When an amount is paid as Dharmada along with the sale price of goods, such payment is not made in consideration of the transfer of goods. Such payment is meant for charity and is received and held in trust by the seller – SC

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Crux :.​​ When an amount is paid as Dharmada along with the sale price of goods, such payment is not made in consideration of the transfer of goods. Such payment is meant for charity and is received and held in trust by the seller

 

Case Details : M/s D.J. Malpani Versus Commissioner of Central Excise, Nashik CIVIL APPEAL No.5282 OF 2005​​ 

 

In Favour of – ASSESSEE

 

Question of Law:​​ Whether the Dharmada collected by the appellant which is clearly an optional payment made by the buyer can be regarded as part of the transaction value for the sale of goods.

 

Facts of the Case

 

  • The appellant-assessee manufacture goods falling under Chapter 24 of the Schedule of The Central Excise Act, 1944 (hereinafter referred to as “the Act”)

  • While selling goods, the appellant-assessee charged the customers invoices for the price of goods plus Dharmada, a charitable donation.

  • The Dharmada was paid voluntarily by customers and was meant for charity. It was accordingly credited to charity.

Findings of Lower Courts

 

        • The Superintendent, Central Excise, Nashik​​ issued show cause notices and raised a demand of duty​​ in respect of Dharmada, claiming it was part of the price for the sale of manufactured goods and included it for computing assessable value.

        • Initially,​​ the Adjudicating Authority​​ held that the Dharmada component was not part of the trading receipts and could not be included in the assessable value and​​ dropped the demand for excise duty​​ and the penalty

        • The​​ Commissioner of Central Excise, Aurangabad under Section 4 of the Act calling upon the appellant to show cause as to why penalty under Section 173Q and interest under Section 11AA should not be levied.

        • The​​ Deputy Commissioner​​ held vide order dated 26.02.2002 that Dharmada cannot be considered as trading receipts and was not part of the assessable value.​​ Therefore, no duty was payable on the component of Dharmada.

        • The​​ Commissioner (Appeals), however, held that the Dharmada was liable to be included as a part of the assessable value and therefore the goods​​ were liable to be assessed on the basis of their price plus Dharmada.

        • The​​ CESTAT​​ however rejected the appellant’s contention that Dharmada was not part of the transaction value.

​​ Findings &Discussions: ​​ 

 

  • The receipts on account of Dharmada were voluntary, earmarked for charity and in fact credited as such.

  • Though the payment as Dharmada has 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.

  • If such amounts are meant to be credited to charity and do not form part of the income of the assessee they cannot be included in the transaction value or assessable value of the goods.

  • The decision in Tata Iron & Steel (supra) is completely inapposite to the circumstances of the case before us. The reliance placed on Tata Iron & Steel (supra) and Panchmukhi (supra) which was a case of Dharmada, is misplaced. Panchmukhi (supra) cannot be said to be good law

Conclusion:

 

Where the assesse receives Dharmada charges and the same is credited in a different account for the purpose of char ity, the same cannot be included in the sale price while calculating the transaction value for the purpose of determining the amount of duty

 

To Download order, Supreme Court Civil Appeal No. 5282 of 2005

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