1. The application for revision filed by the appellants before the Central Government is being treated as an appeal. This appeal is directed against the Order-in-Appeal No. 1032-1034/C.E.-79, dated 13-9-1979 passed by the Appellate Collector of Central Excise, Delhi.' Through a common order, the Appellate Collector has considered three cases involving identical issues; the present appeal is restricted to the period 1-2-1970 to 31-12-1972.
2. The appellants are manufacturers of electrical fans under the brand name of 'ORIENT' in their factory at Faridabad. The usual marketing procedure of the appellants during the material period was to distribute their products area-wise through chief distributors. There is no sale of the goods by the appellants to these distributors. The appellants despatched the goods to the Chief Distributors from their factory on consignment/transfer basis. These distributors explore the market and sell the goods according to the areas assigned to them.
These distributors normally sell their goods to : - (ii) Bulk consumers such as commercial and industrial houses, builders and building contractors, hospitals, cinema and theatre houses, etc., and (iii) Government buyers under rate contract such as direct demand officers, government and semi-government departments, public sector undertakings, statutory bodies.
The appellants fix their price and allow trade discount to the dealers and retailers. The trade discount consists of :- (c) Quantity discount or overriding discount in accordance with its Scheme 1, and (d) Quantity discount or incentive bonus discount in accordance with its Scheme II.3. In their price list the appellants claimed the following deductions from the wholesale cash price : - (h) Post-manufacturing expenses on account of advertisement, godown rents, transit insurance and insurance charges on stocks, (i) Price of speed control regulators included in the prices of electric ceiling fan, and (j) Selling profits to be worked out as the difference between the nett selling prices applicable for sales to BULK CONSUMERS and realisation on sales from dealers and retailers at LIST PRICES minus various trade discounts.
4. The Assistant Collector, Central Excise, Faridabad, in his Order-in-Original No. 187 of 1977, dated 18-2-1977 pertaining to the period February 1970 to December 1972 allowed only the trade discount and cash discount for arriving at the assessable value. He disallowed the other deductions claimed. The appellants were paying the duty under protest. The Appellate Collector in his order allowed cash discount, quantity discount of the first type and Chief Distributors' commission.
He disallowed the admissibility of the expenses relating to :- (iii) Incentive bonus discount or quantity discount of the second type, The present appeal is directed against the order rejecting the above heads of deductions.
6. Shri Bedi, the learned counsel for the appellants stated that in respect of packing charges, the fan became complete before the packing and that packing was needed for the purpose of facilitating transport, storage and for preserving it from being damaged. The packing was also not fan-wise but in a consolidated manner and according to convenience.
He urged that such packing could neither be held nor said to be essential, incidental or ancillary to the process of manufacture. So he claimed that the cost of such packing should not be considered as a contributory factor for fixing the value. He relied on the decision reported in 1984 (18) E.L.T. 172 (Bombay) ( Godrej and Boyce Manufacturing Co. Pvt. Ltd., Bombay and Anr. v. Union of India and Ors.) in support of his contention.
7. On the other hand, Shri Jain, the learned SDR has pointed out that there is no allegation about the packing being special or secondary.
The packing is one, ordinarily used in the course of trade and provided at the time of removal. It is further contended that because the appellants had never claimed the packing as one of a secondary nature, they cannot rely on the decision of the Bombay High Court in Godrej case cited supra.
8. The acid test, which has to be applied to the contentions of both the parties, is laid down in the latest decision of the Supreme Court in the case of Union of India and Ors. v. Bombay Tyres International Ltd. (1983 E.L.T. 1896). In para 51 of this ruling, it has been held - " ... We must remember that while packing is necessary to make the excisable article marketable, the statutory provision calls for strict construction because the levy is sought to be extended beyond the manufactured article itself. It seems to us that the degree of secondary packing which is necessary for putting the excisable article in the condition in which it is generally sold in the wholesale market at the factory gate is the degree of packing whose cost can be included in the "value" of the article for the purpose of the excise levy. To that extent, the cost of secondary packing cannot be deducted from the wholesale cash price of the excisable article at the factory gate." 9. In the instant case, there is no evidence of any secondary packing by the appellants. The wooden packing resorted to is the ordinary packing which is normally used for purpose of transporting the goods.
Under Section 4(4)(d)(i) the value in relation to excisable goods includes the cost of such packing, where the goods are delivered at the time of removal in a packed condition. In the absence of any proof that the appellants are providing secondary packing for the goods, we are of the view that the ratio of the decision of the Supreme Court in the case of Bombay Tyres International Ltd. supra aptly applies to the present case, whereas the decision of the Bombay High Court in Godrej case supra is distinguishable and has no application to the facts of this case. There is therefore, no force in the contention of the learned counsel of the appellants for the exclusion of the packing charges from the assessable value of the product.
10. Regarding exclusion of cost of transport, the learned counsel for the appellants has relied on the Supreme Court decision cited above. He has in particular referred to para 49 of this judgment which clearly provides that freight and transit insurance charges shall be excluded from the assessable value. This exclusion is conceded by the learned Departmental Representative. In view of the Supreme Court decision, we have no hesitation in holding that the transport charges including transit insurance be deducted from the assessable value of the goods.
11. Shri Bedi, the learned counsel for the appellants next argued that incentive bonus discount allowed to the dealers was based on their performance during the previous year. The company had issued a circular on 6-9-1969 indicating therein the nature and scope of the "special incentive bonus". The reduction was Rs. T50 or Rs. 3/- per fan, depending upon the increase of sale over the previous year. The learned counsel has pointed out that the Supreme Court has issued clarification to the decision of Union of India and Ors. v. Bombay Tyres International Ltd. 1984 (17) E.L.T. 329 wherein they have set out the following principles in regard to trade discount:- "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 established under agreements or under terms of sale or by established practice, the allowance and the nature of the discount being known at or prior to the removal of the goods. Such trade discounts shall not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice prise." Shri Bedi further argued that the value should be fixed taking into account the trade discount allowed in the usual course of business.
12. On the other hand, Shri Jain, SDR has pleaded that there can be no res judicata in matters of taxation. As regards bonus he stated that no discount was granted at the time of the removal of the goods and the scheme of incentive bonus based on the performances during the previous year could not be considered as a trade discount. According to Shri Jain, the scheme was more in the nature of a gift or reward and therefore the amount cannot be deducted from the assessable value.
13. We find that the term "trade discount" has not been defined in the Central Excises and Salt Act, 1944, although its deduction is permissible from the assessable value. Definition of 'Trade discount' as given in Law Lexicon by Shri T.P. Mukherjee is as follows :- "A trade discount is a deduction from the catelogue price of goods allowed by wholesalers to retailers engaged in the trade." According to this definition, to which we have no reason to disagree, the net amount is the sale price and that is the amount entered in the book of the respective parties as the amount payable towards the sale transaction. It is no doubt true that their Lordships of the Supreme Court have permitted the deduction of discount allowed in the trade by whatever name such discount is described having regard to the nature of the goods provided the same is established either under an agreement or in terms of sale or by established practice. Such trade discount shall not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice price.
14. We have now to find whether the incentive bonus discount alleged by the appellants can be treated as a trade discount. Section 4(a) of the Central Excises and Salt Act, 1944, as it stood at the relevant time was as follows : "The wholesale cash price for which an article of the like kind and quality is sold or is capable of being sold at the time of removal of the article chargeable with duty from the factory or any other premises of manufacture of production for delivery at the place of manufacture or production, or if a wholesale market does not exist for such article at such place, at the nearest place where such market exists." it follows that the wholesale price should be determined at the time of the removal of the article chargeable with duty. But in a case where the sale price remains undisturbed and the bonus discount is paid to the distributors subsequently, based on a target figure to be determined by the manufacturer, it cannot be considered a trade discount. Under the scheme envisaged by the appellants this bonus incentive is allowed to the dealers if they exceeded the target based on the performance of the preceding year and fixed by the appellants.
In 33 STC 472 (India Piston Ltd. v. State of Tamil Nadu) Hon'ble Madras High Court has considered the scope of bonus discount scheme called rebate for the purpose of arriving at the sale price under the Sales Tax Act. The Court held that the rebate or bonus discount granted by the assessee did not directly or indirectly go to reduce the pre-determined or pre-paid sale price and therefore could not be taken to be in reduction of the actual sale price agreed or paid for the goods purchased earlier by the distributors.
15. In the present case the distributors have paid for the goods purchased by them as per the contract or list price. It was only at the end of the year their eligibility to the incentive bonus discount was ascertained on the basis of the purchased turn over for the year. Since the sale price had already been paid at the time of purchase and the bonus discount is determined only after the end of the year, it cannot be termed as trade discount. It would be a sort of reward or gift or incentive for promoting sales. In other words, it is a contingent concession dependent on the basis of the purchased turn over or performance. We also find that in 1981 E.L.T. 801 [Deputy Commissioner of Sales Tax v. Advani Coorlikon (P) Ltd.} the Supreme Court has approved the decision of the Madras High Court and held that bonus discount was not admissible as a deduction from the sale price. Though it was also a case under the Sales Tax Act, the principles will apply to the facts of this case.
16. We further observe that as per the clarification of the Supreme Court reported in 1984 (17) E.L.T. 329 (Union of India and Ors. v.Bombay Tyres International Ltd.} the nature of the discount should be known at or prior to the removal of the goods. In this case it is not possible to determine the quantum of discount because it is based on a target figure to be found by the appellants at a future date. We are therefore of the firm view that the appellants are not entitled to any deduction on the ground of incentive bonus discount, which was contingent in nature.
17. In regard to the cost of regular we find that in a similar case the Andhra Pradesh High Court has held in 1982 E.L.T. 378 (Jay Engineering Works Ltd., Hyderabad v. Government of India and Ors.') that the regulators form an indispensable part of a fan. This view was followed by the Delhi High Court in Writ Petition No. 2274/82, dated 7-2-1984 in the case of the present party. We respectfully follow the Andhra Pradesh and Delhi High Court decisions and hold that the cost of regulator be excluded from the assessable value of the fans. The order of the Appellate Collector cannot be upheld in this regard.
18. The appellants also claim other post-manufacturing expenses and selling profits The learned counsel did not press these deductions in view of the Supreme Court decision cited supra.
19. For the above reasons we cannot maintain the order of the Appellate Collector in respect of the loading of the assessable value of the product qua freight, transit insurance and cost of regulators.
20. In the result we partly accept the appeal and modify the impugned order in the above terms. Consequential relief flowing therefrom be made available to the appellants.