Case Law Details
Urvashi Porwal
Brief of the Case
In the case of M/s Cipla Ltd. Vs. Commissioner of Central Excise, Mumbai-III, it was held that when goods are cleared to the customers at a discount, the assessable value for the purpose of assessment should be the value arrived at after giving the quantity discount and not the value at which the goods were cleared from factory to depot.
Facts of the Case
The appellants, manufacturer of P&P Medicines, were clearing the goods to their depot from where the said goods were sold to independent buyers. The appellants cleared certain goods to their depot during July, 2003 to November, 2003. After clearance of goods from factory to their depot, they sold the same to the customers after offering the quantity discount on the same. The appellants filed a refund claim seeking refund on the ground that the assessable value for the purpose of assessment should be the value arrived at after giving the quantity discount and not the value at which the goods were cleared from factory to depot. The refund claim was rejected by the lower authorities relying on the decision of Hon’ble Supreme Court in case of MRF Ltd. -1997 (92) ELT 309 (SC) and on the decision of the Tribunal in the case of Camphor & Allied Products Vs. Commissioner of Central Excise – 2000 (122) ELT 171 (T). They also relied on the CBE&C Circular dated 30.6.2000.
Contentions of the Assessee
The assessee contended that assessable value in such circumstances should be the assessable value arrived at when goods were sold from the depot to the independent customer i.e. the price after allowing the quantity discount. The assessee relied on Rule 7 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, which reads as follows: –
“Rule 7. Where the excisable goods are not sold by the assessee at the time and place of removal but are transferred to a depot, premises of a consignment agent or any other place or premises (hereinafter referred to as “such other place”) from where the excisable goods are to be sold after their clearance from the place of removal and where the assessee and the buyer of the said goods are not related and the price is the sole consideration for the sale, the value shall be the normal transaction value of such goods sold from such other place at or about the same time and, where such goods are not sold at or about the same time, at the time nearest to the time of removal of goods under assessment.”
The assessee also relied on the decision of the Tribunal in case of Glenmark Pharmaceuticals Ltd. – 2011 (272) ELT 385 (Tri-Mum).
Contentions of the Revenue
The revenue relied on the impugned order and also relied on the decision of the Hon’ble Supreme Court in the case of Purolator India Ltd. Vs. Commissioner of Central Excise, Delhi –III- 2015 (323) ELT 227 (SC). The revenue specially highlighted paras 14 and 18 of the said decision, which read as under: –
“14. It can be seen that the common thread running through Section 4, whether it is prior to 1973, after 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 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 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 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 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 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 terms replaced by Rule 5 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.
18. 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, the value of such excisable goods was the price at which 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 removal”. 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 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 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. Once this becomes clear, what the learned counsel for the 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 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 of removal”.”
Held by Hon’ble CESTAT
The Hon’ble CESTAT stated that whereas the clearances from the factory gate are governed by Section 4 of the Central Excise Act, 1944, the clearance from depot are governed by the Rule 4 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. The said rule read as under:-
“The value of the excisable goods shall be based on the value of such goods sold by the assessee for delivery at any other time nearest to the time of the removal of goods under assessment, subject, if necessary, to such adjustment on account of the difference in the dates of delivery of such goods and of the excisable goods under assessment, as may appear reasonable.”
The said rule clearly specifies that goods are sold from the depot then the transaction value at such depot will become assessable value. This is consistent with the definition of “Place of removal” prescribed under Section 4(3)(c) of the Central Excise Act, 1944. The said definition reads as under: –
“(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;
(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;
from where such goods are removed;”
In these circumstances, it is clear that the price at which the goods are cleared from the factory to the depot does not become the assessable value for the purpose of assessment. The Revenue’s reliance on the decision of MRF Ltd. (supra) is not correct in so far as in that case the goods were cleared from the factory premises and not from the depot and, therefore, the facts are substantially different. The decision of Tribunal in the case of Camphor & Allied Products (supra), pertains to the period prior to the introduction of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. Revenue has also relied on the decision of Hon’ble Supreme Court in the case of Purolator India Ltd. (supra), wherein Hon’ble Supreme Court has observed as follows: –
“18. 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, the value of such excisable goods was the price at which 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 removal”. 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 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 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. Once this becomes clear, what the learned counsel for the 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 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 of removal”.”
It is clear from the observation of the Hon’ble Supreme Court that the transaction value is defined under sub-clause (3)(d) of Section 4 is to be read at the time of delivery for clearance of the goods at the place of removal. Time of removal has been described as the time of clearance of the goods from the appellant’s factory or depot, as the case may be. From the above, it is clear that the Hon’ble Supreme Court’s decision does not help the case of the Revenue.
The Hon’ble CESTAT stated that the instant case is squarely covered by the decision of the Tribunal in case of Glenmark Pharmaceuticals (supra). In the said case, Tribunal has observed as follows: –
“During the period of dispute, the appellant had given quantity discount to their customers as per their quantity discount schemes and as per these quantity discount schemes, on buying certain quantity of goods, certain quantity of goods was offered free or in other words price charged was for quantity lesser than the quantity actually supplied, which has the effect of reducing the net sale price. The main contention of the department is that the deduction of quantity discount cannot be allowed, as the same, was not mentioned in the Central Excise invoices issued at the time of clearance from the factory. This plea of the department is not correct as when the goods are first stock transferred from the factory to the depot on payment of duty and are sold from the depot the quantity discount cannot be mentioned in the Central Excise invoices issued at the time of clearance of the goods from the factory. The Hon’ble Supreme Court in the case of UOI v. Madras Rubber Factory (supra) while interpreting the provisions of Section 4 of the Central Excise Act, 1944, as it stood during the period prior to 1-7-2000 and in which there was a specific provision for deduction of trade discounts from the assessable value, has held that the deduction of trade discounts known and understood at the time of removal of goods is permissible, even if the same are quantified later and in para 58 and 60 of the judgment with regard to “turnover discount” has held that though the turnover discount is determined on half yearly basis depending upon the volume of purchases made by the dealers, its deductions is permissible as it is known and understood at the time of removal of the goods, though it is quantified later. Though the new Section 4 with effect from 1-7-2000 in which the assessable value is the transaction value of the goods, does not has a specific provision for deduction of trade discounts, the concept of transaction value, by its very nature would include the deduction of trade discount and, therefore, the judgment of Hon’ble Supreme Court in the case of Union of India v. Madras Rubber Factory (supra) would be applicable. The same view with regard to turnover discount has been taken over by this Tribunal relying upon the above mentioned judgment of the Hon’ble Supreme Court in the case of Commissioner of Central Excise v. Goetze (India) Ltd. (supra). In view of this, if in this case during the period of dispute there were quantity discount schemes and the quantity discounts in the form of free quantity were given at the time of sale from depot, the same would have to be allowed, even if Central Excise invoices issued at the time of clearance of the goods from the factory do not mention the quantity discount, as the same can be mentioned only when the goods are sold from the depot. For permitting the deduction of quantity discount, what should be known and understood prior to sale is the quantity discount scheme or policy and not the exact quantum of quantity discount available to a buyer based on the discount scheme, which would be known only at the time of sale or at the end of the period specified in the discount scheme of the quantity discount is based on the quantity purchased by a buyer during a specified period. The impugned order is, therefore, not sustainable. The same is set aside. The matter is remanded to the original adjudicating authority for de novo adjudication in accordance with the ratio of judgment of the Hon’ble Supreme Court in the case of UOI v. Madras Rubber Factory (supra). The original adjudicating authority must determine as to whether during the period of dispute there was quantity discount policy announced by the appellant and whether the discounts given to their customers in respect of sales are in accordance with the discount policy. He should also consider the aspect of unjust enrichment which would be applicable if in respect of free supply quantity, duty had been recovered from the customers. The appellant’s plea that the free quantity as mentioned in the depot invoices had been cleared on payment of duty under the Central Excise invoices issued at the time of clearance from the factory may also be considered. The appeal stand disposed of as above.”
The said decision is applicable to the present dispute. Accordingly, the impugned order is set aside and the appeal is allowed.
