# M/S. PUROLATOR INDIALTD v. COMMISSIONER OF CENTRAL EXCISE DELHI-Ill

- **Citation:** [2015] 9 S.C.R. 812
- **Court:** Supreme Court of India
- **Decided:** 2015-08-25
- **Case number:** Civil Appeal No.1959 of 2006
- **Bench:** A.K. Sikri, R. F. Nariman
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/m-s-purolator-indialtd-v-commissioner-of-central-excise-delhi-ill-31305
- **Pages:** 28

## Headnote

Central Excise Act, 1944: s.4 (as amended in 2000) -
c
Sales Tax, Cash Discount, Volume Discount - Whether
•
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,
D matter was rightly remitted back by the Tribunal.
Disposing of the appeal, the Court
HELD: 1. It can be seen that the common thread running 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 amendments. 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
G
duty, or from which such excisable goods are to be sold
after clearance from a factory. In fact, Section 4(2) pre2000 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 reA
moval, the cost of transportation from the place of removal to the place of delivery is to be excluded 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 B
4 in 2000, the same scheme continues. Only, Section 4(2)
is in terms replaced by Rule 5 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules,
2000. [Para 14) [829-B-F]
2. 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 becomes determinable. Whereas previously,
c
the value of such excisable goods was the price at which D
such goods were ordinarily sold in the course of wholesale 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 reE
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 removal, 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 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 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 buyers, 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]
c
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.
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 Revenue (Taxes), Ern

## Text

_Characters 0–39,735 of 47,713. This is a partial read: ask again with offset=39735 for what follows._

[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) -
c
Sales Tax, Cash Discount, Volume Discount - Whether
•
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,
D matter was rightly remitted back by the Tribunal.
Disposing of the appeal, the Court
HELD: 1. It can be seen that the common thread running 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 amendments. 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
G
duty, or from which such excisable goods are to be sold
after clearance from a factory. In fact, Section 4(2) pre2000 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 reA
moval, the cost of transportation from the place of removal to the place of delivery is to be excluded 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 B
4 in 2000, the same scheme continues. Only, Section 4(2)
is in terms replaced by Rule 5 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules,
2000. [Para 14) [829-B-F]
2. 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 becomes determinable. Whereas previously,
c
the value of such excisable goods was the price at which D
such goods were ordinarily sold in the course of wholesale 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 reE
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 removal, 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 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 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 buyers, 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]
c
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.
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 Revenue (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
G
CIVIL APPELLATE JURISDICTION: Civil Appeal No.
1959 of 2006.
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 (herein8
after referred to as the appellant) is engaged in the manufacture 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 transferred to depots from where they are further, stock transferred c
to clearing and forwarding agents.
2. For effecting stock transfers, the appellant filed declarations 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 payable 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 reE
pair in case of defects noticed by the customers. The customers 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 apF
pellant. On receipt of such consignments, the appellant checks
the same for defects indicated and undertakes necessary repairs. Thereafter, the finished products are returned to customers. The appellant was filing the necessary D-3 declarations 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
B
instead of old/repaired goods.
5. The appellant filed a detailed reply to the show cause
notice countering each and every allegation. The Commissioner 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:-
E
F
"ORDER
With a view to the discussion and findings recorded
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
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
EXCISE DELHl~lll [R.F. NARIMAN, J.]
deduction and
(d) Rs. 4,99, 117/- towards duty on cash discount for
the period of July 2000 to March, 2001
817
A
(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."
6. Wheri it came to cash discount, the Tribunal upheld the
finding of the Commissioner on the following basis:-
G
"10. Regarding cash discount, it is not in dispute that the
duty has been demanded in respect of cash discount H
818
A
B
c
D
E
F
G
H
SUPREME COURT REPORTS
[2015] 9 S.C.R.
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
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
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
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
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
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.
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
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 appellant, 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 Section 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 alE lowed as has been held in Union of India v. Bombay Tyre
International Limited, 1984 (17) ELT 329 (SC), and Government 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"transacB
tion value" into the amended Section 4 makes a world of difference 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 discounted price, !hen the transaction value cannot possibly inC
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).
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,
D
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 production, 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."
E
F
G
12. After the amendment of 1973, Section 4 reads as
follows:-
"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-
(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
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.
E
F
G
(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;
(b) "place of removal" means-
(i) a factory or any other place or premises of production
or manufacture of the excisable goods;
(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
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 subdistributor 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) "value", in relation to any excisable goods,-
D
(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
A
SUPREME COURT REPORTS
[2015) 9 S.C.R.
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,
D
E
F
G
H
and the effective duty of excise on such goods under
each Act referred to in clause (a) or clause (b) shall be,-
(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
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,
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
(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
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.
(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;
F
(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
B
c
D
E
F
(iv)
they are so associated that they have interest,
directly or indirectly, in the business of each other.
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);
and
(ii) "relative" shall have the meaning assigned to it in
clause (41) of section 2 of the Companies Act, 1956 ( 1
of 1956);
(c) "place of removal" means -
(i) a factory or any other place or premises of production
or manufacture of the excisable goods;
(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;
(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 clearance 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 (Determination 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 regard 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 practice, 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
...
D
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
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
0
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 such goods were ordinarily sold in the course of wholesale trade, post amendE ment 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 removal". It is clear, therefore, that what is paramount is that the value of the excisable goods even on the
F basis of "transaction value" has only to be at the time of removal, that is, the time of clearance of the goods from 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
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 therefore 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 discount, 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 discounts 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 Revenue (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 expeditious 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 lnH 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 Government but retained by the assessee was also liable to be deB
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.