By TIOL News Service

NEW DELHI, AUG 26, 2015: THE question involved in this case is whether the cash discount has to be deducted from the price for arriving at the assessable value.

The Counsel for the appellant has argued that Section 4 of the Central Excise and Salt Act, 1944 as amended in 2000, has made no change in the situation qua cash discount as it obtained under the old Section 4. According to him, what has to be seen in order to arrive at the correct value of excisable goods under Section 4 is such value at the time of removal, and this being so under both the old Section and the new Section, cash discount has to be allowed as has been held in Union of India v. Bombay Tyre International Limited, - 2002-TIOL-33-SC-CX-LB, and Government of India v. Madras Rubber Factory Ltd., - 2002-TIOL-49-SC-CX-LB.

Further, according to the counsel, "transaction value" which was introduced for the first time into the amended Section 4 does not make any change with regard to the fact that such transaction value is only at the time of removal from the factory or depot, being the time of clearance of excisable goods from the factory premises or depot as the case may be. According to him, every agreement of sale entered into by the assessee with its buyers makes it known before the goods are cleared that there is to be a cash discount insofar as the appellant's goods are concerned. Therefore, this being the case, it is clear that at the time of clearance of the excisable goods from the appellant's factory, such discounted price alone has to be the value of the goods cleared from the appellant's factory even under the amended Section 4.

The Additional Solicitor General, has, on the other hand, stated that the introduction of "transaction value" into the amended Section 4 makes a world of difference and that therefore only what is actually paid ultimately is to be looked at for the purpose of valuation of the appellant's goods. If it is found that what is "actually paid" is not the discounted price, then the transaction value cannot possibly include cash discount. For this purpose, she relied upon the decision in Commissioner of Central Excise, Jaipur-II v. Super Synotex (India) Ltd. and Ors.,- 2014-TIOL-19-SC-CX.

The Supreme Court studied the Section 4 of the Central Excise Act, as it existed prior to 1973, after 1973 and before 2000 and after 2000 and observed,

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.

Has the position changed after 2000? The Supreme Court observed,

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 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: it is clear that "cash discount" has to be taken into account in arriving at "price" even under Section 4 as amended in 2000.

(See 2015-TIOL-193-SC-CX)