aside the Tribunal's order. 29. Appeal is disposed of accordingly. Devika Gujral Appeal disposed of. .H