Holding

Only the excise duty payable on the finished pump is deductible; duty paid on the electric motor component is not, and only the discount to wholesalers not providing after‑sales service qualifies as a trade discount under Section 4.

Summary

Kirloskar Brothers Ltd., a manufacturer of power‑driven (monoblock) pumps, purchased electric motors on which excise duty had already been paid and used them as components. The Assistant Collector of Central Excise assessed additional duty, holding that the duty paid on the motors could not be deducted from the assessable value of the pumps and that only a uniform trade discount could be allowed. The Appellate Collector allowed deduction of the motor duty and of a 30% trade discount given to area dealers, but the Central Government, exercising its power under Section 36(2), set aside that order and restored the Assistant Collector’s assessment. The High Court upheld the Government’s view. On appeal, the Supreme Court held that under the explanation to Section 4 of the Central Excises and Salt Act, only the duty payable on the finished article (the pump) may be deducted; duty paid on a component such as an electric motor is not deductible for assessing value. Moreover, only the trade discount given to wholesalers not providing after‑sales service is admissible; discounts to area dealers who render after‑sales service are excluded. Consequently, the appeal was dismissed with costs.

Issues considered

The duty paid on electric motors used as components can be deducted while computing the assessable value of the finished pump under Section 4 of the Central Excises and Salt Act, 1944.
Whether the 30% trade discount granted to area dealers (some providing after‑sales service) is admissible as a trade discount for the purpose of determining assessable value under Section 4.
The interpretation of Notification No. 84/72‑CE (as amended by No. 113/72) regarding exemption of duty on power‑driven pumps and its relevance to assessable value.

Legislation cited

Central Excises and Salt Act, 1944s. 36(2), s. 4
Indian Tariff Act, 1934s. 2A

Subjects

assessable valueexcise dutycomponent duty deductiontrade discountSection 4Section 36(2)Notification 84/72‑CEpower‑driven pumpsafter‑sales service

Judgment

KIRLOSKAR BROTHERS LTD., DEWAS (M.P.) A
v.
UNION OF INDIA AND ORS.

MARCH 10, 1992

[S. RAN GANATHAN, V. RAMASWAMI AND YOGESHWAR B
DAYAL, JJ.]

Central Excises and Salt Act, 1944: Section 4-Explanation (prior to
Amendment) and Section 36(2).
c
Excise Duty-Central Government's Notification No. 84/72-CE dated
17.3.72 as amended by Notification No. Jl3/72 dated 22.3.72-Power driven
and monoblock pumps-Electric Motors purchased and used in manufacture
of pumps-Excise duty paid on Electric Motors-Whether deductible in arriv-
ing at assessable value.
D
Trade discount-Discount given to distributors providing after sales
service-Also discount given to wholesalers not providing after sales ser-
vice-Whether entitled for deduction from excise value.

The appellant-Company was manufacturing power-driven pumps E
and monoblock pumps. It was purchasing electric motors from another
---< company and using them in the manufacture of these pumps. The Super-
intendent of Central Excise issued show cause notices to the appellants for
recovery of short levy of duty relating to the period from 17th March, 1972
_...... to 31st March 1973 stating that (1) thei:e was less determination of the
assessable value of pumps due to non-inclusion of Central Excise duty paid F
on electri.c motors used in the manufacture or pumps and that (2) there
,1 was deduction of irregular trade discount on wholesale cash price while
,,1.... determining the assessable value of the articles in question.

The Assistant Collector directed the appellant to pay the duties short
levied holding that the excise duty paid by the appellant on electric motors G
fitted to the pumps could not be deducted while computing the assessable
value or the pump sets for purposes of assessment and that the wholesale
':>< cash pri.ce minus the trade discount, which is uniformly given to all
wholesale dealers, would represent the assessable value for assessment
purposes. H
81
82 SUPREME COURT REPORTS (1992) 2 S.C.R.

A Against the orders of the Assistant Collector the appellant preferred
an appeal before the Appellate Collector who allowed the appeal and
quashed the demand notices holding (i) that the assessable value of the
pumps had to be arrived at after deduction from the wholesale cash price
of the excise duty payable not only on the pumps which are manufactured
B but also the excise duty paid on the electric motors which were used as a
component of the pumps and (ii) that in determining the assessable value
of the PD pumps a discount of 30 per cent declared by the appellant and
allowed to
.
~
wholesale dealers was liable to be deducted from the wholesale
cash price of the pumps under the provisions of the section 4 of the Central
Excises and Salt Act, 1944.
c
In exercise of the powers conferred on it under section 36(2) of the
Act the Central Government suo moto issued a show cause notice dated >--
21st June, 1976 to the appellant proposing to set aside the order of the
Appellate Collector and restore the orders of the Assistant Collector
D stating that the Appellate Collector has erred in his decision. The appel·
lant filed its reply to the IJOtice and also made its submissions during the
course of personal hearing. After considering the appellant's reply as well
as points urged by it during the course of personal hearing the Central
Government set aside the Appellate Collector's order and restored the
Assistant Collector's orders.
E
The appellant filed a writ petition in the Madhya Pradesh High
Court challenging the Central Government's order contending that the

F
Central Government erred in setting aside the order of the Appellate
Collector and in restoring the orders of the Assistant Collector. The High
Court held that the Explanation to Section 4 of the Act provides for
-
deduction of trade discount and the amount of duty payable at the time of
removal of the article from the factory. The 'duty' referred to in the
explanation is the duty payable on the product which is manufactured and
does not refer to the duty paid on the raw material or the component of
the product manufactured. The High Court agreed with the order of the
G Central Government on the deduction on trade discount and rejected the
app..lllant's contention that the excise duty paid on the component parts
could not be treated as manu~acturing cost and that it was not competent
for the Government to levy excise duty on excise duty paid.

H In appeal to this Court it was contended on behalf on the appellant
KIRLOSKAR BROS. v. U.0.1. 83

. _,J (1) that while computing the assessable value the duty paid on electric A
motors for purposes of manufacturing monoblock pumps was also liable
to be excluded; (2) that the Central Government ignored the _Notification
No. 84n2-CE dated 17.3.1972 as amended by Notification No. 113/72 dated
22.3.72; and (3) that besides the depots of the appellant there are other,
five independent wholesalers and the Central Government should not have
B
>...__ ignored the trade discount allowed to them.

Dismissing the appeal, this Court,

HELD: 1. It is clear from the Explanation to Section 4 of the Central
-"-;L Excises and Salt Act, 1944 that while computing the assessable value the c
deduction has to be allowed apart from trade discount to the amount of
duty payable at the time of removal of the article chargeable with duty from
. --(
the factory. Here the article concerned was the 'pump' which had an
electric motor which was duty paid. But what was deductible while assess-
ing the assessable value was merely the excise duty payable on the 'pump'
and not the excise duty already paid on the electric motor which was merely D
a component. [98C-D]

Mis Name Tulaman Manufacturers Pvt. Ltd., Hyderabad v. Collector
of Central Excise, Hyderabad, [1989) 1. S.C.C. 172, referred to.

-...(.
2. It is clear from the Government Notification that while charging E
duty after computing the assessable value, the appellant will be entitled to
· reduction of duty paid on the electric motors from the over all excise duty
payable on the 'pump'. The value of the excise duty paid on the electric
motor is not deductible while arriving at the assessable value under
Section 4(a) of the Act. This becomes further clear from the wording of the F
second proviso to the Notification which contemplates where the duty of
J.
excise on power driven pumps becomes less than the excise duty paid on
).._
the electric motor then no part of the excise duty is liable to be refunded
to the manufacturer. Therefore-the purpose of the first proviso and the
second proViso of the Notification is only to the calculation of excise duty
payable and has no relevance to the calculation of assessable value of the
G
articles manufactured when it is cleared from the factory. [lOOC-E]

)<...
3. It is clear from the submission made by the appellant itself before
the Central Government that the discount to area distributors was also in
consideration for providing after sales service which is not required to be H
84 SUPREME COURT REPORTS [1992) 2 S.C.R.

A taken into account while dealing with trade discount within the meaning
of explanation to Section 4(a) of the Act. Therefore the Central Govern-
ment rightly did not take intQ account such area distributors who may have
to provide after sales service. The trade discount given to such wholesalers
who were under no obligation to provide after sales service is the relevant
trade discount given to the wholesalers. [96E-G]
B
A.K Roy & Anr. v. Voltas Ltd., (1973) 2 SCR 1089, referred to.

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1773 of
1981.
c From the Judgment and Order dated 27.11.1980 of the Madhya
Pradesh High Court in M.P. No. 134of1977.

S.Murlidhar and M.S.Ganesh for the Appellant.

D K.T.S. Tulsi, Addi. Solicitor General, P. Parmeshwaran and Dalip
Tandon for the Respondents.

The Judgment of the Court was delivered by

YOGESHWAR DAYAL, J. This Civil Appeal arises from the order
E dated 27th November, 1980 passed by the Division Bench of the Madhya
· Pradesh High Court in proceedings under Article 226 of the Constitution
of India. The proceedings under Article 226 of the Constitution were
directed against an order dated 19th January, 1977 passed by the Govern-
ment of India in exercise of the powers conferred upon them under Section
36 of the Central Excises and Salt Act, 1944 (hereinafter. called 'the Act').
F
The proceedings before the Central Government arose out of the
review of an order in appeal passed by the Appellate Collector of Central ~
Excise, New Delhi dated 14th July, 1975:The Appellate Collector by the -"'\
aforesaid order had accepted various appeals filed by M/s. Kirloskar
G Brothers Limiterl; appellant betore us against various orders passed by the
Assistant Collector Central Excise, Indore.

· The material facts giving rise to this litigation are as follows :-

The appellant carries on business of manufacturing power-driven
H pumps and monoblock pumps at Dewas. For manufacturing mono block
86 SUPREME COURT REPORTS (1992) 2 S.C.R.

A relative of the manufacturer and if he is charged specially low
price, the price charged would not constitute the wholesale cash
price for levying the excise duty. The maximum trade discount
allowed to a particular class of wholesale dealers which is
mostly consisted of their own selling depots, therefore, does
not represent the trade discount in its true sense in ter~ of
B Section 4 according to which the trade discount has to be
allowed at a uniform rate and not arbitrarily. Therefore, the
fixation of wholesale cash price after allowing the maximum
trade discount to a particular type of wholesale dealers cannot
be treated as a transaction made at arms length in an ordinary
c· course of business and, therefore, not in keeping with
provisions of Section 4 of the Act and consequently cannot
represent the correct wholesale cash price in term5 of Section
4 the Act for assessment purposes.".

The Assistant Collector held that the wholesale cash price minus the
D trade discount, which is uniformly given to all wholesale dealers, would
represent the assessable value for assessment purposes. Accordingly the
Assistant Collector directed that duties short levied, as pointed out in the
show cause notices, should be paid by the appellant.

E Aggrieved by the orders of the Assistant Collector the appellant
preferred an appeal before the Appellate Collector who held that the
assessable value of the pumps had to be arrived at after deduction from
the wholesale cash price of the excise duty payable not only on the pumps
which are manufactured but also the excise duty paid on the electric motors
F which were used as a component of the pumps. The Appellate Collector
further held that in determining the assessable value of PD pumps a
discount of 30 per cent declared by the appellant arid allowed to wholesale
dealers was liable to be deducted from the wholesale cash price of the -\
pumps under the provisions of Section 4 of the Act. In this view of the ~
matter the Appellate Collector allowed the appeals and quashed the
.G demand notices. While allowing the appeals the Appellate Collector, deal-
ing with the deduction of trade discount observed as follows:-

"With regard to the second issue i.e. admissibility of trade
discount of 30% declared by the appellants and approved by
H the jurisdictional Central Excises officer, it was contended by
KIRLOSKAR BROS. v. U.0.1. {DAYAL, J.] 87

the appellants that according to the pattern of their sale they A
had appointed 16 area dealers for sales of their products over
~- a particular area. These area dealers had also appointed sub-
dealers within their respective jurisdiction. Thus where the
sales were made by the area dealer himself the full discount of
30% was· allowed to him while if the goods were despatched
on the advice of the area dealer to any of his sub-dealer, the
B
discount adviced by him to be granted to _the sub-dealers was
'.:....__ passed on to the sub-dealers while the discount remaining out
of the 30% was passed on by a credit voucher to the area dealer.
In either case the full discount of 30% was being passed on to
the trade on all wholesale transactions. The above contention c
- -...___ -"'- of the appellants was verified from the sales invoices produced
by them in respect of .wholesale transactions and it was noticed
·that the above contention of the appellants is correct. It was
also noticed that some sales were also made in small lots by
the appellants to the dealers falling outside the jurisdiction of
D
the area dealers. These sales represented 1% to 9.7% of the
total sales and could be regarded as sales to retailers. In their
case the discount passed on was less than 30% discount allowed
in the case of wholesale dealers. It was explained that in view
of the fact that such dealers did not have the facility and the
technical know-how for providing after sale service, the discount E
allowed to them was lesser than that allowed to the dealers
(wholesale dealers) who were required to afford the services after
~
sales. However, in view of the fact that such sales are meager
and are in much smaller lots, they did not materially change

- the situation."

(emphasis supplied.)
F

).
When this order came to the notice of the Central Government the
;... - Central Government suo moto issued show cause notice to the appellant
proposing to set aside the order of the Appellate Collector, which ap- G
peared to it to be not correct in law, and restore the order passed by the
Assistan~ Collector of Central Excise, Indore. The reasons for the
proposed revision were contained in the show cause notice dated 21st June,
~976, the relevant part of which, for facility of understanding, is reproduced
hereunder:· H
88 SUPREME COURT REPORTS [1992] 2 S.C.R.

A "6. In terms of the explanation to Section 4 of the Central
Excise and Salt Act, 1944 in determining the price of any article
under that section a deduction is admissible from the wholesale
cash price towards the amount of duty payable at the time of
the removal of the article chargeable with duty from the factory
or other premises. It appears to the Central Government that
B the deduction contemplated therem is in respect of the duty
leviable on the article which is being cleared from the factory
and not the· duty paid or leviable on the raw materials or
component which went into the manufacture of that excisable
article. In other words what is allowed deduction is only that
c duty leviable on the finished excisable article and not the total
duty incidence. To held otherwise appears to be repugnant to
the correct construction of the expression "amount· of duty
payable at the time of removal of the article chargeable with
duty from the factory".
D 7. It, therefore, appears to the Central Government that in
holding that the deduction was admissible not only in respect
of the duty leviable on the PD Pumps but also in respect of the
duty paid on the electric motor the Appellate Collector has in
his decision.
E
8. The second question to be determined by the Appellate
Collector was the admissibility of a trade discount of 30% which
the party was granting in respect of sales to their area dealer
or through area dealers to sub-dealers which to another
category of dealers called independent dealers a less amount
F of trade was granted. The case records reveal that the party
had three types of wholesale dealers namely the following :-

(a) Area dealers which number about 15 get the maximum
trade discount.
G
(b) The sub-dealers of these area dealer. These sub-dealers
usually get the goods from the area dealers at the par-
ticulars.

discount and can also get the goods directly from the
H party on a discount advised by the area dealers and the
KIRLOSKAR BROS. v. U.0.1. [DAYAL, J.) 89

balance discount out of the total 30% discount is passed A
on thereafter to the areas dealers and;
..) ~
(c) The last category of dealers who operate in area c:overed
by the area dealers and get a less amount of discount.

B
-
9. It also appears that approximately 90% of the goods are sold
through the area dealers or their sub-dealers and only the rest
;...._ through other independent dealers.

10. The Appellate Collector held that the sales to dealers other
than the area area dealers were only upto 10% of the total sales
and as such these could be regarded as a sales to retailers.
c
-------{
Accordingly the Appellate Collector held that since a substan-
tial quantity of goods was sold through the area dealers or their
sub-dealers the price. charged to them was the correct
wholesale cash price and that the 30% trade discount given to
them was admissible and sales to other dealers which were in D
small quantity could be ignored and could be treated as sales
to retailers.

11. It appears to the Central Government that the Appellate
Collector failed to take note of the fact that the sales to these
independent dealers in their respective areas, however, small E
in quantity were nonetheless sales to wholesale dealers. These
could not be categorised as retail sales which are essentially
different from wholesales sales.

These independen~ dealers were as much wholesale dealers as F
the areas dealers.· Further the Appellate Colle<;tor also failed
to take note of the fact that the so·e< Ued area dealers in a large
.L
number of cases were no other than the party's own selling
depots and the price charged to them-could notprimafacie be
,>- .
accepted as genuine unless there was compelling evidence to
. establish that the transaction was at arm's length. It accordingly G
appears to the Central Government that the wholesale cash
price charged to the independent dealers and discount given
to them is along a genuine wholesale cash price and that the
genuin.:: whole sale cash price is ascertainable the quantum of
sale however meagre is irrelevant. By holding that the discount H
90 SUPREME COURT REPORTS [1992] 2 S.C.R.

A given to the area to the area dealers was admissible and that
sales to independent dealers being meager could be treated as
retail sales and thus ignored, it appears to the Central Govern-
ment that the Appellate Collector has erred in his decision." .

.The appellant filed a reply dated 30th August, 1976 and inter alia
B contended :-
. .
"We deal with these two points separately as below : - .•

(i) ASSESSABLE VALUE OF MONOBLOC!f. PUMPS;

c At the out~ight we wish to state that the grounds of appeal
advanced, against the various orders in appeal issued by the
Assistant Collector, Central Excise, Indore before Appellate
Collector, Central Excise and Customs, New Delhi, will form
part of our reply and we would rely on them. We presume that
D the records of the case are already with you and there is no
need of reproduce here our arguments.

However without prejudice to whatever stated in above
referred Appeal Memo we wish to state as under:-

E (A) Central Excise duty is an indirect tax and this tax is not
taken into ~nsideration for assessment purposes. In accord-
ance with the explanation given in section 4 it is true that what
is clear by us is a Monoblock Pump and not electric motor alone
and not a mere pump. Since we are paid Central Excise duty
to our suppliers of electric motor, we have to recover the same
F from the parties to whom monoblock pumps are sold.

(B) Had we sold only an Electric motor, the same recovery to duty
would have been made separately by us and our cost would have -\
been the price paid to supplier exclusive of central excise duty. ~
G
(C) Just because the motor is used in the manufacture of
Monoblock Pumps, it does not deprive us of our right to recover
the duty on the Electric Motor paid by us when this is ascer-
tainable.

H (D) The same would be the case in respect of other components
KIRWSKAR BROS. v. U.0.1. [DAYAL, J.) 91

of Monoblock pumps, viz. Steel, paint, shaftiqg, material etc.. A
__)_ However, we are not in a position to ascertain the duty paid
on these Raw MaterialS. That is why we have to recover the
total amount including the cost and Central Excise duty paid
on the Raw Material, so that the Central Excise duty paid on
them will automatically be recovered. Such an amount has to
....,.. go into the total .value. But in respect of the items of the raw
B
'>-- materials if we can ascertain the central excise duty paid, we
can certainly recover the same in form of duty and not by way
of the cost of the material. .,,.-

~-.,._~-
(E) The whole principle of costing is to see what an article c
produced by any manufacturer has cost him. If the duty is
ascertainable, there is no reason as to why it should be go into
the cost necessarily. There is no law to warrant such a procedure.
-..\
(F) The inclusion of Central Excise duty as the cost of
Monoblock pumps, it would further complicate the matters. In D
that event_we will not be in aposition to recover the full duty paid on
electric motor as we have to allow the proportionate trade discount
I

on the duty elements. This would tantamount depriving us of our
• right to recover the full amount of Central Excise duty paid by us.
E
(G) Further without prejudice, if the duty is so included what
--.....: would be the amount to be included and at what stage. It will
have to be decided whether the whole of the duty on electric
motor i.e. 15% is to be included in the cost or the balance

-- available from the said duty amount after availing of the set off
admissible under Notification No. 84/72 as amended by
No.113/72.
F

)
Under these circumstances, we would request you not to
>
force us to include the element of C~ntral Excise duty paid on
Electric motors, in the value of our Monoblock Pumps for
- ~
G
purpose of assessments.

(ii) WHOLESALE CASH PRICE AND QUANTUM OF DIS-
COUNT

At the outsight we wish to state that the grounds of appeal H
92 SUPREME COURT REPORTS (1992] 2 S.C.R.

A advanced against the various order in appeal issued by the
Assistant Collector, Central Excise, Indore before the Appel-
late Collector, Central Excise and Customs, New Delhi will
form part of our reply and we would rely on them. We presume
that the records of the case are already with you and .there is
B
no need to reproduce there our arguments.

However, without prejudice to whatever, stated in above _)_
-
referred appeal memos we would like to state as follows:-

ii(A) It is contended in the Show Cause Notice that the
c wholesale cash price, charged to the mdependent dealers and
the discount given to them is alone a genuine wholesale cash
price and that once the wholesale cash price is ascertainable
the quantum of the sale, however meagre, is irrelevant. Further
it is also contended that the so called dealer in a large number
of cases were no other than parties own selling depots and the
D price charged to them could hot prima facie be accepted as
genuine. Unless there was compelling evidence to establish that
the transaction was at arms length.

In this connection we would like to submit as follow:
E
ii(B) Out of our total production 90% f the goods are
marketed through area dealers to whom 30% discount is given.
Out of these 15 area dealers, 5 are quite independent parties
not connected with the depots and they are responsible for
marketing about 30% of our total production and the sales to
F these dealers are from principle to principle and are at arms
length.

ii(C) The Kirloskar Brother's depots are being treated on
par with these area dealers and the dealings are from principle
to principle; Simply because they are depots of Kirloskar
G
Brothers it cannot be presumed that the dealings are not at
arms length.

ii(D) It is not the case of department that the goods are
sold to these area dealers at a specially low rate. The facts that
H there are 5 independent dealers alongwith depots goes to prove
KIRLOSKAR BROS. v. U.0.1. [DAYAL, J.] 93

that no special treatment is accorded to the depots. A
ii(E) We would insist with all force that these transactions
are at arms length and these represents the normal trade
practice. The sales to independent dealers may not be treated
as retail sales but there is no reason as to why the price charged
to these few so called independent dealers should be preferred
B
"I
>-- to the price charged to independent area dealers.

ii(F) The whole idea of assessment seems to have been
mis-conceived. Now it is an established law that "EXCISE IS
-~--(_ A TAX ON THE PRODUCTION AND MANUFACTURE c
OF GOODS (SEE UNION OF INDIA VS. DELHI CLOTH
AND GENERAL MILLS 1963) SECTION 4 ACT THERE-
FORE PROVIDES THAT THE REAL VALUE SHOULD
"""' BE FOUND AFTER DEDUCTING THE SELLING COST
AND THE SELLING PROFITS AND THE REAL VALUE
D
CAN INCLUDE ONLY THE MANUFACTURING COST
AND THE MANUFACTURING PROFIT".

ii(G) The section also makes it clear that the excise is levied
only on the amount representing the manufacturing cost plus
the manufacturing profit, and the exclude~,post manufacturing E
. -.....: costs and the profit arising from the post manufacturing opera-
tion.

- ii(H) In our case the amount charged by giving lesser
discount to the so called independent dealers represents the
selling profits and cannot be attributed to the manufacturing
F
J activity. Under these circumstances the value that could be
.l.
approved for our assessment would be the list price less max-
imum and this will represent the manufacturing cost plus the
manufacturing profit.
G
ii(I) Under the circumstances it is abundantly clear that the
price cannot be loaded with any kind of selling cost or selling
profit irrespective of whether the same is of the wholesellers
"- or of the manufacturer, the reason being that neither it is
attributable to manufacturing activity. H
94 SUPREME COURT REPORTS (1992) 2 S.C.R.

A ii(J) After the decision in.VOLTAS case there have been
a number of cases both the Supreme Court and various High
Courts, wherein the decision in VOLTAS ca5e ·have .been_
followed meticulously.

Under these. circumstance there are no reason to reopen
B the matter and given an adverse. decision."

An opportunity of personal hearing was -alsq granted. It is noticed in
the order of the Central Government that :

"During the course of personal hearing on 19.10.1976 various
c contentions were reiterated and it was emphasised that the
manufacturers had two patterns of sales, namely - (i) through
area distributors who are given exclusive rights of sale within
their respective areas and who were further authorised to
appoint sub-distributors, and (ii) some 10% sales were to other
D. dealers to whom a less percentage of discount was given. It was
emphasised that the discrimination between the two patterns
of sales was on account of the fact that area distributors
provided after sales service etc. which could be treated as post
manufacturing operations. It was pointed out to them during
the course of personal hearing that majority of the so-called
E area distributors were depots of M/s. Kirloskar Brothers Ltd.,
only. They contended that though the over-all controlling
authority was ·the Kirloskar Group of Companies, yet these

F
depots were independent entities by themselves. They were
asked to submit detailed information about the composition of
all the Directors of M/s. Kirloskar Electricals, Bangalore, the
Directors of Dewas factory and their agreements with various
-
area dlstributors with their sub-distributors. The information
was to be submitted by November 16, 1976 but could not be
received within the time stipulated.".
G The Central Government after considering the points raised by the
appellant in .its written reply to the show cause notice as well as points
urged during the course of personal hearing took the view that under
Section 4 of the Act the abatement of duty is admissible only in respect of
the article in question and not the duty paid on the raw material or the
H component which had gone into its manufacture, and accordingly held that
KIRLOSKAR BROS. v. U.0.1. [DAYAL, J.] 95

~ ... the· view of the Appellate Collector is incorrect. Regarding the question of A
discount the Central Government took the view that the independent
wholesale dealers are those who are other than the depots of M/s. Kirloskar
Brothers. The view of the Appellate Collector treating sales to these
dealers as retail sales is incorrect. The.Central Government held that once
the wholesale eash price is ascertainable the quantum of sales to such
~ wholesale deaiers is irrelevant and in the instant case even the quantum of
B
sale to the independent wholesale dealers is 10%. The wholesale cash price
is thus ascertainable. In this view of the matter the Central Government in
exercise of the powers conferred in it under sub-section (2) of Section 36
- --<... pf the Act set aside the impugned order passed by the Appellate Collector
and restored all the orders passed by the Assistant Collector of Central c
Excise.
-{
Before the High Cqurt the above referred order of the Central
Government was impugned in the aforesaid circumstances. It was con-
tended on behalf of appellant before the High Court that the Government D
of India erred in holding that the duty paid on the electric motors was not
deductible in_ computing the wholesale cash price under the provisions of
Section 4 of the Act. It was also contended that· the Government of· India
erred .in restoring the orders of the Assistant Collector whereby only 25
per cent discount was held to be deductible by way of trade discount in E
-~ computing the wholesale cash priee of the pumps in question. The High
Court held that the explanation to Section 4 of the Act provides for
deduction of trade discount and the amount of duty payable at the time of
removal of the article from the factory. The 'duty' referred to in the
explanation is the duty payable on the product which is manufactured and
does not refer to the duty paid on the raw material or the component of F
~ the product manufactured. Faced with this difficulty before the High Court
;a.. the counsel for the appellant stated that he was not relying on the explana-
tion to Section 4 of tht: Act for contending that the duty paid on electric
motors fitted to the pumps was liable to be deducted from the wholesale
cash price of the article in question. It was urged before the High Court G
that the excis~ duty paid on the component parts could not be treated as
manufacturing cost and that it was not competent for the Government to
':>.. levy excise duty on excise duty paid. The High Court rejected the conten-
tion. As regards the deduction of trade discount the High Court agreed
with the order of the Central Government. H
96 SUPREME COURT REPORTS (1992) 2 S.C.R.

A Before us learned counsel for the appellant has submitted that the
Central Government erred in disturbing the appellate order of the Collec-
tor and submitted - (1) that besides the depots of the appellant there are
other five independent wholesalers and the Central Government should
not have ignored the trade discount allowed to them; (2) that the Central
Government, though had passed the impugned order only on 14th April,
B 1977, did not refer to the information which was submitted after 16th
November, 1976; (3) that the Central Government ignored by Notification
N0.84/72- CE DT 17.3.1972 as amended by Notification No.~13/72 dated
22.3.1972 and (4) that while computing the assessable value the duty paid
on electric motors for purposes of manufacturing monoblock pumps was
c also liable to be excluded.

It will be noticed that we are concerned with old section 4 of the Act
as operative during the relevant time.

D In A.K Roy & Anr. v. Vo/tas Limited, [1973) 2 S.C.R. 1089, the
Supreme Court emphasised at page 1097 that there can be no doubt that
the 'wholesale cash price' has to be ascertained only on the basis of
transactions at arm's length. Once wholesale dealings at arm's length are
established, the determination of the wholesale cash price for the purpose
of Section 4(a) of the Act may not depend upon the number of such
E wholesale dealers. Before the Central Government it was emphasised by
the appellant itself that the discrimination between the two patterns of sales r
was on account of the fact that area distributors provided after sales service
etc. which could be treated as post manufacturing operation. It is thus clear
from the submission made by the appellant itself before the Central
F Government that the discount to area distributors was also in consideration
for also providing after sales service which is not required to be taken into
account while dealing with trade discount within the meaning of explana- -\
. tion to Section 4(a) of the Act. Therefore the Central Government rightly J..
did not take into account such area distributors who may have to provide
after sales service. The trade discount given to· such wholesalers who were
G under no obligation to provide after sales service is the relevant trade
discount given to the wholesalers.

In view of our conclusion on the first point itself no useful purpose ~:
would be served in examining the second question as tht. appellant himself
H had given the reasons before the Central Government as to why they gave
KIRLOSKAR BROS. v. U.0.1. [DAYAL, J.] 97

higher trade discount to their depots and other area distributors. A
We may take point Nos. 3 and 4 together. In M/s. Name Tulaman
Manufacturers Pvt. Ltd., Hyderabad v. Collector of Central Excise,
Hyderabad, [1989] 1 S.C.C. 172, the Supreme Court had the occasion to
deal with somewhat similar situation as in the present case. Sabyasachi
M ukharji, J. (as His Lordship then was) speaking for the Court observed: - B
"The activity carried out by the appellant of assembling the
three components of the weighbridge brings into being com-
plete weighbridge which has a distinctive name, character or
use. As a result of the work of assembling a new product known C
in the market and known under the excise item "weighbridge"
comes into being. The appellant will become a manufacturer
of that product and as such liable to duty''.

His Lordship further observed thus :
D
"A part may be goods as known in the excise laws and may be
dutiable. If the indicator system is a separate part and a duty
had been paid on it and if the rules so provide then the
appellant may be entitled to abatement under the rules. But if
the end product is a separate product which comes into being
as a result of the endeavour and activity of the appellant then E
the appellant must be held to have manufactured the said item.
When parts and the end product are separately dutiable - both
are taxable."

Section 4(a) of the Act read with its explanation reads as under :-
F
"4. Determination of value for the purposes of duty - Where,
under this Act, any article is chargeable with duty at a rate
dependent on the value of the article, such value shall be
deemed to be-

( a) the wholesale cash price for which an article of the like kind G
and quality is sold or is capable of being sold at the time of the
removal of the article chargeable with duty from the factory or
any other premises of manufacture of production for delivery
at the place of manufacture of production, or if a wholesale
market does not exist for such article at such place, at the H

I
98 SUPREME COURT REPORTS [1992] 2 S.C.R.

A nearest place where such market exists, or

(b) .................... .

Explanation - In determining the price of any article under this
section, no abatement or deduction shall be allowed except in
B respect of trade discount and the amount of duty payable at
· the time of the removal of the article chargeable with duty from
the factory or other premises aforesaid.".

It is clear from the explanation itself that while computing the
assessable value the deduction has to be allowed apart from trade discount
c to the amount of duty. payable at the time of removal of the article
chargeable with duty from the factory. Here the article concerned was the
'pump' which had an electric motor which was duty paid. But what was
deductible while assessing the assessable value was merely the excise duty
payable on the 'pump' and not the excise duty already paid on the electric
D motor which was merely a component.

The relevant part of the Notification No..84/72-CE dated 17.3.1972
as amended by Notification No. 113/72 dated 22.3.1972 reads as follows:-

"In exercise of the powers conferred by rule 8( 1) of the Central
E Excise Rules, the Central Government hereby exempts power
driven pumps falling under tariff item no. 30A of the first
schedule to the Central Excise and Salt Act, 1944 (1 of 1944)
and specified in column (2) of the table annexed hereto from
so much of duty of the excise leviable thereon as in excess of
F the duty specified in the corresponding entry in column (3) of
the said table.

TABLE

S. No. Description Duty
G (1) (2) (2)
1. POWER DRIVEN PUMPS PRIMARILY DESIGNED 10%
FOR HANDLING WATER NAMELY ADVALOREM
i) CENTRIFUGAL PUMPS (HORIZONTAL '
OR VERTICAL PUMPS)
ii) DEEP WELL TURBINE PUMPS
H iii) SUB MERSIBLE PUMPS AND
KIRLOSKAR BROS. v. U.O.I. [DAYAL, J.] 99

iv) AXIAL FLO AND MIXED FLOW NIL A
VERTICAL PUMPS.
2. OTHERS NIL

PROVIDED THAT
(i) Where the aforesaid pumps on which the duty of excise is
leviable are fitted with duty paid internal combustion engine B
falling under sub-item (ii) of item no. 29 or Electric motors
falling under sub-item 2(ii) of item no. 30 of the first schedule
to the aforesaid Act such power driven pumps shall also be
exempted from so much of the duty of excise Ieviable thereon
as is equivalent to the duty of excise leviable thereon as is
equivalent to the duty of excise or the additional excise duty C
under section 2A of the Indian Tariff Act 1934 (32 of 1934) the
case may be already paid on such internal combustion engine
or Electric Motors.

(ii) ................. . D
Provided further that where the duty of excise leviable on
power driven pumps is less than the amount of duty of excise
or the additional duty under section 2A of the Indian Tariff
Act aforesaid specified in clause (i) or as the case may be
calculated under clause (ii) of the first proviso with respect to E
--....;
internal combustion engine, elect. motor, rotors or stator then
no part of the duty so specified or calculated shall be refunded
to the manufacturer.

It will be noticed that first part of the Notification exempts the F
'Power Driven Pumps' falling under Tariff Item No. 30A of the firsc
J schedule to the Act and reduces the duty to 10% advalorem.

To understand more conveniently the meaning and scope of provisos,
the provisos shorn of unnecessary words may be read as under :-
G
"PROVIDED THAT:-

(i) Where the aforesaid pumps on which the duty of excise is
leviable are fitted with duty paid .....Electric motors ......... such
power driven pumps shall also be exempted from so much of
the duty of excise leviable thereon ..... as is equivalent to the H
100 SUPREME COURT REPORTS (1992} 2 S.C.R.

A duty of excise ........ paid on such ..........electric motors.

(ii) ........ ........ ........

Provided further that where the duty of excise leviable on
powers driven pumps is less than the amount of duty of excise
B or the additional duty under section 2 A of the Indian Tariff
Act aforesaid specified in clause (i) or as the case may be
calculated under clause (ii) of the first proviso with respect to
internal combustion engine electric motor, rotors or stator then
no part of the duty so specified or calculated shall be refunded
to the manufacturer."
C·
It is thus clear from the proviso that while charging duty after
computing the assessable value, the appellant will be entitled to reduction
of duty paid on the electric motors from the over all excise duty payable
on the 'pump'. The value of the excise paid on the electric motor is not
D deductible while arriving at the assessable value under Section 4(a) of the
Act. This becomes further clear from the wording of the second proviso
which contemplates where the duty of excise on power driven pumps
becomes less than the excise duty paid on the electric motor then no part
of the excise duty is liable to be refunded to the manuiacturer. Therefore
the purpose of the first proviso and the second proviso is only to. the
E calculation of excise duty payable and has no relevance to the calculation
of assessable value of the articles manufactured when it is cleared from the
factory.

There is thus no merit in this appeal and the same is ar;cordingly
dismissed with costs.

T.N.A. Appeal dismissed. -\

- ..l..