ESCORTS LIMITED AND ANR.versusCOLLECTOR OF CENTRAL EXCISE, CHANDIGARH

A                         ESCORTS LIMITED AND ANR.
                                           v.
                                                                                        -        '


             COLLECTOR OF CENTRAL EXCISE, CHANDIGARH

                                 MARCH 12, 2003

B       [SYED SHAH MOHAMMED QUADRI AND ASHOK BHAN, JJ.]


          Central Excise Act, 1944:

          S.4(J}(d)(ii)-Excise duty-Valuation of excisable goods-Differential
c discount between stockists discount and sub-stockists discount passed on to
    stockists-Deductability of in assessing excise value of goods sold to sub-
    stockists-Assessee, manufacturer ofparts and accessories of tractors-Selling
    60% of its product to stockists at 27.5% discount and 40% direct lo sub-
    stockists at 25% discount-Passing the differential of 2.5% on to stockists-
D   Notice issued to assessee lo disallow differential discount-Held, differential
    discount of2. 5% passed on to area stockists by assessee was rightly disregarded
    as it is not and cannot be treated as a discount given to sub-stockists-It
    cannot also be treated as discount given lo area stockists though it was passed
    on to them because it does not relate to tractors sold to them-It is not a case
    of sale of all tractors to stockists and dispatch of 40% of tractors lo sub-
E   stockists at the instance of stockists-For all purposes, sale of tractors to sub-
    stockists is separnte and independent of sale to stockists-As regards the plea
    that differential was passed on to stockists as commission, even otherwise, the
    differential discount cannot be accepted for the purpose of sub-clause(ii) as
    a permissible deduction.
F        Seshasayee Paper and Boards Limited v. Collector of Central Excise;
    47 E.L.T. 202 relied on.                                                                 I

         CIVIL APPEL LA TE JURISDICTION : Civil Appeal Nos. 12009-12042                 ',

    of 1995.
G        From the Judgment and Order dated 30.8.1993 of the Central Excise
    Customs and Gold (Control) Appellate Tribunal, New Delhi in A. No. El
    2629/83-A and 33 Others in F.0. Nos. 421-454 of 1993-A.

       A.R. Madhav Rao. Ms. Bina Gupta, Alok Yadav, Ms. Vanita Bhargava
  and R.K. Sharma for the Appellants.
H                                  1052
                            ESCORTS LTD. v. C.C.E                          1053
     Anoop G. Chaudhary, Dileep Tandon, Ms. June Chaudhary and B.                   A
Krishna Prasad for the Respondent.

      The following Order of the Court was delivered :

      SYED SHAH MOHAMMED QUADRI. J. These appeals, by the
assessees [M/s. Escorts Limited and Mis. Goetze (India) Limited], are from          B
the order of the Customs, Excise and Gold (Control) Appellate Tribunal,
New Delhi in Appeal Nos. 421-454 of 1993 dated August 30, 1993.

      The short point that arises for consideration is: whether the differential
discount between stockists discount and sub-stockists discount passed on to
the stockists by the assessee, is deductible in assessing th·e excisable value of   C
the goods sold to the sub stockist?

       The assessees manufacture parts and accessories of motor vehicles,
tractors, trailers and other stationary/diesel engines. The goods in question
are tractors. During the relevant period, out of the tractors manufactured by
the assessees, sixty per cent were sold to their stockists at 27 .5 per cent        D
discount and forty per cent were sold to their sub-stockists at twenty five per-
cent discount. The differential discount of 2.5 per cent, was passed on to the
stockists by the assessees. It is the deductibility of that amount, in arriving
at the excisable value of the tractors sold to the sub-stockists, that is in
question in these appeals. The Assistant Collector, Central Excise, initiated
the proceedings by issuing a show-cause notice as to why the differential           E
discount should not be"disallowed. He eventually disallowed deduction of the
differential discount. On appeal, by the assessees, the Collector (Appeals ) in
some cases took the view that the differential discount was an allowable
deduction but in other appeals, he came to a different conclusion. Against
those order, both the assessees as well as the Revenue filed appeals before         p
the Customs, Excise and Gold (Control) Appellate Tribunal [for short, 'the
Tribunal']. By the orders impugned in these appeals, the Tribunal upheld the
orders of the Collector (Appeals ) declining to permit deduction of the
differential discount and set aside the orders of the Collector (Appeals)
permitting the deduction of the differential discount. Thus, the assessees are
in appeal before this Court.                                                        G
      For levying excise duty, the valuation of goods is made in accordance
with the principle contained in Section 4 of the Central Excise Act, 1944,
which insofar as it is relevant for our purposes, reads as follows:

        "Section 4 - Valuation of excisable goods for purpose of charging of H
    1054                    SUPREME COURT REPORTS                    [2003] 2 S.C.R.

A           duty of excise - (I) Where under this Act, the duty of excise is
            chargeable on any excisable goods with reference to value, such value
            shall, subject to the 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
B           wholesale trade for delivery at the time and place of removal, where
            the buyer is not a related person and the price i3 the sole consideration
            for that sale:

            xxx                  xxx                     xxx                    xxx

C           (d) 'value', in relation to any excisable goods, -
            (i) where the goods are delivered at the time of removal in a packed
            condition, includes the cost of such packing except the cost of the
            packing which is of a durable nature and is returnable by the buyer
            to the assessee.
D
            Explanation- In this sub-clause, 'packing' means the wrapper,
            container, bobbin, pim, spool, reel or wrap beam or any other thing
            in which or on which the excisable goods are wrapped, contained or
            wound;

E           (ii) does not include the amount of the duty of excise, sales tax and
            other taxes, if any, payable on such goods and subject to such rules
            as may be made, 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"
F
         From a perusal of the aforementioned section, it is clear that where the
  excise duty is chargeable on excisable goods with reference to value, 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 wholesale trade for delivery         -
G at the time and place of removal, is deemed as excisable value of goods,
  where the buyer is not a related person and the price is the sole consideration
  for sale. Admittedly, in this case neither the stockists nor the sub-stockists are
  treated as related persons. It is also the common ground that the price is the
  sole consideration for sale of the goods. Inasmuch. as in the course of wholesale
  trade the assessees sold tractors to the stockists, at the time and place of
H removal allowing discount of 27.5 per cent on the cost shown in the price
                                                                                        --
                             ESCORTS LTD. v. C.C.E                             1055
list, therefore, the normal price of tractor shall be ihe cost in the price list less   A
discount (27.5 per cent) in the case of tr stockists. In relation to the sub-
stockists, the tractors were sold at twenty five per cent. discount on the cost
shown in the price list, therefore, their normal price of tractors will be the
cost shown in the price list minus twenty five per cent discount.

      However Mr. A.R. Madhav Rao, learned counsel appearing for the                    B
assessees, invited our attention to the definition of the term 'value' in clause
(d) of sub-section (4), referred to above and argued that as the assesses were
passing on the differential discount to the area stockists the same ought to be
deducted as part of trade discount under sub-clause (ii) of clause (d).

      That sub-clause provides that value, in relation to any excisable goods,          c
does not include the amount of duty of excise, sales tax and other taxes, if
any, payable on such goods and subject to such rules, as may be made, the
trade discount allowed in accordance with the normal practice of the wholesale
trade at the time of removal in respect of such goods sold or contracted f(lr
sale. We have already indicated above that the permissible deduction under              D
the said clause in respect of the stockists is 27.5 per cent and that was
allowed as deduction in their case. In respect of sub-stockists, as twenty five
per cent discount was given to them, it was accepted as deductible in arriving
at the nonnal price of tractors. The differential discount of 2.5 per cent
passed on to the area stockists by the assessees was rightly disregarded as it          E
is not and it cannot be treated as a discount given to the sub-stockists and it
has never been the case of the assessees also. It cannot also be treated as
discount given to the area stockists though it was passed on them because
it does not relate to tractors sold to them but relates to the tractors sold to th~
sub-stockists.
                                                                                        F
       The next submission of Mr. A.R. Madhav Rao that the sub-stockists
were nominated at the behest of the stockists and, therefore, the differential
discount shall be treated as discount to the stockists and the sale to the sub-
stockists shall be treated as sale to the stockists, cannot be accepted as from
the facts indicated above, it is evident that the stockists and the sub-stockists
are two different categories of the wholesale purchasers. It is not a case of           G
sale of all tractors to the stockists and the despatch of forty per cent of
tractors to the sub-stockists at the instance of the stockists. For all purposes
the sale of tractors to_ the sub-stockists is separate and independent of sale to
the stockists.

      From the contentions raised before the Tribunal, it appears to have H
    1056                   SUPREME COURT REPORT.S                  [2003] 2 S.C.R.

A been urged for the assessees that the differential between the higher discount
    to their stockists and the lower discount to the sub-stockists was passed on
    to the stockists as commission. If that be the plea, even otherwise, the
    differential discount cannot be accepted for the purpose of sub-clause (ii) as
    a permissible deduction. [See: Seshasavee Paper and Boards Limited v.
B   Collector of Central Excise, (47 E.L.T.202)]

           For the aforementioned· reason, the differential discount has rightly
    been disallowed as deduction by the tribunal in computing the excisable
    value of the tractors sold by the assessees to the sub-stockists. The appeals
    fail and they are accordingly dismissed with costs.

    R.P.                                                      Appeals dismissed.