M/s D.J. Malpani … Appellant(s) Versus Commissioner of Central Excise, Nashik … Respondent(s)

Whether Dharmada is a part and parcel of sale price – liable for assessment ?

While selling goods, the appellant-assessee charged the customers invoices 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 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.

DHARMADA

This takes us to the nature of the “Dharmada” when given

along with the sale price of goods. 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. 

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.

 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. 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.

Thus, the answer to the question referred by the Division

Bench is as follows: –

“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.”

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No.5282 OF 2005
M/s D.J. Malpani … Appellant(s)
Versus
Commissioner of Central Excise, Nashik … Respondent(s)
J U D G M E N T
S.A. BOBDE, J.
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. According to the
appellant, the Dharmada was paid voluntarily by customers and
was meant for charity. It was accordingly credited
to charity.

  1. However, 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.
    Page 1 of 18
  2. 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.
  3. However, another show cause notice dated 3.8.2001 was
    issued by 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. After hearing the appellant, 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.
  4. Thereafter, in an appeal filed by Revenue, 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 Central Excise and Service Tax Appellant Tribunal (for
    short “CESTAT”), in an appeal filed by the appellant, by judgment
    dated 6.1.2005 partly allowed the appeal and held that the duty
    amount needs to be recalculated. The CESTAT however rejected
    the appellant’s contention that Dharmada was not part of the
    transaction value. The CESTAT purported to follow the judgment of
    Page 2 of 18
    this Court in Collector vs. Panchmukhi Engineering Works1
    , whereby
    this Court held that Dharmada charged by the assessee is liable to
    be included in the assessable value.
  5. In the appeal filed by the appellant before a Division Bench of
    this Court, it was contended that the decision in Panchmukhi
    (supra) followed an earlier decision of Tata Iron & Steel Co. Ltd. vs.
    Collector of Central Excise, Jamshedpur2
    which did not apply to the
    present case at all. The Tata Iron & Steel case was a case where
    steel plants added a surcharge to the ex-works price at the
    instance of a committee under the Iron and Steel (Control) Order,
  6. This surcharge was added to generate money for a steel
    development fund to implement schemes entrusted to the
    committee by the Central Government. The surcharge went to the
    committee for use in its various schemes and for the expenditure
    incurred towards discharge of the committee’s functions. Thus, the
    question before this Court was if surcharge being a charge that was
    compulsorily payable by the customers could be considered as a
    part of the price i.e. the assessable value.
    This Court held that the surcharge was a part of the price fixed
    by the committee under the statutory provisions. The appellant’s
    contention was that the decision in Panchmukhi (supra) which
    merely followed the decision in Tata Iron & Steel (supra) was no
    authority for the proposition that Dharmada being a donation for
    1 2003 (158) ELT 550 (SC)
    2 2002 (146) ELT 3 (SC)
    Page 3 of 18
    charitable purposes was liable to be included in the assessable
    value.
  7. In addition, the appellant contended that this Court has clearly
    held in the case of The Commissioner of Income Tax (Central)
    Delhi, New Delhi vs. Bijli Cotton Mills (P) Ltd. Hathras, District
    Aligarh3
    that amounts received for Dharmada and earmarked for
    charitable purposes are amounts received by the assessee under
    an obligation to spend the same for charitable purposes.
    Therefore, these receipts cannot be regarded as income of the
    assessee.
  8. On noticing the above contentions, a Division Bench of this
    Court vide order dated 29.7.2015 has referred the following
    question to this larger Bench: –
    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.
  9. An important fact that needs to be noted at the outset is that
    there is no dispute before us that though paid along with the sale
    price, the payment for Dharmada was made voluntarily by the
    purchasers and that upon receipt was made over to charity. There
    is no challenge that it is in fact not voluntary. There are certificates
    on record by the chartered accountant that shows the Dharmada
    collection was credited to a separate account and donated to a
    3 (1979) 1 SCC 496
    Page 4 of 18
    trust during the period of the show cause notices.
  10. The only question that arises for decision is 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.
  11. It is 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.
    WHAT WAS SOLD
  12. The appellant manufactured and sold chewing tobacco to their
    customers. A price was paid by the customers as ‘consideration’
    for these goods i.e. transfer of property of the goods to the
    customers. This is clear from the invoices.
    THE ‘TRANSACTION VALUE’ FOR THE PURPOSE OF ARIVING AT
    ASSESSABLE VALUE
    Sale and purchase have been defined vide Section 2 (h) to
    mean any transfer of the possession of goods for payment or other
    valuable consideration. A contract of sale under The Sale of Goods
    Act, 1930 means a contract whereby the seller transfers or agrees
    to transfer the property in goods to the buyer for a price vide
    Section 44
    . The transaction in this case was the sale of chewing
    4 Section 4 of The Sale of Goods Act, 1930
  13. Sale and agreement to sell.— (1) A contract of sale of goods is a contract whereby
    the seller transfers or agrees to transfer the property in goods to the buyer for a price. There may
    be a contract of sale between one part-owner and another.
    Page 5 of 18
    tobacco.
  14. Under the Act, excise duty is chargeable with reference to
    their value on removal of the goods. In case of sale of goods where
    price is the sole consideration for the sale, duty is charged on the
    transaction value vide Section 45
    . Additional consideration if any is
    also included in the duty payable on such goods vide explanation.
    “Transaction value” is defined vide Section 4(3)(d) of the Act to
    mean “the price actually paid or payable for the goods, when sold,
    and includes in addition to the amount charged as price, any
    amount that the buyer is liable to pay to, or on behalf of the
    (2) A contract of sale may be absolute or conditional.
    (3) Where under a contract of sale the property in the goods is transferred from the seller
    to the buyer, the contract is called a sale, but where the transfer of the property in the goods is to
    take place at a future time or subject to some condition thereafter to be fulfilled, the contract is
    called an agreement to sell.
    (4) An agreement to sell becomes a sale when the time elapses or the conditions are
    fulfilled subject to which the property in the goods is to be transferred.
    5 Section 4 of The Central Excise Act, 1944
  15. Valuation of excisable goods for purposes of charging of duty of excise. –
    (1) Where under this Act, the duty of excise is chargeable on any excisable goods with
    reference to their value, then, on each removal of the goods, such value shall –
    (a) in a case where the goods are sold by the assessee, for delivery at the time and place
    of the removal, the assessee and the buyer of the goods are not related and the price is the sole
    consideration for the sale, be the transaction value;
    (b) in any other case, including the case where the goods are not sold, be the value
    determined in such manner as may be prescribed.
    Explanation. – For the removal of doubts, it is hereby declared that the price-cum-duty of
    the excisable goods sold by the assessee shall be the price actually paid to him for the goods sold
    and the money value of the additional consideration, if any, flowing directly or indirectly from the
    buyer to the assessee in connection with the sale of such goods, and such price-cum-duty,
    excluding sales tax and other taxes, if any, actually paid, shall be deemed to include the duty
    payable on such goods.
    (2) ……….
    (3) (a)……….
    (b)……….
    (c) ……….
    (d) “transaction value” means the price actually paid or payable for the goods, when
    sold, and includes in addition to the amount charged as price, any amount that the buyer is liable
    to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether
    payable at the time of the sale or at any other time, including, but not limited to, any amount
    charged for, or to make provision for, advertising or publicity, marketing and selling organization
    expenses, storage, outward handling, servicing, warranty, commission or any other matter; but
    does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or
    actually payable on such goods.]
    Page 6 of 18
    assessee by reason of or in connection with the sale……., but does
    not include the amount of duty of excise, sales tax and other taxes,
    if any, actually paid or actually payable on such goods”.
  16. In case of a sale of goods, excise duty is chargeable where
    price is the sole consideration of a sale on Transaction value’. Transaction value’ means the price actually paid or payable for
    the goods and any additional amount the buyer is liable to pay to
    the assessee or anyone on his behalf in connection with the sale
    vide Section 4(3)(d) supra. Rule 6 of the Central Excise Valuation
    (Determination of Price and Excisable Goods), Rules 20006
    provides
    that in case of a sale, the value of such goods shall be deemed to
    be the transaction value and the amount of money value of any
    considerations following directly or indirectly from the buyer to the
    assessee. Thus, duty is chargeable on the “price actually paid for
    the goods”, in other words, the price paid as consideration for
    transfer of property in the goods. The test for determining whether
    in a transaction of sale any amount has been paid as price so that
    it can be treated as transaction value is only whether, the money
    was paid for the goods as consideration or the money value on any
    additional consideration paid in connection with the sale of goods.
    No amount not paid as consideration for the goods can go to make
    transaction value.
    6 Rule 6 – Where the excisable goods are sold in the circumstances specified in clause (a) of sub
    section (1) of section 4 of the Act except the circumstance where the price is not the sole
    consideration for sale, the value of such goods shall be deemed to be the aggregate of such
    transaction value and the amount of money value of any additional consideration flowing directly
    or indirectly from the buyer to the assessee.
    Page 7 of 18
    Consideration’ means, vide Garner’s Dictionary of Legal Usage, 3rd Edition:the act, forbearance or promise by which one party to the
    contract keep the promise of another’. The term valuable
    consideration refers to an act, forbearance or promise having an
    economic value. In this case, it is clear that only the money paid
    for the promise of transferring goods was the valuable
    consideration contemplated by the Excise Act and the Rules. The
    transaction value was the sale of goods and the consideration was
    the price or value paid for the goods. The transaction value must
    be construed accordingly.
    This fairly clears up the character of any other amount paid at
    the time of the transaction of sale of goods. Thus, 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.

DHARMADA

  1. This takes us to the nature of the “Dharmada” when given
    along with the sale price of goods. 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. This Court
    Page 8 of 18
    considered the nature and character of Dharmada in Bijli Cotton
    Mills (supra). That case arose under the Income Tax Act. The
    assessee used to realise certain amounts on account of Dharmada
    from his customers on sales of yarn and bales of cotton. The rate
    was one anna per bundle of ten pounds of yarn and two annas per
    bale of cotton. The receipts of Dharmada were not credited to the
    trading account but the assessee maintained a separate account
    known as the Dharmada account. The authorities under the Act
    held that the amounts held by the assessee could not be regarded
    as having been held under trust for charitable purposes.
  2. The High Court, however, held that the impugned amounts
    paid as Dharmada were never the income of the assessee and
    assessee was merely acting as a conduit for passing on the
    amounts to the objects of charity. These amounts were never
    treated as trading receipts or as surcharge on the sale price which
    was evident from the fact that such realisations were never
    credited to the trading account nor shown in the profit and loss
    statement for any year.
    This Court considered the question in great detail and after
    referring to Professor Wilson’s Glossary and Molesworth’s
    Dictionary observed that Dharmada means “an alms or a gift in
    charity”. This Court observed that though there might be some
    vagueness as a matter of law, in the word Dharma, there was none
    in relation to Dharmada or Dharmadaya and such a payment would
    Page 9 of 18
    not be invalid for vagueness or uncertainty. This Court accepted
    the decision of the Allahabad High Court in Thakur Das Shyam
    Sunder vs. Additional CIT7
    and observed that “it cannot be disputed
    that among the trading or commercial community in various parts
    of the country, a gift or payment for Dharmada is by custom
    invariably regarded as a gift for charitable purposes”. This Court
    observed that the answer to the question depended on the nature
    of the obligation created by the customer and approved the finding
    of the Allahabad High Court to the effect that merely because
    under the law relating to trust legal ownership over the trust fund
    and the power to control and dispose of always vest in the
    trustees, the discretion vested in the trustee to spend the amount
    over charities will not affect character of the deposit.
  3. This Court also relied on CIT, West Bengal, Calcutta vs.
    Tollygunge Club Ltd., Calcutta8
    . In that case, the Court considered
    the nature of a surcharge of eight annas over and above the
    admission fees into the enclosure of the club at the time of the
    races. The proceeds of this surcharge were to go to the Red Cross
    Fund and other local charities. This Court approved the decision of
    the Calcutta High Court and held that the “surcharge was not part
    of the price for admission but made for the specific purpose of
    being applied to local charities”. It observed “the admission to the
    enclosure is the occasion and not the consideration for the
    7 93 ITR 27
    8 (1977) 2 SCC 790 : (1977) 107 ITR 776
    Page 10 of 18
    surcharge taken from the race-goer. It rejected the contention that
    the payment was involuntary, observing “that does not render the
    payment of the surcharge involuntary, because it is out of his own
    volition that he seeks admittance to the enclosure”.
    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.
  4. We find from the facts of the case before us that 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. The purchase of the goods is the occasion
    and not consideration for the Dharmada paid by the customer as
    held in Bijli Cotton Mills (supra) vide para 15: –
    “15. …… It is true that without payment of
    “Dharmada” amount the customer may not be able
    to purchase the goods from the assessee but that
    would not make the payment of “Dharmada” amount
    involuntary inasmuch as it is out of his own volition
    that he purchases yarn and cotton from the assessee.
    The “Dharmada” amount is, therefore, clearly not a
    part of the price, but a payment for the specific
    purpose of being spent on charitable purposes.
    Page 11 of 18
    ………”
  5. In this case, the CESTAT decided against the assessee relaying
    on Panchmukhi (supra). The case of Panchmukhi (supra) was
    apparently decided not after a discussion on facts and law but
    because the counsel for the revenue submitted that the matter is
    covered by the decision in Tata Iron & Steel (supra) and the counsel
    for the assessee “was not in a position to dispute this legal
    position”. The judgment in Panchmukhi (supra) has little
    precedential value. The point whether Dharmada involved in
    Panchmukhi (supra) and the surcharge held as price in Tata Iron &
    Steel (supra) were identical and liable to be included in the
    transaction value passed sub-silentio. Salmond on Jurisprudence
    Twelfth Edition p.15h states that a decision held is not binding
    since it was decided “without argument, without reference to the
    crucial words of the rule, and without any citation of authority”,
    therefore, would not be followed. The author also states that
    precedents sub-silentio and without arguments are of no moment.
    This is enough reason for not treating the decision in Panchmukhi
    (supra) as a binding precedent.
    It is, therefore, necessary to take a look at Tata Iron & Steel
    (supra). That was a case where the customer paid a surcharge on
    the price of steel. This surcharge was added to generate money
    for a steel development fund to implement schemes entrusted to
    the committee by the Central Government. The surcharge went to
    Page 12 of 18
    the committee for use in its various schemes and for the
    expenditure incurred towards discharge of the committee’s
    function.
  6. Nonetheless, the surcharge was part of the consideration paid
    by the customer for the price of steel. The notifications under
    which the surcharge was added clearly stated as follows: –
    (i) “The Committee may add an element to the exworks prices determined ……..”
    and
    (ii) “The Committee may require members steel plants
    to add the elements listed below to their ex-works………”
    The purpose of this addition was to constitute a steel development
    fund for modernisation, research & development, diversification
    etc. for improving the quantum of technology and efficiency of
    production of iron and steel and their quality.
  7. The other objects of the fund, were to implement specific
    schemes entrusted to the Committee by the Central Government
    and towards the Engineering Goods Export Assistance Fund. This
    Court considered the question whether the addition would fall
    under the meaning of the term “other taxes” within the meaning of
    Section 4 (ii) which excluded the amount of other taxes payable on
    such goods from value. It was contended on behalf of the assessee
    that they were compelled by law to collect this charge over and
    above the price without the right to appropriate it for themselves
    Page 13 of 18
    and with a duty of making it over to a third party and therefore the
    charges could not be regarded as part of the consideration of the
    sale price of goods.
    This Court held that the charges were clearly added as an
    element of price and observed, “thus what was being added was to
    the price”. Another aspect to be kept in mind is that the ultimate
    beneficiaries of these amounts are the steel plants themselves.
  8. We find that 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.
  9. In the circumstances we hold that 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. 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.
  10. Thus, the answer to the question referred by the Division
    Bench is as follows: –
    “The Dharmada collected by the appellant which is clearly an
    optional payment made by the buyer cannot be regarded as part of
    Page 14 of 18
    the transaction value for the sale of goods.”
  11. The judgment of the CESTAT is accordingly set aside.
    The appeal is allowed.
    ….………………………………..J.
    [S.A. BOBDE]
    ….………………………………..J.
    [DEEPAK GUPTA]
    ….………………………………..J.
    [VINEET SARAN]
    NEW DELHI
    APRIL 9, 2019
    Page 15 of 18
    REPORTABLE
    IN THE SUPREME COURT OF INDIA
    CIVIL APPELLATE JURISDICTION
    CIVIL APPEAL No.531 OF 2008
    Commissioner of Central Excise and
    Customs, Bangalore … Appellant(s)
    Versus
    M/s JSW Steel Ltd.
    (formerly known as Jindal Vijayanagar Steel Ltd.) … Respondent(s)

J U D G M E N T
S.A. BOBDE, J.
The Revenue-Appellant has come in appeal against the
order of the Central Excise and Service Tax Appellant Tribunal (for
short “CESTAT”) dated 04.04.2007. The Respondent manufactured
goods falling under Chapter 72 of The Central Excise Tariff Act,

  1. The Respondent manufactured Pig Iron and HR Coil Sheets.
    While selling the goods they raised invoices on the price of goods
    plus ‘Dharmada’ a charitable donation from customers. According
    to the Respondent, the Dharmada was meant for charity and was
    accordingly credited to charity.
  2. However, show cause notice dated 19.03.2004 was issued by
    the office of the Deputy Commissioner of Central Excise and
    Customs, Bellary under Section 4 of the Act calling upon the
    Page 16 of 18
    Respondent to show cause as to why penalty under Rule 25 of
    Central Excise Rules, 2002 and interest under Section 11AB of the
    Central Excise Act, 1944 should not be levied. After hearing the
    Respondent, the Deputy Commissioner vide order dated
    10.09.2004 held that the Dharmada is to be added to the
    assessable value for the payment of central excise duty.
  3. Thereafter, in an appeal filed by the Respondent, the
    Commissioner (Appeals), confirmed the decision of the Deputy
    Commissioner and rejected the appeal and held that Dharmada
    should be added to the assessable value. Therefore, the goods
    were liable to be assessed on the basis of their price plus
    Dharmada.
    The CESTAT in an appeal filed by the Respondent, by judgement
    dated 04.04.2007, allowed the appeal and set aside the order
    passed by Commissioner (Appeals) dated 29.03.2005. The CESTAT
    purported to follow its judgment in the case of Mohan and Co.,
    Madras vs. CCE Madras, which was affirmed by the Supreme Court
    in appeal, whereby this Court held that Dharmada was not liable to
    be added in the assessable value.
  4. Thereafter, in Civil Appeal No.531 of 2008 before this Court, it
    was contended by the Appellant before a Division Bench of this
    Court, that the decision in Collector vs. Panchmukhi Engineering
    Works9
    was to be followed. Thus, contending that Dharmada should
    9 2003 (158) ELT 550 (SC)
    Page 17 of 18
    be a part of the assessable value.
  5. The present case has been tagged with the case of M/s D.J.
    Malpani vs. Commissioner of Central Excise, Nashik which has been
    referred to this Bench vide order dated 29.07.2015. We have held
    that the amount of Dharmada cannot be included in the
    transaction value for the purposes of assessments.
  6. In view of the judgment in the case of Civil Appeal No. 5282 of
    2005, M/s D.J. Malpani vs. Commissioner of Central Excise, Nashik,
    we hereby dismiss the present appeal.
    ….………………………………..J.
    [S.A. BOBDE]
    ….………………………………..J.
    [DEEPAK GUPTA]
    ….………………………………..J.
    [VINEET SARAN]
    NEW DELHI
    APRIL 9, 2019
    Page 18 of 18