M/S. PUROLATOR INDIA LTD.versusCOMMISSIONER OF CENTRAL EXCISE DELHI-ILL

                         [2015] 9 S.C.R. 812


A                  M/S. PUROLATOR INDIALTD.
                          v.
        COMMISSIONER OF CENTRAL EXCISE DELHI-Ill
                   (Civil Appeal No.1959 of 2006)
B                        AUGUST 25, 2015
               [A.K. SIKRI AND R. F. NARIMAN, JJ.]
         Central Excise Act, 1944: s.4 (as amended in 2000) -
    Sales Tax, Cash Discount, Volume Discount - Whether
c   deductible for arriving at assessable value - Held: Cash
                                                                       •

    discount is deductible from the sale price in order to arrive at
    the value of excisable goods at the time of removal of goods
    - However, issue as to Volume Discount and Sales Tax,
    matter was rightly remitted back by the Tribunal.
D
        Disposing of the appeal, the Court

       HELD: 1. It can be seen that the common thread run-
  ning through Section 4, whether it is prior to 1973, after
E the amendment in 1973, or after the amendment of 2000,
  is that excisable goods have to have a determination of
  "price" only "at the time of removal". This basic feature
  of Section 4 has never changed even after two amend-
  ments. The "place of removal" has been amended from
F time to time so that it could be expanded from a factory
  or any other premises of manufacture or production, to
  warehouses or depots wherein the excisable goods have
  been permitted to be deposited either with paym~nt of
  duty, or from which such excisable goods are to be sold
G after clearance from a factory. In fact, Section 4(2) pre-
  2000 made it clear that where the price of excisable
  goods for delivery at the place of removal is not known,
                                                                           ...
  and the value thereof is determined with reference to the
H                                 812
        PUROLATOR INDIA LTD. v. COMMNR. OF CENTRAL              813
                     EXCISE DELHI-Ill

     price for delivery at a place other than the place of re- A
     moval, the cost of transportation from the place of re-
     moval to the place of delivery is to be excluded from such
     price. This is because the value of excisable goods un-
     der the Section is to be determined only at the time and
     place of removal. Even after the amendment of Section B
     4 in 2000, the same scheme continues. Only, Section 4(2)
     is in terms replaced by Rule 5 of the Central Excise Valu-
     ation (Determination of Price of Excisable Goods) Rules,
     2000. [Para 14) [829-B-F]
..                                                                  c
         2. It can be seen that Section 4 as amended intro-
     duces the concept of "transaction value" so that on each
     removal of excisable goods, the "transaction value" of
     such goods becomes determinable. Whereas previously,
     the value of such excisable goods was the price at which       D
     such goods were ordinarily sold in the course of whole-
     sale trade, post amendment each-transaction is looked
     at by itself. However, "transaction 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 re-      E
     moval". It is clear, therefore, that what is paramount is
     that the value of the excisable goods even on the basis
     of "transaction value" has only to be at the time of re-
     moval, that is, the time of clearance of the goods from        F
     the appellant's factory or depot as the case may be. The
     expression "actually paid or payable for the goods, when
     sold" only means that whatever is agreed to as the price
     for the goods forms the basis of value, whether"such
     price has been paid, has been paid in part, or has not         G
     been paid at all. The basis of "transaction value" is there-
     fore the agreed contractual price. Further, the expres-
     sion "when sold" is not meant to indicate the time at
     which such goods are sold, but is meant to indicate that
     goods are the subject matter of an agreement of sale.          H
814        SUPREME COURT REPORTS                  [2015) 9 S.C.R.


A  Cash discount is something which is "known" at or prior
   to the clearance of the goods, being contained in the
   agreement of sale between the assessee and its buy-
   ers, and must therefore be deducted from the sale price
   in order to arrive at the value of excisable goods "at the time
 B of removal". [Para 18] [832-0-H; 833-A-B]

           Union of India v. Bombay Tyre International Limited 1984
      (17) ELT 329 (SC); Government of India v. Madras Rubber
      Factory Ltd. 1995 (77) ELT 433 (SC) - relied on.
 c
           Commissioner of Central Excise, Jaipur-II v. Super
      Synotex (India) Ltd. and Ors. 2014 (301) ELT 273 (SC) -
      distinguished.

 D         Deputy Commissioner of Sales Tax (Law) Board of Rev-
      enue (Taxes), Ernakulam v. Advani Oorlikon (P) Ltd., 1981
      (8) ELT 801 (S.C.)- referred to.

                         Case Law Reference

 E      1984 (17) ELT 329 (SC)     relied on.     - Paras 7, 15, 25

        1995 (77) ELT 433 (SC)     relied on.      Paras 7, 16, 25

        2014 (301) ELT 273 (SC)distinguished. Paras 9, 23

 F      1981 (8) ELT 801 (S.C.)    referred to.     Para 21

         CIVIL APPELLATE JURISDICTION: Civil Appeal No.
      1959 of 2006.

 G         From the Judgment and Order No. 1241 /04-NB-A dated
      11.11.2004 of the Customs, Excise & Service Tax Appellate
      Tribunal, New Delhi in Appeal No. E/1670/04-NB-A.

       V. Lakshmikumaran, M.P. Devanath, Vivek Sharma, L.
 H Charanaya, R. Ramachandran, Aditya Bhattacharya, Hemant
   Bajaj,Anandh K., Rajesh KumarfortheAppelfant.
   PUROLATOR INDIALTD. v. COMMNR. OF CENTRAL                        815
                EXCISE DELHI-Ill

    Pinki Anand, ASG, Ashok Kumar Panda, Nisha Bagchi,               A
Aruna Gupta, B. Krishna Prasad for the Respondent.

    The Judgment of the Court was delivered by

     R.F. NARIMAN, J. 1. M/s Purolator India Limited (herein-
                                                                     8
after referred to as the appellant) is engaged in the manufac-
ture of excisable goods, namely Filter Elements, Inserts, and
Cartridges and Components. These goods are either cleared
by the appellant to various vehicle manufacturers or stock trans-
ferred to depots from where they are further, stock transferred      c
to clearing and forwarding agents.

     2. For effecting stock transfers, the appellant filed decla-
rations under Rule .173C with the excise department. In these
declarations, the appellant claimed deduction towards Sales          D
Tax, Cash Discount and Volume Discount on excise duty pay-
able to arrive at the assessable value under Section 4 of the
Central Excise and SaltAct, 1944.

     3. Apart from undertaking manufacturing activities, the
appellant at times also receives goods from customers for re- E
pair in case of defects noticed by the customers. The custom-
ers either reject the entire lot or a particular box etc. if they
notice any defect, so that their time is not wasted in checking
each and every item and thus, goods are sent back to the ap- F
pellant. On receipt of such consignments, the appellant checks
the same for defects indicated and undertakes necessary re-
pairs. Thereafter, the finished products are returned to cus-
tomers. The appellant was filing the necessary D-3 declara-
tions for receipt of such returned goods and was maintaining G
the register required in Form V for the said purposes and was
thereafter returning such repaired items under the provisions
of Rule 173H without payment of duty thereon.

    4. A Show Cause Notice dated 2.4.2002 was if'3Ued                H
816         SUPREME COURT REPORTS                    [2015] 9 S.CR.


A     wherein it was alleged that the appellant is not eligible for the
      various deductions claimed on account of volume discount,
      sales tax and cash discount. Besides this it was also alleged
      that the appellant has removed new finished excisable goods
      instead of old/repaired goods.
 B
        5. The appellant filed a detailed reply to the show cause
   notice countering each and every allegation. The Commis-
   sioner of Central Excise, Delhi-Ill passed an Order dated
   31.12.2003 dropping the duty demands on all the issues for
 C the period April 1996 to February 1997, being more than five
   years old. Further, he dropped the duty demand on the issue
   of cash discount for the period prior to July ·2000. However, on
   the remaining issues, the Commissioner has confirmed duty
   demand of Rs. 44,66,247/- and also imposed penalty of Rs.
 D 49,66,247/- on the appellant as follows:-

                                  "ORDER

            With a view to the discussion and findings recorded
 E          above

            (i) invoke extended period of limitation provided in first
            proviso to Section 11A(1) of the Central Excise Act,
            1944, and determine the following amounts in terms of
            provisions of Section 11A and direct the assessee to
 F
            pay the same forthwith.

               (a) Rs. 13,43,046/- towards duty involved on replaced
               goods cleared between March 1997 to March 2001.

 G             (b) Rs. 14,27,483/- towards duty computed for the
               period of March 1997 to March, 2001 on volume
               discount.

               (c) Rs, 11,96,601/- towards duty computed for the
 H             period of March 97 to March, 2001 on Sales Tax
  ·PUROLATOR INDIALTD. v. COMMNR. OF CENTRAL                       817
        EXCISE DELHl~lll [R.F. NARIMAN, J.]

        deduction and                                                  A

        (d) Rs. 4,99, 117/- towards duty on cash discount for
        the period of July 2000 to March, 2001

     (ii) confirm that the interest in terms of provisions of          B
     Section 11AB ibid is payable by the assessee on the
     amounts of (i) (a) to (i) (d) above;

     (iii) impose a penalty of Rs. 44,66,247/- on assessee
     under the provisions of Section 11 AC ibid;                       c
     (iv) impose a penalty of Rs. 5 lakhs on assessee in terms
     of provisions of Rule 1730 of the Central Excise Rules,
     1944 and Rule 25 of the Central Excise Rules, 2001
     both read with section 38A of the Central Excise Act,
                                                                       0
     and

     (v) appropriate the amounts of Rs. 29, 140/-, Rs. 38,896/
     -, Rs. 42, 728/- and Rs. 19,443/- which were voluntarily
     paid by the assessee on account of duty on handling
     charges and differential duty.                          ·         E

     It is clarified that the amount of penalty in (iii) above shall
     be reduced to 25% thereof ifthe assessee deposits the
     amounts of the duty, interest and penalty, dete~mined vide
     this order within 30 days from the date of communication          F
     of this order; and that if the assessee has already
     deposited /paid some amount in relation to the dues
     determined above, then such payment shall be adjusted
     against the dues."
                                                                       G
     6. Wheri it came to cash discount, the Tribunal upheld the
finding of the Commissioner on the following basis:-

     "10. Regarding cash discount, it is not in dispute that the
     duty has been demanded in respect of cash discount                H
818   SUPREME COURT REPORTS                    [2015] 9 S.C.R.



A     which was not actually passed on to the customers. The
      learned Advocate has relied upon the decision in Pace
      Marketing Specialities Ltd, supra, wherein it has been
      held by the Tribunal that cash discount is a discount
      allowed for prompt payment for the goods and when this
 B    discount is reduced from the invoice price, transaction
      value at the time of delivery of goods is obtained,
      otherwise, the invoice price is a future price and as the
      assessable value is to be determined with regard to time
      of removal financing and other cost cannot form part of
 c    the assessable value. With due regard, we find ourselves
      unable to agree with this view. The measure for valuation
      under New Section 4 of the Central Excise Act (with effect
      from 1. 7 .2000) is the "transaction value" and not the
      "deemed value" which was the case under the Old
 D
      Section 4 of the Act. Under Old Section 4 the value shall
      be deemed to be the normal price, 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 or
 E    delivery at the time and place of removal. In view of this
      clear language of the Section itself, the Bombay High
       Court in the case of Jenson & Nicholson (India) Ltd. Vs.
       Union of India, 1984 (17) ELT 4 (Born.) has filed that the
       wh~lesale cash price on which the excisable duty is
 F     assessable will naturally be the price minus the cash
      discount allowed in the invoice. The Hon'ble High Court
       has proceeded on the basis that the sales are effected
      on the basis of the price basis which themselves mention
      the various terms subject to which the sales are effected.
 G    The Tribunal followed the said Judgment in CCE, Meerut
       Vs. Station Shox Ltd. 1996 (85) ELT 139 (T). The
       provision of Section 4 of the Central Excise Act have
       since then completely changed.As per new Section 4.
       Value shall "in a ~ase where the goods are sold by the
 H     assessee, for delivery at the time and place of the
PUROLATOR INDIALTD. v. COMMNR. OF CENTRAL                       819
     EXCISE DELHI-Ill [R.F. NARIMAN, J.]

 removal, the assessee and the buyers of the goods are           A
 notrelated and the price is the sole consideration forthe
 sale, be the transaction value." Thus in the present matter,
 the value for the purpose of Section 4 shall be the
 transaction value which has been defined in clause {d)
 of sub-section{3) of Section 4 of the Act as under:-            B

    "transaction value" means the price actually paid or
    payable for the goods, when sold, and includes in
    addition to amount charged as priced, any amountthat
    they buyer is liable to pay to, or on behalf of, the C
    assessee, by reason of, or in connection with the sale,
    whether payable at the time of sale or at any other
    time, including , but not limited to, any amount charged
    for, or to make provision for, advertising or publicity
    marketing and selling organization expenses, storage, D
    outward handling, servicing ,warranty, commission or
    any other matter, but does not include the amount of
    duty of excise, sales tax and other taxes, if any actually
    paid or actually payable on such goods."
                                                               E
 11. Thus the value has under gone a complete change.
 The question to be asked for determination of the
 assessable value under new Section 4 is what is the
 "transaction value" of the goods that is "the price actually.
 paid or payable for the goods when sold." Contrary to F
 these provisions, under the old Section 4 the value was
 a deemed one, that is to say, the price at which goods a
 ordinarily sold in the course of wholesale trade. Now
 under New Section 4, one has not to look as to what is
 the price at which goods are ordinarily sold in the course G
 of wholesale trade. The price actually paid or payable is
 to be taken up as the assessable value. In the present
 matter, the transaction value has to be taken for the
 purpose of assessment of duty under Section 4 of the H
 Central Excise Act and as admittedly no cash discount
820       SUPREME COURT REPORTS                   [2015) 9 S.C.R.


A         has been given to the customers, the actual price paid
          by them shall be the assessable value.

          12. Accordingly, we reject the appeal as far as it relates
          to the allowance of deduction on account of cash
 s        discount. In respect of volume discount and sales tax and
          duty liability in respect of returned goods, the matter is
          remanded to the jurisdictional Adjudicating Authority for
          re-adjudication in terms of our direction. We leave the
          issue regarding imposition of penalty open to be decided
 C        by the Adjudicating Authority."

        7. Shri Lakshmikumaran, learned counsel forthe appel-
   lant, has argued that Section 4 of the Central Excise and Salt
   Act, 1944 as amended in 2000, has made no change in the
 o situation qua cash discount as it obtained under the old Sec-
   tion 4. According to him, what has to be seen in order to arrive
   at the correct value of excisable goods under Section 4 is such
   value at the time of removal, and this being so under both the
   old Section and the new Section, cash discount has to be al-
 E lowed as has been held in Union of India v. Bombay Tyre
   International Limited, 1984 (17) ELT 329 (SC), and Gov-
   ernment of India v. Madras Rubber Factory Ltd., 1995 (77)
   ELT 433 (SC).

 F      8. Further, according to the learned counsel, "transaction
   value" which was introduced for the first time into the amended
   Section 4 does not make any change with regard to the fact
   that such transaction value is only at the time of removal from
   the factory or depot, being the time of clearance of excisable
 G goods from the factory premises or depot as the case may
   be. According to him, every agreement of sale entered into by
   the assessee with its buyers makes it known before the goods
   are cleared that there is to be a cash discount insofar as the
   appellant's goods are concerned. Therefore, this being the
 H case, it is clear that at the time of clearance of the excisable
   PUROLATOR INDIALTD. v. COMMNR. OF CENTRAL                     821
        EXCISE DELHI-Ill [RF. NARIMAN, J.]

goods from the appellant's factory, such discounted price alone A
has to be the value of the goods cleared from the appellant's
factory even under the amended Section 4.

    9. Ms. Pinky Anand, learned Additional Solicitor General,
has, on the other hand, stated thatthe introduction of"transac-      B
tion value" into the amended Section 4 makes a world of dif-
ference and that therefore only what is actually paid ultimately
is to be looked at for the purpose of valuation of the appellant's
goods. If it is found that what is "actually paid" is not the dis-
counted price, !hen the transaction value cannot possibly in-        C
elude cash discount. For this purpose, she relied upon the
decision in Commissioner of Central Excise, Jaipur-II v.
Super Synotex (India) Ltd. and Ors., 2014 (301) ELT 273
(SC).
                                                                     D
     10. We have heard learned counsel for the parties. In
order to better appreciate the arguments on both the sides, it
is necessary to set out Section 4 of the Central Excise and
Salt Act as it obtained prior to the amendment made in 1973,
the amendment made in 1973; and finally the amendment made           E
in 2000.

     11. Section 4, prior to its amendment in 1973, read as
follows:-
                                                                     F
      "4. Where under this Act, any article is chargeable with
      duty at a rate dependent on the value of the article, such
      value shall be deemed to be -

      (a) The wholesale cash price for which an article of the
      like kind and quality is sold or is capable of being sold at G
      the time of the removal of the article chargeable with duty
      from the factory or any other premises of manufacture or
      production, or if a whole the place of manufacture or pro-
      duction, or if a wholesale market does not exist for such H
      article at such place, at the nearest place where such
822        SUPREME COURT REPORTS                    [2015) 9 S.C.R.



A          market exists, or

           (b) Where such price is not ascertainable, the price at
           which an article of the like kind and quality is sold or is
           capable of being sold by the manufacturer or producer,
 B         or his agent, at the time of the removal of the article
           chargeable with duty from such factory or other premises
           for delivery at the place of manufacture or production, or
           if such article is not sold or is not capable of being sold
           at place at any other place nearest thereto.
c
           Explanation-In determining the price of any article under
           this section, no abatement or deduction shall be allowed
           except in respect of trade discount and the amount of
           duty payable at the time of the removal of the article
 o         chargeable with duty from the factory or other premises
           aforesaid."

           12. After the amendment of 1973, Section 4 reads as
      follows:-
 E         "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 the other
           provisions of this section, be deemed to be-
 F
           (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 wholesale trade for delivery at
           the time and place of removal, where the buyer is not a
 G         related person and the price is the sole consideration
           for the sale:

           Provided that -

 H         (i) where, in accordance with the normal practice of the
    PUROLATOR INDIALTD. v. COMMNR. OF CENTRAL                      823
"        EXCISE DELHI-Ill [R.F. NARIMAN, J.]

     wholesale trade in such goods, such goods are sold by A
     the assessee at different prices to 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 goods in relation to each such class of buyers;   B

     (ia) where the price at which such goods are ordinarily
     sold by the assessee is different for different places of
     removal, each such price shall, subject to the existence
     of other circumstances specified in clause (a), be             c
     deemed to be the normal price of such goods in relation
     to each such place of removal;

     (ii) where such goods are sold by the assessee in the
     course of wholesale trade for delivery at the time and         D
     place of removal at a price fixed under any law for the
     time being in force or at a price, being the maximum,
     fixed under any such law, then, notwithstanding anything
     contained in clause (iii) of this proviso, the price or the
     maximum price, as the case may be, so fixed, shall, in         E
     relation to the goods so sold, be deemed to be the normal
     price thereof;

     (iii) where the assessee so arranges that the goods are
     generally not sold by him in the course of wholesale trade F
     except to or through a related person, the normal price
     of the goods sold by the assessee to or through such
     related person shall be deemed to be the price at which
     they are ordinarily sold by the related person in the course
     of wholesale trade at the time of removal, to dealers (not G
     being related persons) or where such goods are not sold
     to such dealers", to dealers (being related persons), who
     sell such goods in retail;

     (b) where the normal price of such goods is not                H
824     SUPREME COURT REPORTS                     [2015] 9 S.C.R.       .-.



A       ascertainable for the reason, that such goods are not
        sold or for any other reason, the nearest ascertainable
      · equivalent thereof determined in such manner as may
        be prescribed.

 B     (2) Where, in relation to any excisable goods the price
       thereof for delivery at the place of removal is not known
       and the value thereof is determined with reference to the
       price for delivery at· a place other than the place of
       removal, the cost of transportation from the place of
C      removal to the place of delivery shall be excluded from
       such price .

       .(3) The provisions of this section shall not apply in respect
        of any excisable goods for which a tariff value has been
 o      fixed under sub-section (2) of section 3.

       (4) For the purposes of this section, -

       (a) "assessee" means the person who is liable to pay
       the duty of excise under this Act and includes his agent;
 E
       (b) "place of removal" means-

       (i) a factory or any other place or premises of production
       or manufacture of the excisable goods;
 F
       (ii) a warehouse or any other place or premises wherein
       the excisable goods have been permitted to be
       deposited without payment of duty;

        (iii) a depot, premises of a consignment agent or any
 G      other place or premises from where the excisable goods
        are to be sold after their clearance. from the factory and,

       from where such goods are removed;

 H      (ba) "time of removal", in respect of goods removed from
    PUROLATOR INDIALTD. v. COMMNR. OF CENTRAL                      825
         EXCISE DELHI-Ill [RF. NARIMAN, J.]

     the place of removal referred to in sub-clause (iii) of A
     clause (b ), shall be deemed to be the time at which such
     goods are cleared from the factory;
     (c) "related person" means a person who is so
     associated with the assessee that they have interest,          B
     directly or indirectly, in the business of each other and
     includes a holding company, a subsidiary company, a
     relative and a distributor of the assessee, and any sub-
     distributor of such distributor.
                                                                    c
     Explanation. - In this clause "holding company",
     "subsidiary company" and "relative" have the same
     meanings as in the Companies Act, 1956 (1of1956);
                                                                    D
     (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
                                                                    E
     and is returnable by the buyer to the assessee.

     Explanation. - In this sub-clause," packing" means the
     wrapper, container, bobbin, pirn, spool, reel or warp beam
     or any other thing in which or on which the excisable          F
     goods are wrapped, contained or wound;

     (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           G
     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
                                                                    H
826   SUPREME COURT REPORTS                    [2015) 9 S.C.R.


A     sale.

      Explanation. - For the purposes of this sub-clause, the
      amount of the duty of excise payable on any excisable
      goods shall be the sum total of-

      (a) the effective duty of excise payable on such goods
      under this Act; and

      (b) the aggregate of the effective duties of excise payable
C     under other Central Acts, if any, providing for the levy of
      duties of excise on such goods,

      and the effective duty of excise on such goods under
      each Act referred to in clause (a) or clause (b) shall be,-
 D
      (i) in a case where a notification or order providing for
      any exemption (not being an exemption for giving credit
      with respect to, or reduction of duty of excise under such
      Act on such goods equal to, any duty of excise under
 E    such Act, or the additional duty under section 3 of the
      Customs Tariff Act, 1975 (51 of 1975), already paid on
      the raw material or component parts used in the
      production or manufacture of such goods) from the duty
      of excise under such Act is for the time being in force,
 F    the duty of excise computed with reference to the rate
      specified in such Act, in respect of such goods as
      reduced so as to give full and complete effect to such
      exemption; and

 G    (ii) in any other case, the duty of excise computed with
      reference to the rate specified in such Act in respect of
      such goods.

      (e) "wholesale trade" means sales to dealers, industrial
      consumers, Government, local authorities and other
 H
   PUROLATOR INDIA LTD. v. COMMNR. OF CENTRAL                     827
        EXCISE DELHI-Ill [R.F. NARI MAN, J.]

     buyers, who or which purchase their requirements                A
     otherwise than in retail."

     13. Section 4, as it reads after the amendment of 2000, is
as follows:-
                                                                     B
     "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 their value, then
     on each removal of the goods, such value shall -                C

     (a) in a case where the goods are sold by the assessee,
     for delivery at the time and place of the removal, the
     assessee and the buyer of the goods are not related and
     the price is the sole consideration for the sale, be the        D
     transaction value;

     (b) in any other case, including the case where the goods
     are not sold, be the value determined in such manner as
     may be prescribed.                                              E

     (2) The provisions of this section shall not apply in respect
     of any excisable goods for which a tariff value has been
     fixed under sub-section (2) of section 3.
                                                                     F
     (3) For the purpose of this Section,-

     (a) "assessee" means the person who is liable to pay
     the duty of excise under this Act and includes his agent;

     (b) persons shall be deemed to be "related" if-                 .G

     (i) they are inter-connected undertakings;

     (ii) they are relatives;

     (iii) amongst them the buyer is a relative and a distributor H
828   SUPREME COURT REPORTS                     [2015) 9 S.C.R.


A     of the assessee, or a sub-distributor of such distributor;
      or

      (iv)      they are so associated that they have interest,
      directly or indirectly, in the business of each other.
 B
      Explanation. - In this clause -   .

      (i) "inter-connected undertakings" shall have the meaning
      assigned to it in clause (g) of section 2 of the Monopolies
      and Restrictive Trade Practices Act, 1969 (64of1969);
c     and

      (ii) "relative" shall have the meaning assigned to it in
      clause (41) of section 2 of the Companies Act, 1956 ( 1
      of 1956);
 D
      (c) "place of removal" means -

      (i) a factory or any other place or premises of production
      or manufacture of the excisable goods;
 E    (ii) a warehouse or any other place or premises wherein
      the excisable goods have been permitted to be
      deposited without payment of duty,

      from where such goods are removed;
 F
      (d) "transaction value" means the price actually paid or
      payable for the goods, when sold, and includes in
      addition to the amount charged as price, any amount that
      the buyer is liable to pay to, or on behalf of the assessee,
 G    by reason of, or in connection with the sale, whether
      payable at the time of the sale or at any other time,
      including, but not limited to, any amount charged for, or
      to make provision for, advertising or publicity, marketing
      and selling, organization expenses, storage, outward
 H    handling, servicing, warranty, commission or any other
   PUROLATOR INDIALTD. v. COMMNR. OF CENTRAL                · 829
        EXCISE DELHI-Ill [R.F. NARI MAN, J.]

     matter; but does not include the amount of duty of excise, A
     sales tax and other taxes, if any, actually paid or actually
     payable on such goods."

     14. .It can be seen that the common thread running through
Section 4, whether it is prior to 1973, after the amendment in B
1973, or after the amendment of 2000, is that excisable goods
have to have a determination of "price" only "at the time of
removal". This basic feature of Section 4 has never changed
even after two amendments. The "place of removal" has been
amended from time to time so that it could be expanded from C
a factory or any other premises of manufacture or production,
to warehouses or depots wherein the excisable goods have
been permitted to be deposited either with payment of duty, or
from which such excisable goods are to be sold after clear-
ance from a factory. In fact, Section 4(2) pre- 2000 made it D
clear that where the price of excisable goods for delivery at
the place ofremoval is not known, and the value thereof is
determined with reference to the price for delivery at a place
other than the place of removal, the cost of transportation from
the place of removal to the place of delivery is to be excluded E
from such price. This is because the value of excisable goods
under the Section is to be determined only at the time and
place of removal. Even after the amendment of Section 4 in
2000, the same scheme continues. Only, Section 4(2) is in F
terms replaced by Rule 5 of the Central Excise Valuation (De-
termination of Price of ~xcisable Goods) Rules, 2000.

    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:-     G

     "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
                                                                           ,.
830        SUPREME COURT REPORTS                     [2015] 9 S.C.R.


A         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
 B        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
 D
           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
 E         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
 F         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
 G         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
 H         reasoning in Para 13(ii) of the judgment dated
                                                          •
PUROLATOR INDIALTD. v. COMMNR. OF CENTRAL                 831
     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."
                                                             D
  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, E
 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.
                                                             F
 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
832         SUPREME COURT REPORTS                    [2015] 9 S.C.R.


A          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.

 B         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
 0
      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:-                                               C

     "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        E
      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        F
      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%."
                                                               H
834         SUPREME COURT REPORTS                      [2015] 9 S.C.R.


A         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.

 B         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:-

C           " ... 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
 E          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)

 F        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.

 G     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                      835
        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- B
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            F
     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   G
     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      H
836       SUPREME COURT REPORTS                     [2015) 9 S.C.R.


A        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
 8       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.
c        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
D
         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
 E       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-
 F
  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                   837
        EXCISE DELHI-Ill [R.F. NARIMAN, J.]

fore held that since 75% of sales tax was retained by the as- A
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- B
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- C
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- D
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.
                                                                 E
     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-    F
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 H
838    SUPREME COURT REPORTS                     [2015) 9 S.C.R.


A      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
 B     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
c      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
 D
       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
 E     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
 F     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
 G .   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
 H     the assessable value of the goods. This is a factual matter
   PUROLATOR INDIALTD. v. COMMNR. OF CENTRAL                        839
        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.                          D

Devika Gujral                                 Appeal disposed of.




                                                                     E




                                                                     F




                                                                     G




                                                                    .H