1. This petition under Article 226 of the Constitution of India arises out of proceeding under the Central Excises and Salt Act, 1944. The first petitioner is a Limited Company carrying on the business of, among others, manufacturing of paints and varnishes which are, according to the petitioners, classifiable under Item 14 of the Ist Schedule to the said Act. The second petitioner is a shareholder and also the Director of the first petitioner Company. The facts which are necessary for the disposal of this petition must now be mentioned.
2. In the year 1977, duty on the goods manufactured by the first petitioner Company, hereinafter referred to as 'the petitioner', became assessable on ad valorem basis. In view of this, the petitioner filed a price list on 8th of June 1977. In that price list, the petitioner claimed deductions on several accounts. They were, for example, 10 per cent trade discount, secondary packing charges, equalised freight to consumers, 4 per cent cash discount and post manufacturing expenses on account of certain items. The Assistant Collector of Central Excise by his order dated 1st September 1979 allowed only the deduction on account of trade discount as claimed by the petitioner.
3. The petitioner preferred an appeal against the said order. The appellate authority is the second respondent in this petition, namely the Collector of Central Excise having his office at Meher Building at Bombay. Subsequently the petitioner filed several other price lists wherein similar orders were passed and, therefore, the petitioner had to necessarily file several appeals. We have been informed that they are twenty-nine in number. By his order dated 23rd of July 1980, the Collector of Central Excise disposed of all appeals by allowing them only to a limited extent. He allowed, for example, deduction on secondary packing claimed by the petitioner. He also allowed qualified freight charges to the extent actually incurred by the petitioner. He also allowed 4 per cent cash discount if it had been actually given in particular cases. As far as the post manufacturing expenses in respect of some other items were concerned, the Collector did not allow the same. Similarly the petitioner was aggrieved by the refusal of the Collector to give deduction on account of 4 per cent cash discount in respect of all the sales made by it. The petitioner, therefore, has preferred a revision to the revisional authority under the Act, added as respondent No. 4 in this petition. This relates to the refusal off the Collector to allow deductions on account of certain items under the heading of 'post manufacturing expenses' and also cash discount of 4 per cent in respect of all sales. The fourth respondent has also taken out a suo motu notice against the petitioner for revising the order passed by the Collector in respect of equalised freight actually incurred. The effect of the notice will be review of the order passed by the Collector in so far as the latter allowed deduction on account of equalised freight actually incurred.
4. The petitioner has replied to the review notice. An attempt was made by the petitioner to obtain a stay of the order which had already been passed. However, no stay has been granted. Subsequently on 27th of September 1982 respondent No. 6, who is the Superintendent of Central Excise of Range II at Panvel, issued a demand notice requiring the petitioner to pay an amount of Rs. 16,37,621. The petitioner, in reply to this demand notice, pointed out to the sixth respondent that the demand notice issued by him was misconceived inasmuch as if did not take into account several deductions which have been allowed by the Collector acting as the appellate authority. The sixth respondent was, therefore, requested not to take any action pursuant to the demand notice issued by him. Since there was no response from the sixth respondent, the petitioners have approached this Court under Article 226 of the Constitution.
5. In the meantime, as is well-known, the Supreme Court has delivered the judgment in Bombay International Tyres 1983 E.L.T. 1896 case as a result of which certain legal propositions have become well established. An affidavit has also been field on behalf of the petitioner wherein has been mentioned that the petitioner has been allowing several discounts in addition to the normal trade discounts. In the affidavit itself, however, nothing has been mentioned about the items on account of which deductions should be allowed under the head 'post manufacturing expenses'. For the purpose of the disposal of this petition, therefore, we are not referring to the contents of this affidavit.
6. Mr. Rana, the learned Advocate appearing in support of the petition, has canvassed the view that the notice issued by the sixth respondent is patently illegal and ought to be set aside. We have already mentioned above that the petitioner informed the sixth respondent that the demand notice issued by him did not take into account certain additional deductions which had been allowed by the appellate authority. If this is so, naturally, the demand notice dated 27th September 1982 will have to be set aside. Mr. Sethna, the learned Advocate appearing for the Department, has not been able to show how the sum mentioned in the said demand notice can be demanded from the petitioner, especially in view of the order passed by the appellate authority. The notice will, therefore, have to be set aside.
7. In view of the fact that certain legal propositions have now become well-settled, Mr. Rana invited us to pronounce upon two items which are now seized of by the revisional and reviewing authorities. One is the item of cash discount which had been allowed only to the limited extent by the appellate authority. This is pending in revision. The second is the item relating to equalised freight. The order passed by the Collector in respect of the same is sought to be reviewed suo motu by the reviewing authority.
8. Mr. Rana has contended that the Collector was in error in holding that cash discount is all allowable only to the extent actually given. He invited our attention to that part of the order the Collector which discusses this question. The Collector has refused deduction on account of cash discount payable by the petitioner to its customers on the ground that it is not deductible under the provisions of law. The system prevalent is that the price list of the petitioner shows a certain price of the product and in the same it is mentioned that 4 per cent discount will be given to the customer who pays the price in cash. According to the Collector, this reduction is not a reduction in the price of the goods but is in the nature of interest payable by the seller to the buyer for the period of the money paid in advance. Some assessee may give to all its buyers cash discount and that is a discount for prompt payment. Proceeding further the Collector has held as follows :-
'In other words, they charge a somewhat lesser price where there is cash payment, but charge a higher price (i.e. without deduction of the cash discount) if the payment is not made in cash. In such cases, the cash discount, if allowed, will be admissible on the principle that only the net price obtained after deduction of the cash discount is the price of the goods.'.
Accordingly the Collector ordered that where the petitioner gives cash discount to its customers on account of payment made within the stipulated period, it shall be entitled for the abatement of cash discount while determining the assessable value.
9. Mr. Rana has referred to clause (d) of section 4(4) of the Act wherein it has been mentioned that 'value', in relation to any excisable goods, does not include the trade discount (such discount not being refundable on any account whatsoever) allowed in accordance with the normal practice of the wholesale trade at the time of removal in respect of such goods sold or contracted for sale. Interpreting this provision, the Supreme Court has in its judgment dated 14th/15th November 1983 said as follows :-
'Discount allowed in the trade (by whatever names such discount is described) should be allowed to be deducted from the sale price having regard to the nature of the goods if established practice, the allowance and the nature of the discount being known at or the removal of goods, 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'.
From what has been mentioned above it is clear to us that if certain trade discount, by whatever name it is called, is allowed by the assessee to its customers under the terms of sale or an agreement, that amount of discount has got to be deducted from the sale price before arriving at the assessable value of the product. Of course, in addition, the allowance and the nature of the discount should be known at or prior to the removal of the goods. In other words, before the goods are actually removed for being delivered to the customer, the terms of sale must spell out that a certain amount of discount is allowable.
10. In the present case, the price list prepared by the petitioner itself discloses that 4 per cent of the total is allowed as discount if the payment is made in cash. Therefore it is called cash discount. From this it is clear that the discount is allowed under the terms of sale. Secondly, it is also clear that the nature of the discount is known to the parties concerned prior to the actual removal of the goods because it is only for the payment made in cash that the discount is payable. In our opinion, the claim made by the petitioner in respect of the cash discount should have been allowed irrespective of whether each customer availed of the said discount.
11. It is not in dispute that under Section 4 of the Act what has to be taken into account is the wholesale cash price of a product before its removal from the factory gate. The phrase 'wholesale cash price' contained in clause (a) of Section 4 of the Act, before its amendment in 1973, was interpreted by a Division Bench of this Court in Voltas Limited v. A. K. Roy, 1993 Bom. L.R. 229. It was held therein that the phrase 'wholesale cash price' was used in the section in contradistinction to the retail price and that price is relieved of the loading represented by post manufacturing expenses unless they form part of the profits of the manufacturer himself. In the Voltas Limited's case, the assessee had made it known by the agreements entered into with the various dealers that it would sell to the dealers certain types of air-conditioners and water coolers by their list prices less 22 per cent discount. It was found as a matter of fact that not many dealers accepted this discount facility. The question before the Court was whether, in view of the fact that the facility of cash discount was not accepted generally, it should not become deductible under Section 4 of the Act. The argument made on behalf of the Department that the articles were, during certain periods of time, not sold to the dealers and were not at all sold in the territories of dealers by the dealers it should be held that wholesale cash price for goods not sold to the dealers was not ascertainable was rejected. It was held that the wholesale cash price for the articles could be held to be ascertainable in view of the agreements which were already entered into. It was also contended on behalf of the Department that these agreements have restrictive provisions and the prices mentioned therein were accordingly not wholesale cash price as necessary for application of the relevant provision, as it then stood. It was held by this Court that the petitioner Company had agreed to give to the dealers discount at certain rate. The business of the petitioner was also organised through dealers of different areas on the same terms and conditions. It was, therefore, held that the prices could easily be ascertained by reading the contents of the agreements made by the petitioner with each of its dealers. The so-called restrictive conditions did not make any difference in the matter of the wholesale cash price which could be ascertained in accordance with the provisions contained in clause (a) of Section 4, as it then stood.
12. This judgment of this Court was subsequently confirmed by the Supreme Court in A. K. Roy v. Voltas Limited, : 1973ECR60(SC) . The Supreme Court also held that Section 4 postulated that the wholesale price should be taken on the basis of cash payment, thus eliminating the interest involved in wholesale price which gives credit to the wholesale buyer for a period of time and that the price has to be fixed for delivery at the factory gate thereby eliminating freight, octroi and other charges involved in the transport of the articles. It was also specifically stated that it was not necessary for attracting the operation of Section 4(a) that there should be a large number of wholesale sales. The quantum of goods sold by a manufacturer on wholesale basis is entirely irrelevant. The mere fact that such sales may be few or scanty do not alter the true position.
13. These observation of the Supreme Court are an answer to the contention raised by Mr. Sethna on behalf of the Department before us that cash discount, which is not actually availed by the buyers, could not be deducted while arriving at the wholesale cash price for the purpose of levying the excise duty. It is the contention of Mr. Sethna that a mere clause is inserted in the price list that certain amount of discount is allowed if payment is made in cash. In actuality it may happen that none of the buyers will avail of this facility or very few may avail of the same. In such a case the wholesale cash price will be represented by the price mentioned in the price list without the discount. Mr. Sethna feared that in certain cases this discount may be only in theory and in practice no one will avail of the same, but by showing small or large discount as being payable in the price list, the goods will escape from payment of excise duty under the Act.
14. The apprehension expressed by Mr. Sethna cannot be made the basis of the interpretation of the Section itself, especially in view of the clear language used by the Division Bench of this Court in Voltas Limited's case, which judgment has been subsequently confirmed by the Supreme Court. Even theoretically, in our opinion, the apprehension seems to be totally mis-placed. If the discount is of a very small amount, say one per cent, the assessee is not likely to be benefited to any appreciable extent. If, however, the discount is of a higher amount, then the customers themselves will avail of the same. The fear that the discount facility will be only in theory and will never be availed of in practice is, therefore, not well-founded. In any case, this fear cannot be a factor in the interpretation of the statute itself. We are, therefore, of the opinion that cash discount as mentioned in the price list of the petitioner must be allowed irrespective of whether it was actually availed of by the customers. Mr. Sethna was allowed to argue on this point, though the appellate authority had allowed cash discount of 4 per cent to the extent it was actually given. This was so because Mr. Sethna could support the order of the appellate authority though not on the same grounds. According to Mr. Sethna, cash discount of the type claimed by the petitioner in the instant case cannot be allowed at all even to the extent at which it has been actually availed of.
15. Mr. Sethna also contended that the discount which is allowed by the petitioner is not known at or prior to the removal of the goods as mentioned in the Supreme Court judgment referred to above. We have no hesitation in rejecting this contention. We have earlier in this judgment, while analysing the nature of the discount allowed by the petitioner, said that the discount is allowed under the terms of sale. The nature of the discount and the extent of the same is also known at or prior to the removal of the goods because it is so mentioned in every price list. We do not see how one can say that the nature and the extent of the discount are not known 'at or prior to the removal of the goods' as mentioned by the Supreme Court judgment. The sales are effected on the basis of the price lists distributed by the petitioner. The purchase is made by the customers on the basis of the prices mentioned in the price lists and these price lists themselves mention the various terms subject to which the sales are effected. If the invoices are prepared by mentioning the prices in the price lists and thereafter the cash discount mentioned in the terms of sale is given, then the wholesale cash price on which the excise duty is assessable will naturally be the price minus the cash discount allowed in the invoice. In our opinion, the nature and the extent of the discount allowable is known and ascertainable prior to the removal of the goods.
16. The next item on which deduction was claimed by the petitioner was the equalised freight, which is now held to be deductible by the Supreme Court judgment. Mr. Sethna has not said that this claim cannot be upheld.
17. Mr. Sethna also invited us to examine the several deductions which are now claimed by the petitioner in the revision before the Government under the heading of 'post manufacturing expenses' so that both the revision and the review can be effectively disposed of. We have, however, not thought it fit to accede to this invitation because there are several items under the head of 'post manufacturing expenses' claim in respect of which is pending in revision. It is not possible for us to examine each and every item under this head. In our opinion, it is best left to the revisional authority to examine the claim of the petitioner in that regard because that is the claim which the petitioner is agitating in the revision preferred by it. Since, however, cash discount was a single item and similarly equalised freight was also a single item, we have thought it fit to hear the Advocates on the same and expressed our opinion. The final order in respect of these two items will naturally be passed by the revisional and reviewing authorities.
18. The appellate authority had also allowed certain deduction on account of secondary packing in addition to the deductions allowed by the Assistant Collector on account of trade discount. Mr. Sethna has sought to contend that in view of the judgment of the Supreme Court, deduction on account of secondary packing has been wrongly allowed by the appellate authority and the same must be disallowed now. It is impossible to agree with Mr. Sethna. In the first place, the Collector's order has, in so far as it relates to the secondary packing, become final. Secondly, the reviewing authority has not issued any notice in respect of the same. We do not see how the department can today contend that the order passed by the appellate authority is wrong and should now be revised as against the petitioner. We have, therefore, not allowed Mr. Sethna to argue on this point.
19. In the result, this petition partly succeeds. The notice of demand dated 27th September 1982 issued by the 6th respondent is aside. As a result of the opinion expressed by us above, the petitioner is entitled to deduction on account of trade discount allowed by the Assistant Collector, on account of secondary packing allowed by the appellate authority and on account of 4 per cent cash discount and equalised freight which, according to us, are allowable. The petitioner shall, on or before 30th April 1984, file before the Assistant Collector of Central Excise at Thane an application claiming deductions on account of the four heads and shall also indicate the wholesale cash price on the basis of which excise duty will be payable. The petitioner shall also pay along with the said application excise duty which thus becomes payable, after deducting the amounts on account of the aforesaid four heads.
20. There will be no order as to costs in this petition.