1. Originally preferred as a revision application to the Central Government, the matter has been transferred to the Tribunal under Section 35-P of the Central Excises and Salt Act, 1944 (hereinafter referred to as the Act), and is being treated as an appeal, and disposed of as such.
2. Shri Garg, the learned counsel for the appellants has submitted that the appellants are manufacturers of woollen felts falling under Tariff Item 68 of C.E.T. During the year 1977-78, the appellants produced goods of 'gross sale price' amounting to Rs. 34,42,961.17. They claimed the benefit of exemption Notification No. 176/77, dated 18-6-77 as amended by Notification No. 246/77, dated 15-7-77.
3. On scrutiny of the records, the central excise authorities issued a show cause notice to the appellants asking them as to why central excise duty should not be charged on the woollen felts cleared from their factory in the year 1978-79 in excess of the exemption limit of Rs. 30 lakhs and also on the goods cleared during the year 1979-80.
After receipt of the appellants reply to the show cause notice and after granting a personal hearing to them, the Assistant Collector held that the appellants were not entitled to the deductions amounting to Rs. 5,05,914.16. Since they had cleared goods in excess of exemption limit of Rs. 30 lakhs, they became ineligible for the benefit of the exemption notification and were liable to pay the differential duty.
The Assistant Collector did not accept the admissibility of the deductions claimed by the appellants from the gross sale price in respect of goods returned, the cash discount allowed to M/s. A.K. Shah and the discount @ 5% on sale to M/s. Rajasthan Enterprises, Bombay, for the reasons given in his order. Aggrieved with the Asstt.
Collector's order, they preferred an appeal to the Appellate Collector of Central Excise, New Delhi, who vide his order dated 20-2-1981, upheld the Asstt. Collector's order and rejected the appeal.
4. Shri Garg stated that there was no dispute with regard to the gross sale price of the goods cleared by the appellants, viz. Rs. 34,42,961.17. The dispute was that the lower authorities were not correct in disallowing the deduction from the gross sale price a sum of Rs. 5,05,914.16. By not allowing this deduction the value of the goods cleared by the appellants exceeded Rs. 30 lakhs and this deprived the appellants of the benefit of the exemption notification which, according to Shri Garg, rightly accrued to them.
5. With regard to the action of the lower authorities in not allowing the deduction of Rs. 2,39,866.59, being the value of goods which were not taken by the buyers, Shri Garg maintained that their value could not be taken into account for determining the assessable value.
According to Shri Garg, since these goods were not taken delivery of by the buyers, the sale in respect thereof was not complete. Old Section 4 (prior to 1-10-1975) referred to 'wholesale cash price' and new Section 4 refers to 'a price at which such goods are ordinarily sold...in the course of wholesale trade'. Whether viewed in the context of old Section 4 or the new Section 4, the material fact remains that goods were not taken delivery of by the customers and the same had to be brought back into factory for sale later. As such the value of such goods could not be considered as the value of 'clearances for home consumption' and the appellants were rightly entitled to claim deduction of the same for the purpose of exemption limit of Rs. 30 lakhs.
6. Shri Garg stated that the action of the lower authorities to disallow the cash discount of 5% allowed by appellants to M/s. A.K.Shah was not warranted in law. Dealings between appellants and M/s.
A.K. Shah were as between principal to principal. This was supported by an affidavit dated 5-11-80. filed by M/s. A.K. Shah. M/s. A.K. Shah were acting as wholesale dealers for the appellants and were also providing cash facilities to them. The 5% discount was being given to them for rendering these services. Shri Garg's contention was that such a discount was admissible under Section 4 of the Act.
7. Shri Garg stated that the action of the lower authorities in not allowing 'Bill discount' @ 5% on sales to M/s. Rajasthan Enterprises, Bombay was contrary to law. M/s Rajasthan Enterprises were performing a number of services in promoting the business interests of the appellants. They had, by virtue of an agreement agreed to provide to the appellants business of not less than Rs. 20 lakhs in a year. They were also to function as distributor-cum-underwriter with regard to the sales of the goods manufactured by the appellants. There was, therefore, nothing improper or illegal (in the context of Section 4 of the Act) in the appellants giving 5% discount to M/s. Rajasthan Enterprises.
8. Shri Garg found fault with the finding of Assistant Collector that appellants had charged the full value of the goods including the commission to be paid to M/s. A.K. Shah and had paid sales tax as per the invoice value. According to Shri Garg payment of sales tax had nothing to do with the assessable value of the goods for excise purposes in the facts of the present case. He also contended that the lower authorities had incorrectly inferred from evidence placed before them that the appellants had a special relationship with M/s. A.K.Shah. He contended that Delhi High Court had held that mutuality of interest in the business of each other had to be established before two parties could be held to be related to each other. [1981 ELT 284 (Del.) Jay Engg. Works v. Union of India & Ors.] Shri Garg concluded by making a forceful plea that lower authorities had mis-interpreted the law and denied the appellants the rightful benefit of exemption notifications.
9. Shri Mahesh Kumar, the learned representative of the respondent submitted that the order of the Appellate Collector was correct in law.
He pointed out that duty of central excise is on 'manufacture' and not on 'sale' of excisable goods. He further stated that Shri Garg's contention that excess duty became leviable only when the goods were used for home consumption was without any basis. The expression home consumption used in the exemption notification was to draw a distinction between excisable goods used for home consumption, export, for captive consumption and when used in the manufacture of any other commodities. Shri Garg's contention that goods cleared from the factory and brought back could not be treated as for home consumption had no logic behind it. The strict legal position, Shri Kumar emphasized, is that duty of central excise becomes chargeable as soon as excisable goods are manufactured but for the sake of administrative convenience, the same is collected when these are brought for removal from the factory gate. Any further postponement of leviability of central excise duty, a point stressed by Shri Garg, was not supported by law. The Department was concerned with the levy of central excise duty till the stage of clearance from the factory gate. Once the goods were cleared from the factory, the Department had nothing to do with such goods, or how they were utilised by the parties to whom these were sold or supplied. In this connection, he described the scheme of the Act and the Rules governing the levy and collection of central excise duty vide Section 3 of the Act read with Rules 9-A and 49 of the Central Excise Rules.
10. Regarding the discount allowed to M/s. Shah, Shri Mahesh Kumar contended that the term normal price has reference to the buyers of the goods and not to 'distributors or underwriters' appointed for sale of excisable goods. Likewise, any discount where admissible vide Section 4(.4)(d)(ii) of the Act, accrues to the buyers of the goods and not to the distributor or underwriter. Such a discount is to be clearly indicated in the documents when the goods are removed from the factory.
Furthermore, a discount cannot be made subject to uncertain contingencies. Summing up his arguments, Shri Mahesh Kumar submitted that the appellants were not entitled in law to any of the deductions claimed.
11. We have considered the arguments of both the sides and also gone through the records. Indubitably Section 3 of the Act is the charging section. It speaks of levy and collection of excise duty in such manner as may be 'prescribed'. The expression 'prescribed' has been defined in Section 2(g) of the Act, which means as prescribed by Rules made under this Act. Thus Section 3 of the Act read with Rules 9-A and 49 of the Central Excise Rules, 1944 provide the mechanics of levy and collection of duties of excise. Section 4 ibid lays down the principles that govern the valuation of excisable goods on which duty is to be levied and collected. In case of manufactured goods duty of excise is to be levied and collected when such goods are to be removed from the factory gate. This legal position does not admit of any ambiguity. There are situations in which excisable goods are allowed to be brought back to the factory premises but they relate to situations like repair and re-conditioning of the goods removed earlier. There is no provision, however, that goods once cleared on payment of excise duty which are not accepted by the buyers can be brought back and their value can be deducted from the assessable value of the goods to be cleared subsequently. Further, wherever excisable goods are brought back to the factory for repair, re-conditioning etc. and subsequently cleared, all these operations are governed by clearly laid down procedures. This is necessary to ensure that there is proper accounting of such goods by way of documentation, physical control and other checks. Thus we are in full agreement with the reasoning of Shri Mahesh Kumar and see no substance in the submissions put forth by Shri Garg in this behalf.
12. Further, we are also unable to accept the contention of Shri Garg that commission paid to financiers, distributors or underwriters is an admissible deduction under Section 4 of the Act. Shri Mahesh Kumar has correctly pointed out that whenever any discount is allowed the same should figure in the relevant assessment documents and its benefit should flow to the buyer of the goods and not to third parties such as commission agents, underwriters etc. There is no bar to any party giving suitable remuneration to their financiers or underwriters but such payments do not come within the purview of Section 4 of the Act and cannot be deducted from the normal price for arriving at the assessable value of goods.
13. For the reasons stated above we find no merit in this appeal, which is hereby dismissed.