Dharmada collected as optional payment by buyer not part of transaction value for the sale of goods –Supreme Court quashes CESTAT Order
ABCAUS Case Law Citation:
ABCAUS 2869 (2019) (04) SC
Important Case Laws Cited/relied upon by the parties
Collector vs. Panchmukhi Engineering Works 2003 (158) ELT 550 (SC
Tata Iron & Steel Co. Ltd. vs. Collector of Central Excise 2002 (146) ELT 3 (SC)
Commissioner of Income Tax vs. Bijli Cotton Mills (P) Ltd. (1979) 1 SCC 496
CIT, West Bengal, Calcutta vs. Tollygunge Club Ltd. (1977) 2 SCC 790 : (1977) 107 ITR 776
Thakur Das Shyam Sunder vs. Additional CIT 93 ITR 27
The appellant-assessee was a manufacture. The assessee in invoices, charged the customers 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.
However, the Excise Department raised a demand of duty in respect of Dharmada, claiming it was part of the price for the sale of manufactured goods and accordingly included it for computing assessable value.
Both, the Commissioner (Appeals) and the CESTAT rejected the appellant’s contention that Dharmada was not part of the transaction value.
The only question involved was whether the amount included as Dharmada by a manufacturer and credited for charitable purposes is liable to be included in the assessable value of manufactured goods; the seller having merely acted as conduit between the purchaser and charity.
The Hon’ble Supreme Court opined that it was necessary to enquire into the nature of the transaction i.e. what was sold, the price that was paid and the transaction value for the purpose of arriving at the assessable value.
The Hon’ble Supreme Court analysed the scope of the ‘transaction value’ for the purpose of ariving at assessable value and opined that if an amount is paid at the time of the sale transaction for a purpose other than the price of the goods, it cannot form part of the transaction value; also for the reason that such payment is not for the transaction of sale i.e. for the transfer of possession of goods. Any payment made along side such a transaction cannot be treated as consideration for the goods.
With respect to the dharmada, the Hon’ble Supreme Court observed that Dharmada is well known in India to be a donation or an offering made for the purpose of charity as distinct from a commercial transaction.
Applying the above decisions to the case before it, this Court held in Bijli Cotton Mills (supra) that Dharmada amounts cannot be said to have been paid involuntarily by the customers and in any case the compulsory nature of the payments, if there be any, cannot impress the receipts with the character of being trading receipts.
It was observed that the Court had held that Dharmada amounts cannot be said to have been paid involuntarily by the customers and in any case the compulsory nature of the payments, if there be any, cannot impress the receipts with the character of being trading receipts.
The Hon’ble Supreme Court found that the receipts on account of Dharmada were voluntary, earmarked for charity and in fact credited as such. The Court said that though the payment as Dharmada had been found to be voluntary, it would make no difference to the true character and nature of the receipts even if there were found to be paid compulsorily because the purchaser, purchased the goods out of their own volition. The purchase of the goods is the occasion and not consideration for the Dharmada paid by the customer.
The Hon’ble Supreme Court held that when an amount was paid as Dharmada along with the sale price of goods, such payment was not made in consideration of the transfer of goods. Such payment was meant for charity and is received and held in trust by the seller. If such amounts were meant to be credited to charity and do not form part of the income of the assessee they could not be included in the transaction value or assessable value of the goods.
The Hon’ble Supreme Court answered that question referred by the Division Bench as under:
“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.”
Accordingly, the judgment of the CESTAT was set aside.