[Order per : Justice U.L. Bhat, President]. - These appeals arise in relation to orders passed by the Assistant Collector on four price lists, the first having been filed on 20-7-1989 and the last on 27-11-1990. The Asstt. Collector issued show cause notice indicating that trade discount of 29%, cash discount of % referred to in the price lists and the cost of wooden crates were not to be deducted from the price. The show cause notice was rebutted by the manufacturer (appellant in Appeal No. E/2522/93-A and respondent in Appeal No. E/705/93-A). The Asstt. Collector passed an order allowing trade discount of 26% out of 29% and disallowing cash discount and deduction for cost of wooden crates. In appeal, Collector (Appeals) allowed balance 3% trade discount out of 29% and % cash discount and confirmed the disallowance of cost of wooden crates. The department being aggrieved has filed an appeal in regard to the trade discount and the cash discount, while the manufacturer has filed an appeal regarding the disallowance of cost of wooden crates.

2. We have heard the learned counsel appearing for the manufacturer and the Senior Departmental Representative. The following questions arise for consideration :-

(I) Whether cash discount of is allowable?

(II) Whether deduction of 3% trade discount granted to wholesalers in regard to goods directly sold to sub-dealers is allowable?

(III) Whether deduction for cost of wooden crates is al

POINT NO. I

3. The price lists declared that cash discount of would be granted to customers who pay the price in cash within seven days of the sale. The Collector (Appeals) allowed the reduction of price list price by irrespective of whether customers actually availed the discount or not. The revenue contends that this deduction could have been allowed only to the extent to which it was actually granted to customers who availed the discount and the price generally could not be depressed to this extent. Reliance is placed on the decision of the Tribunal in R.R. Paints v. Collector of Central Excise, Ahmedabad, where it was held that cash discount is admissible deduction if passed on to the consumer. Learned counsel for the manufacturer points out that there are decisions of the Bombay and Madras High Courts to the contrary and they were not brought to the notice of the Tribunal in the earlier case. The earliest decision is that of the Bombay High Court in Jenson and Nicholson (India) Ltd. and Another v. Union of India and Others, (Bom.). Dealing with the contention of the revenue, the High Court held that cash discount as mentioned in the price list of the manufacturer must be allowed irrespective of whether it was actually availed of by the customers. This decision was followed by the Madras High Court in Union of India and Others v. S.S.M. Bros. Pvt. Ltd. and Another, (Mad.). Both these decisions were followed by the Bombay High Court in Goodlass Nerolac Paints Ltd. v. Union of India, (Bom.). We are bound to follow these decisions of the High Courts. We, therefore, hold that the cash discount of is liable to be deducted from the price list price irrespective of the fact that all the customers might not have availed the benefit of the same.

POINT NO. II

4. Letter dated 1-11-1986 of the manufacturer to its wholesalers contained the offer to sell shock absorbers to the wholesale dealers on terms and conditions indicated therein. The letter stated that sale shall be on principal to principal basis, that the dealers shall not profess to be agents for the manufacturer, that they will be given total discount of 29% on the recommended price, that 23% discount will be given initially at the time of raising the invoice and 6% will be given at the end of the year on the total value of goods purchased and cash discount of will be given for payment against delivery. As per the trade pattern, where sales are effected by the manufacturer directly to sub-dealers, the latter will be given 26% discount (23% initially plus 3% at the end of the year) and the balance 3% discount will be given to the wholesalers within whose territory the sub-dealers are operating. The dispute relates to this 3% discount given to wholesalers on sales effected directly to the sub-dealers by the manufacturer. It has to be noticed that for earlier period, the appellate authority allowed deduction of this 3% which is now in dispute.

5. Shri Vipin Handa, Senior Departmental Representative, calls this 3% discount as “overriding commission” and points out that the manufacturer in its letter dated 12-11-1986 addressed to the Asstt. Commissioner had also called it commission. He, therefore, contended that the objected 3% allowance is really commission and not trade discount and could not be deducted from the recommended price referred to in the price list.

6. In terms of the agreement and the trade pattern, it is clear that the relationship between the manufacturer and the wholesalers and the manufacturers and the sub-dealers, respectively, was on principal to principal basis and there were actual sales to the wholesaler or the sub-dealer as the case may be, and the wholesaler did not act as agent of the manufacturer for the purpose of effecting sale to sub-dealers. That the manufacturer at one stage referred to the 3% allowance as commission is not determinative since it is not the form but the substance which matters. In a similar situation, the Supreme Court in Moped India Ltd. v. Asstt. Collector of Central Excise, Nellore & Others, (S.C) held that what was referred to as commission in the agreement was really trade discount liable to be deducted from the price for arriving at the excisable value of the goods.

7. The revenue relied on the decisions in Coromandel Fertilisers Ltd. v. Union of India and Others, (S.C.) and Khaitan Fans (P) Ltd. v. Collector of Central Excise, Calcutta, (Tribunal). In Coromandel Fertilisers Ltd., it was held that the persons to whom commission was paid were appointed and acted as agents of the manufacturer for sale of the products and, therefore, the commission paid was for services rendered by them as agents and was not in the nature of trade discount qualifying for deduction as it was not given to the consumer or the trader. The Supreme Court also observed as follows :-

“It is possible that in a given case, payment of what is termed as commission may, depending on the facts and circumstances of the case in the nature of trade allowance. But every kind of trade allowance does not necessarily qualify for deduction in assessment of excise duty. Commission paid to an agent for services rendered by him in the matter of sale of the product of the appellant on behalf of the appellant on the basis of the agreement the appellant had with its selling agents cannot be considered to be in the nature of such trade discount as may qualify for deduction in the computation of the assessable value of the goods for the purpose of levy of excise duty. The commission paid to the selling agents is not a trade discount given either to the wholesale buyer or to the retail buyer, it is not given to the consumer or the trader.”

In Khaitan Fans Pvt. Ltd. case, the Tribunal held that commission paid to an agent for procuring orders is not a deductible trade discount.

8. Shri Madhav Rao, learned counsel for the manufacturer has placed reliance on a few decisions. In Electrical Products Corporation v. Collector of Central Excise, (Tribunal), the wholesaler was given a higher discount and the sub-dealers to whom some goods were sold on the advice of the wholesalers were given lower discount and the differential discount was passed on to the wholesalers. Direct despatches were made to sub-dealers for the covenience of transport and for getting the benefit of paying lower rate of sales-tax. There was no material to show that the higher discount was given to meet sale promotion expenses or that the wholesaler dealers were acting as commission agents. The Tribunal observed that “It is not unknown in the trade that in some cases the wholesale dealers direct certain sales to be made directly to ultimate consumers or sub-dealers on commission basis.” The Tribunal finally held that what was paid to the wholesalers was really in the nature of trade discount deductible for the purpose of valuation. This decision was challenged by the revenue before the Supreme Court by way of an appeal which was dismissed on merits as reported in (SC). This decision was approved and followed by the Tribunal in Sandoz India Ltd. v. Collector of Central Excise, (Tribunal), where it was observed as follows :-

“Therefore, as long as the discounts are made known prior to the removal of the goods, they are admissible deductions and, the facts of this case disclose that the discounts were declared in the price lists .....The fact that a part of the discount was given to the customer and the balance to the stockists as an overriding commission, does not, in any way affect the nature of the discount given to the stockists.”

In Raymond Woollen Mills Ltd. v. Union of India, (Bombay), the Bombay High Court held that where commission is given to an agent as a matter of trade practice as a part of the agency agreement, but not for services rendered by the agent and the commission was ascertainable and known prior to the removal of goods, the claim for deduction has to be allowed. In a similar fact situation identical to that in the present case, the Allahabad High Court in Writ Petition No. 2130 of 1971 allowed deduction for a small discount paid to the. wholesaler in regard to sales effected directly by the manufacturer to the sub-dealer.

9. The term of payment of 3% discount to the wholesaler on sales directly effected by the manufacturer to the sub-dealer was known to the trade as per trade pattern. Direct sales to sub-dealers would naturally erode sales by the wholesaler. Very often it would be convenient for the wholesaler also to require the manufacturer to sell goods directly to the sub-dealer. On account of such sales, the wholesaler has the advantage of deriving a small trade discount. There is no material collected by the adjudicating authority to show that the wholesalers acted as agents of the manufacturer or that what was being paid was really in the nature of commission for services rendered. In this view, the conclusion of the appellate authority that the 3% discount paid to the wholesaler was admissible for deduction is correct.

POINT NO. III

10. The products of the manufacturer, namely, shock absorbers, are first packed in polythene bags and then in flexible colour cartons. Six or multiple of six such cartons are packed in corrugated cartons. Four or six such corrugated cartons are packed in wooden cases and the manufactured goods are sold to wholesalers at the factory gate. When such sales are effected to wholesalers operating in nearby places, wooden cases are not used for packing. In case of sales to distant wholesalers, wooden cases are used for packing. According to the manufacturer, about 35% of the sales are to nearby wholesalers and in such instances wooden cases are not used, but the remaining sales are to distant wholesalers and in such cases wooden cases are used.

11. Learned counsel for the manufacturer contended that even if only a very small quantity of goods are packed in wooden cases [and] are sold to wholesaler at the factory gate, it means that goods are capable of being sold and are actually so sold to wholesaler at the factory gate and as such packing in wooden cases is not “necessary”. Learned counsel also contended that wooden cases are used to pack goods which are sent to dealers at distant places for the purpose of safeguarding the goods and preventing damage to the goods during their long journey. The counsel relied on the decisions in Union of India & Others v. Godfrey Philips India Ltd. & Others, (S.C.), Collector of Central Excise v. Pond’s India Ltd., (S.C.), Panyam Cements & Mineral Industries Ltd. v. C.C.E,. Madras, , Hindustan Lever Ltd. v. Collector of Central Excise, (Tribunal), Chitavalasah Jute Mills v. Collector of Central Excise, (Tribunal) and Collector of Central Excise v. Blue Star Ltd., (Tribunal). Senior Departmental Representative rebutted the submissions and contended that the Supreme Court in Government of India v. Madras Rubber Factory Ltd., (S.C.) has considered all the important earlier decisions and if the facts in the present case are examined in the light of the test laid down, the decision of the lower authority has to be upheld. He contended that the decisions of the Tribunal relied on by Shri Madhav Rao are pre-MRF case decisions. He also referred to the decisions of the Tribunal rendered after MRF case, namely, Geep Industrial Syndicate Ltd. v. Collector of Central Excise, Allahabad, (Tribunal) and Appeal No. E/1044 & 1045/84-A (Order No. 604-606-95A, dated 30-10-1995). [reported in (Tri)].

12. The decisions in Godfrey Philips India Ltd. case and Pond’s India Ltd. case were considered by the Supreme Court in Madras Rubber Factory Ltd. case. The Supreme Court has explained in the latter case the true import and principles laid down in the two former decisions. See paragraphs 31 and 37 of the judgement. The Supreme Court also extracted significant passages from the judgments in Bombay Tyre International and Geep Industrial Syndicate Ltd. In Bombay Tyre International it was observed that “the degree of packing which is necessary for putting the excisable article in the condition in which it is generally sold in the wholesale market at the factory gate is the degree of packing whose cost can be included in the value of article for the purpose of excise duty.” The court also noticed that this principle has been uniformly accepted and applied in the subsequent decisions of the court, though there has been some divergence and emphasis in some of them. The court referred to the three separate judgments in Godfrey Philips India Ltd. case and noticed that one of the judgments indicated that corrugated fibre board cartons were not necessary for selling the cigarettes in the wholesale market at the factory gate and they were employed for the purpose of only avoiding damage and injury during transit. It was also noticed that the same was the factual position in Geep Industrial Syndicate Ltd. case, . The Supreme Court extracted certain observations from the two judgments in Pond’s India Ltd. case in one of which it was observed that “The question is not for what purpose a particular kind of packing is done but the test is whether a particular packing is done in order to put the goods in the condition in which they are generally sold in the wholesale market at the factory gate and if they are generally sold in the wholesale market at the factory gate in certain packed condition whatever may be the reason for such packing, the cost of such packing would be includible in the value of the goods for assessment to excise duty.” The other judgment indicated that “one should go by the conduct of the parties and the nature of the packing in which the goods generally are - not, can be - placed in the wholesale market and what was the condition of packing considered by the manufacturers, having regard to the nature of the business, the type of goods concerned, the unit of sale in the wholesale market and other relevant considerations, to be generally necessary for placing the goods for sale in the wholesale market at the factory gate.” The Supreme Court in Madras Rubber Factory Ltd. case approved the tests evolved in both the judgments in Pond’s India Ltd. case which are the same in essence and are consisent with the conditions evolved in Bombay Tyre International. The court also agreed with the understanding of Ranganathan, J. of the majority opinion in Godfrey Philips India Ltd. and the opinion in Geep Industrial Syndicate.

13. The Supreme Court in Madras Rubber Factory Ltd. case noticed that the conclusion in Godfrey Philips India Ltd. case and Geep Industrial Syndicate case turned upon the finding as to the factual situation obtaining therein and the two opinions in Ponds India Ltd. not only followed the test in Bombay Tyre International but reiterated it in clear terms. The court reiterated the test as follows :-

“Whether packing, the cost whereof is sought to be included is the packing in which it is ordinarily sold in the course of a wholesale trade to the wholesale buyer. In other words, whether such packing is necessary for putting the excisable article in the condition in which it is generally sold in the wholesale market at the factory gate ............Further, even if the packing is ”necessary" in the above sense, its value will not be included if the packing is of a durable nature and is returnable by the buyer to the assessee."

The court also emphasised that “whether in a given case the packing is of such a nature as contemplated by the aforesaid test, or not, is always a question of fact to be decided having regard to the facts and circumstances of a given case.”

14. We are bound by all the decisions of the Supreme Court. The previous decisions of the Supreme Court have to be understood in the manner in which the Supreme Court understood them in the Madras Rubber Factory Ltd. case. We cannot understand the earlier decisions in a manner inconsistent with the understanding thereof in the latter case. In fact, the latest decision of the Supreme Court throws new light on the principles laid down in the pervious judgment. Therefore, the pre-MRF decisions of the Tribunal are not really helpful. On the other hand, the post MRF decisions of the Tribunal are helpful.

15.  We now turn to the facts of the case. Admittedly, 35% of the sales to wholesalers at the factory gate are of goods not packed in wooden boxes and the remaining sales are to the wholesalers at the factory gate of goods packed in wooden cases. We are not able to agree with the submission made by the learned [counsel] for the manufacturer that the percentage of sales is of no significance at all. We are also not able to agree with the submission that even if only one sale is effected at the factory gate of goods not packed in wooden case, the price for such sale should be accepted for the purpose of valuation. These submissions ignore the crucial expressions in Section 4(1)(a) of the Act, namely, “price at which such goods are ordinarily sold.” If one sale or a few sales are effected to wholesalers at the factory gate of goods packed in corrugated cases and not packed in wooden boxes, it cannot be said that the goods are “ordinarily sold” in such packing to the wholesalers at the factory gate. Considering the sale pattern of the manufacturer in this case, going by the percentage of sales, it has to be held that “ordinary sale” is of goods packed in corrugated cartons which are in turn packed in wooden cases. In other words, generally speaking it is only in that condition of packing that goods are ordinarily sold in the wholesale trade at the factory gate and from this perspective, it has to be stated that packing in wooden boxes is “necessary” to make the goods marketable in the wholesale trade at the factory gate. The purpose of using wooden boxes as indicated by the manufacturer is that they are necessary to protect the goods from damage during long transit. This, of course, is not a directly relevant test. Its importance is only to contradict the stand of the department that such packing is “necessary” to make them marketable in the wholesale trade at the factory gate. Even if the purpose of such packing is to safeguard the goods during transit, such packing may be “necessary” to make the goods marketable in the wholesale trade at the factory gate. On the facts of the case, it can be seen that bulk of the sales in the wholesale trade at the factory gate are of goods packed in wooden cases. It must follow that such packing is “necessary” in the sense in which it has been explained in MRF Ltd. case.

16. We, therefore, hold that the cost of the secondary packing has to be included in the assessable value.

17. In the result, we dismiss both the appeals and confirm the order passed by the Collector.