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Commissioner Of Central Excise, Calcutta-Ii v. Tisco Ltd. .
Factual and Procedural Background
The respondent company submitted two price lists for balls and roller bearings for the year 1991-1992. Price List No. 29.P-II/TISCO/91-92 reflected the wholesale prices proposed to be charged generally in the market, while Price List No. 8.P-II/TISCO/91-92 stated the prices proposed for three specific industrial customers—Tata Engineering and Locomotive Company (TELCO), Tata Robins Frazer Ltd., and Stark Motors. Although the latter two were quoted the same wholesale price, TELCO was offered a lower price.
The Assistant Collector of Central Excise issued a show-cause notice asking why the price charged to TELCO should not be aligned with the wholesale price. By order dated 30 March 1992, the Assistant Collector rejected the company’s justification, holding that no material had been produced to show that TELCO formed a distinct class of buyer or that there was any established trade practice warranting a lower price.
The company appealed to the Collector (Appeals), who overturned the Assistant Collector’s decision on the ground that each buyer could constitute a separate class so long as it was not a “related person.”
The Revenue then appealed to the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT), which dismissed the appeal in a brief, one-paragraph order dated 1 May 1998. The present appeal by the Revenue challenges that dismissal.
Legal Issues Presented
- Whether TELCO could legitimately be treated as a distinct “class of buyer” under the proviso to Section 4(1)(a) of the Central Excises and Salt Act, 1944, so as to justify a lower assessable value for excise purposes.
- Whether, in the absence of evidence of a prevailing trade practice or other differentiating factors, the lower price charged to TELCO could be accepted as the “normal price” for valuation under Section 4.
Arguments of the Parties
Appellant (Revenue)
- Merely having a contractual price with TELCO does not make TELCO a separate class of buyer.
- For the proviso to Section 4(1)(a) to apply, the assessee must show both an established trade practice and the existence of a distinct class of buyer; no such evidence was produced.
- The Collector (Appeals) and the Tribunal misapplied the statutory provisions by assuming that every non-related buyer could be treated as its own class.
Respondent Company
- TELCO is an original equipment manufacturer and therefore constitutes a different class of buyer from wholesale traders.
- The lower contractual price to TELCO should be deemed the normal price under Section 4(1)(a)(i) because TELCO is not a related person.
Table of Precedents Cited
No precedents were cited in the provided opinion.
Court's Reasoning and Analysis
The court emphasized that Section 4 establishes a general rule: the assessable value is the price at which goods are ordinarily sold in the wholesale trade when the buyer is not related and price is the sole consideration. The lower price to TELCO departed from the normal wholesale price and therefore fell within the proviso to Section 4(1)(a), which is an exception that applies only when two cumulative conditions are met:
- There exists a normal trade practice of selling similar goods at different prices to different classes of buyers.
- The purchaser in question belongs to such a distinct class of buyers.
The court found that the respondent had neither pleaded nor proved any trade practice that would place TELCO in a separate class. It rejected the Collector (Appeals)’ proposition that every individual buyer automatically constitutes a separate class so long as it is not a related person, calling that view a misstatement of law. The Tribunal was likewise faulted for adopting this erroneous legal proposition without examining the factual record. Because no cogent material demonstrated that TELCO was a distinct class of buyer, the lower price could not be treated as the normal price for excise valuation.
Holding and Implications
Appeal Allowed; the orders of the Collector (Appeals) and the CEGAT are set aside.
Consequently, the Assistant Collector’s valuation—treating the wholesale price as the normal price for sales to TELCO—stands restored. The decision affects only the parties to the case and does not articulate any new legal precedent beyond reaffirming the need for evidence of trade practice and class differentiation under Section 4.
Order
1. This appeal is against the order dated 1-5-1998 passed by the Customs, Excise and Gold (Control) Appellate Tribunal (in short “CEGAT”).
2. Briefly stated the facts are as follows:
The respondent herein filed two price lists — one bearing No. 29.P-II/TISCO/91-92 and another bearing No. 8.P-II/TISCO/91-92. Both the price lists were in respect of balls and roller bearings of various specifications. The first price list contained the prices at which the respondent Company proposed to sell in the wholesale market. The second price list contained the prices at which they proposed to sell the same items to M/s Tata Engineering and Locomotive Company (in short “TELCO”), M/s Tata Robins Frazer Ltd. and M/s Stark Motors. In the second price list the price to M/s Tata Robins Frazer Ltd. and M/s Stark Motors was shown to be the same as the wholesale price however the price to M/s Tata Engineering and Locomotive Company was shown to be lower.
3. A show-cause notice was issued to them as to why the prices to TELCO should not be fixed at the same price as in respect of the sale to the wholesale market and to the other two companies.
4. The appellant filed a reply to the show-cause notice. Unfortunately, neither side has placed this reply on record of this Court. However, from the order of the Assistant Collector dated 30-3-1992 it appears that the only contention taken was that the price in Part II was as per the contract and therefore it should not be approved at the same rate as the price in Part I. It also appears, from the order, that at the personal hearing a further contention was taken that there were two types of customers viz. trade and original equipment manufacturers. It was contended that in the case of traders, Part I price was charged whereas in the case of original equipment manufacturers the price on the basis of contract was being charged. The Assistant Collector held, and in our view correctly, that for application of Section 4(1)(a) of the Central Excises and Salt Act, 1944, the Company had to show that there was a normal trade practice and that TELCO was a different class of buyer. Material had to be placed to show these aspects. Merely on the basis of contracts it could not be said that TELCO was a different class of buyer. The Assistant Collector noted that all the three companies were industrial companies which were original equipment manufacturers. No material appears to have been placed to show why different price was sought to be charged from TELCO only.
5. The respondent went in appeal to the Collector (Appeals). The memo of appeal is not before us. However, the submission made before the Collector (Appeals) has been set out in his order. The only submission which appears to have been made was that TELCO was a different class of buyer and that therefore they were entitled to charge a different price from TELCO. The Collector (Appeals) allows on the following reasoning:
“On close study, I find that the appellant had submitted the impugned price lists in Part II meant for sale at different prices to different classes of buyers. It is a fact that the expression ‘class of buyers’ is not defined under Section 4 of the said Act. But keeping in view the definition of ‘wholesale trade’ in terms of Section 4(4)(e) it can be held that dealers, industrial consumers, government, local authorities, etc. constitute different class of buyers. As per stipulations of Section 4(1)(a)(i) if an assessee sells its goods at different prices to different classes of buyers such prices would be deemed to be the normal prices of such goods if such buyers are not related persons. I like to stress on the connotation, ‘not being related person’ within the bracket immediately after different classes of buyers stipulated in Section 4(1)(a)(i), and with a view to deny the facility of having Part II prices, the approving authority should have some clinching evidence to the effect that such buyers are related persons. In the purported case the Assistant Collector could not establish any relationship between M/s TELCO and the appellant. Moreover, whether a particular buyer constitutes a class of buyers or not will depend upon trade practice. Each buyer is a class within itself since he can be distinguished from other buyers. Hence, prices charged to a buyer treating it as a different class of buyers should be normal prices until and unless there is evidence to hold that such buyer is a related person of the assessee.”
6. We are unable to agree with the reasoning. Merely because parties are not related persons does not mean that each buyer becomes a class within itself. The normal rule, under Section 4, is that the value which shall be deemed to be the price at which such goods are ordinarily sold by the assessee in the wholesale trade, where the buyer is not a related person and the price is the sole consideration for sale. Admittedly, in this case the normal price was the price in List 1. This was the price at which the goods were proposed to be sold in the wholesale trade. The proviso to this section is an exception to the general rule. The proviso comes into play in cases (a) where there is a normal practice in the wholesale trade in such goods, and (b) such goods are sold by the assessee at different prices to different classes of buyers. To claim benefit of this proviso, a trade practice must be averred and shown to exist and it must be shown that there is a different class of buyer. As set out above, the Collector (Appeals) notes:
“Whether a particular buyer constitutes a class of buyers or not, will depend upon the trade practice.”
Yet the Collector (Appeals) then ignores the fact that there is no averment nor proof of any trade practice. Further, the observations of the Collector (Appeals) that the price charged to a buyer treating it as a different class of buyer should be the normal price unless there is an evidence to hold that such buyer is a related person of the assessee, is a wrong proposition of law. Cogent reasons must be shown as to how the buyer is a different class of buyer. There can be various reasons why a buyer becomes a different class of buyer. A bulk purchaser or persons situated in different locations or different industries, for example, one being a car-manufacturing industry and another being a heavy-duty-machinery-manufacturing industry or a third being an electric-motor-manufacturing industry could all be different classes of buyers. But these are facts which must first be averred and then proved. It is only on the basis of facts averred and shown that a conclusion can be reached that the sale is to a different class of buyer. In this case except for broadly stating that the sale is to a different class of buyer, the Collector (Appeals) has not given any reason as to how he concludes that TELCO was a different class of buyer. The only reason for concluding that TELCO was a different class of buyer appears to be because a different price was charged from it. That by itself is not sufficient. On the facts of this case it is clear that there was no material to show that TELCO was a different class of buyer.
7. The appellant herein carried the matter in appeal to the Tribunal which appeal has been dismissed by the impugned judgment. The impugned judgment is virtually a one-paragraph judgment which reads as follows:
“4. After hearing the learned JDR, we observe that the Commissioner (Appeals) in the impugned order has observed that if an assessee sells their goods at different prices to different classes of buyers, such prices would be deemed to be normal prices of such goods, if such buyers are not related persons; that the Assistant Commissioner could not establish any relationship between M/s TELCO and the assessee. The Commissioner (Appeals) also observed that whether a particular buyer constitutes a class of buyers or not, will depend upon the trade practice. Each buyer is a class by itself since he can be distinguished from other buyers. The Commissioner (Appeals), therefore, set aside the Assistant Commissioner's order. The very fact is that the law provides for filing of different prices for different classes of buyers and also the different forms for filing the price lists. There is no reason not to accept the price filed in Part II until and unless it is shown that the low prices have been charged on extraneous circumstances.”
8. The Tribunal, has laid down a general proposition of law. But it has not applied its mind whether that law can be applied to the facts of this case. The Tribunal also does not indicate how and what material was there to show that TELCO was a different class of buyer.
9. Both the orders of the Collector (Appeals) and the Tribunal are unfortunately bereft of any reasoning. Neither of them can be sustained. Accordingly, on facts of this case, the appeal is allowed. The impugned order and the order of the Collector (Appeals) are set aside. There will be no order as to costs.
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