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2019 Supreme(SC) 417

SUPREME COURT OF INDIA
S.A. BOBDE, DEEPAK GUPTA, VINEET SARAN, JJ.
M/s D.J. Malpani – Appellant
Versus
Commissioner of Central Excise, Nashik – Respondent
CIVIL APPEAL No.5282 OF 2005
Decided on : 09-04-2019

Advocates Appeared:
For Appellant(s) : Mr. Praveen Kumar, AOR Mr. K. Radhakrishnan, Sr. Adv. Ms. Nisha Bagchi, Adv. For Mr. B. Krishna Prasad, AOR
For Respondent(s): Mr. K. Radhakrishnan, Sr. Adv. Ms. Nisha Bagchi, Adv. For Mr. B. Krishna Prasad, AOR Mr. U.A. Rana, Adv. Mr. Himanshu Mehta, Adv. For M/s Gagrat And Co, AOR

IMPORTANT POINT
The Dharmada collected by the appellant which is clearly an optional payment made by the buyer cannot be regarded as part of the transaction value for the sale of goods.

Headnote:(a) Central Excise Act, 1944 – Section 2(h) and 4(3)(d) – Amount paid at the time of sale transaction for a purpose other than the price of the goods – Cannot form part of transaction value – Any payment made along side a transaction cannot be treated as consideration for the goods. (Para 14)
       (b) Central Excise Act, 1944 – Section 2(h) and 4(3)(d) – Dharmada – Paid by customers voluntarily for charity – Held, such payment not made in consideration of the transfer of goods – Such amounts meant to be credited to charity and not forming part of the income of the assessee – Cannot be included in transaction value or assessable value of the goods. (Para 23)
       (1979) 1 SCC 496; (1977) 2 SCC 790 : (1977) 107 ITR 776 – Relied upon
       93 ITR 27 – Cited with approval
       2003 (158) ELT 550 (SC); 2002 (146) ELT 3 (SC) – Distinguished
       Facts of the case:
       While selling goods, the appellant-assessee charged the customers invoices for the price of goods plus Dharmada, a charitable donation. According to the appellant, the Dharmada was paid voluntarily by customers and was meant for charity. It was accordingly credited to charity.
       A show cause notice was issued by the Commissioner of Central Excise, Aurangabad under Section 4 of the Act calling upon the appellant to show cause as to why penalty under Section 173Q and interest under Section 11AA should not be levied. After hearing the appellant, the Deputy Commissioner held that Dharmada cannot be considered as trading receipts and was not part of the assessable value. Therefore, no duty was payable on the component of Dharmada.
       In an appeal filed by Revenue, the Commissioner (Appeals), however, held that the Dharmada was liable to be included as a part of the assessable value and therefore the goods were liable to be assessed on the basis of their price plus Dharmada.
       The Central Excise and Service Tax Appellant Tribunal (for short “CESTAT”), in an appeal filed by the appellant, partly allowed the appeal and held that the duty amount needs to be recalculated. The CESTAT however rejected the appellant’s contention that Dharmada was not part of the transaction value.
       A Division Bench of Supreme Court has referred the following question to this larger Bench:
       “Whether the Dharmada collected by the appellant which is clearly an optional payment made by the buyer can be regarded as part of the transaction value for the sale of goods.”
       Finding of the Court:
       The Dharmada collected by the appellant which is clearly an optional payment made by the buyer cannot be regarded as part of the transaction value for the sale of goods.
       Result: Appeal allowed.

JUDGMENT :

S.A. BOBDE, J.

The appellant-assessee manufacture goods falling under Chapter 24 of the Schedule of The Central Excise Act, 1944 (hereinafter referred to as “the Act”). While selling goods, the appellant-assessee charged the customers invoices for the price of goods plus Dharmada, a charitable donation. According to the appellant, the Dharmada was paid voluntarily by customers and was meant for charity. It was accordingly credited to charity.

2. However, the Superintendent, Central Excise, Nashik issued show cause notices and raised a demand of duty in respect of Dharmada, claiming it was part of the price for the sale of manufactured goods and included it for computing assessable value.

3. Initially, the Adjudicating Authority held that the Dharmada component was not part of the trading receipts and could not be included in the assessable value and dropped the demand for excise duty and the penalty.

4. However, another show cause notice dated 3.8.2001 was issued by the Commissioner of Central Excise, Aurangabad under Section 4 of the Act calling upon the appellant to show cause as to why penalty under Section 173Q and interest under Section 11AA should not be levied. After hearing the appellant, the Deputy Commissioner held vide order dated 26.02.2002 that Dharmada cannot be considered as trading receipts and was not part of the assessable value. Therefore, no duty was payable on the component of Dharmada.

5. Thereafter, in an appeal filed by Revenue, the Commissioner (Appeals), however, held that the Dharmada was liable to be included as a part of the assessable value and therefore the goods were liable to be assessed on the basis of their price plus Dharmada.

The Central Excise and Service Tax Appellant Tribunal (for short “CESTAT”), in an appeal filed by the appellant, by judgment dated 6.1.2005 partly allowed the appeal and held that the duty amount needs to be recalculated. The CESTAT however rejected the appellant’s contention that Dharmada was not part of the transaction value. The CESTAT purported to follow the judgment of this Court in Collector vs. Panchmukhi Engineering Works, 2003 (158) ELT 550 (SC), whereby this Court held that Dharmada charged by the assessee is liable to be included in the assessable value.

6. In the appeal filed by the appellant before a Division Bench of this Court, it was contended that the decision in Panchmukhi (supra) followed an earlier decision of Tata Iron & Steel Co. Ltd. vs. Collector of Central Excise, Jamshedpur, 2002 (146) ELT 3 (SC) which did not apply to the present case at all. The Tata Iron & Steel case was a case where steel plants added a surcharge to the ex-works price at the instance of a committee under the Iron and Steel (Control) Order, 1956. This surcharge was added to generate money for a steel development fund to implement schemes entrusted to the committee by the Central Government. The surcharge went to the committee for use in its various schemes and for the expenditure incurred towards discharge of the committee’s functions. Thus, the question before this Court was if surcharge being a charge that was compulsorily payable by the customers could be considered as a part of the price i.e. the assessable value.

This Court held that the surcharge was a part of the price fixed by the committee under the statutory provisions. The appellant’s contention was that the decision in Panchmukhi (supra) which merely followed the decision in Tata Iron & Steel (supra) was no authority for the proposition that Dharmada being a donation for charitable purposes was liable to be included in the assessable value.

7. In addition, the appellant contended that this Court has clearly held in the case of The Commissioner of Income Tax (Central) Delhi, New Delhi vs. Bijli Cotton Mills (P) Ltd. Hathras, District Aligarh, (1979) 1 SCC 496 that amounts received for Dharmada and earmarked for charitable purposes are amounts received by the assessee under an obligation to spend the same for cha

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2019 Supreme(SC) 417

SUPREME COURT OF INDIAS.A. BOBDE, DEEPAK GUPTA, VINEET SARAN, JJ.M/s D.J. Malpani – AppellantVersusCommissioner of Central Excise, Nashik – RespondentCIVIL APPEAL No.5282 OF 2005Decided on : 09-04-2019

IMPORTANT POINTThe Dharmada collected by the appellant which is clearly an optional payment made by the buyer cannot be regarded as part of the transaction value for the sale of goods.

Cases Referred (4)

SUPREME COURT OF INDIA
S.A. BOBDE, DEEPAK GUPTA, VINEET SARAN, JJ.
M/s D.J. Malpani – Appellant
Versus
Commissioner of Central Excise, Nashik – Respondent
CIVIL APPEAL No.5282 OF 2005
Decided on : 09-04-2019

IMPORTANT POINT
The Dharmada collected by the appellant which is clearly an optional payment made by the buyer cannot be regarded as part of the transaction value for the sale of goods.