- (1.) This appeal by certificate is directed against a judgment of a division bench of the High court of Andhra Pradesh upholding a notice issued by the Assistant Collector of central Exc'se. Nellore demanding a sum of Rs. 6,96,177. 09 representing the amount of differential duty in respect of mopeds manufactured by the appellants and cleared from their factory during the period from 1/10/1975 up to 30/04/1979. The facts giving rise to the present appeal are few and may be briefly stated as follows:
(2.) The appellants manufacture mopeds under the brand names of Suvega Standard. Suvega Deluxe and Suvega Samrat. These mopeds manufactured by the appellants are liable to excise duty under the central Excises and Salt Act, 1944. (hereinafter referred to as the Act). The appellants have 179 dealers all over the country to whom 98% of the mopeds manufactured by them are sold. Not more than 2% of the mopeds are delivered at the factory "ate: the bulk of the mopeds representing about 80% of the manufacture are delivered to the various dealers at the depots maintained by the appellants. The appellants have entered into agreements with the dealers in connection with the sale of the mopeds manufactured by them and these agreements are substantially in the same terms and it will, therefore, besufficient if we refer to a specimen agreement for the purpose of ascertaining the terms and conditions on which the mopeds are supplied by the appellants to the dealers. Clause 2 (a) of the agreement provides that the dealer shall keep a deposit of Rs. 6,000. 00 with the appellants as a guarantee for due fulfilment of the agreement and this deposit will carry simple interest at the rate of 40% per annum and Clause 2 (b) declares inter alia that upon termination of the agreement, the balance of the deposit if any, after deducting all amounts due to the appellants shall be returned to the dealer with interest. Clause 3 (a) of the agreement is material since considerable reliance has been placed upon it on behalf of the Department. It reads as follows : The Dealer will get a commission of Rs. 110. 00 (Rupees one hundred and ten only) for Suvega moped and Rs. 145. 00 (Rupees one hundred and forty-five only) for Suvega moped fitted with shock absorber which will be introduced shortly. "the appellants are entitled to change prices from time to time as per Clause 4 of the agreement and that clause proceeds to add that the appellants shall not be bound to execute the order pending execution with the dealer at the old rate and will be entitled to change the price ruling on the date on which the moped leaves the factory or stockyard of the appellants. Clauses 5 and 6 are material for the purpose of determination of the controversy between the parties and they read as follows: 5 (A) Unless otherwise agreed specifically to all deliveries to the dealer shall be ex-factory in unpacked condition and the bills/rr/lb/pwb shall be sent through their bankers and all bank charges thereon shall be borne by the dealer. In case the dealer does not honor the bills sent through bank immediately on presentation by bankers, the dealer shall be liable to the company for all damages/losses and expenses incurred in this connection and the same will be recovered from the deposit lying with the company. (B) The dispatches by the company will be insured by the dealer against all risks, pilferage, non-delivery and SRCC including breakage, wherever applicable from the time of leaving of the company's factory or stockyard until arrival at dealer's premises, and all such expenditure incidental to transit shall be to the account of the dealer. 6. The dealer shall at his own expenditure maintain such organisation for the sale and service of the said vehicles. including showrooms, service stations, repair shops, parts, storerooms, salesmen, etc. The dealer shall train mechanics at their own cost with the company. The dealer shall give 128 three free services to every vehicle sold by him and the company shall reimburse to the dealer at Rs. 4. 00 per each free service rendered by him. The rest of the clauses of the agreement are not relevant but it might be useful to refer to sub-clauses (a) and (b) of Clause 10 (iii) which provides as follows: 10 (Iii) (A) The company upon termination of this agreement may require the dealer to immediately turn over to the company all or any bona fide retail buyers orders that he may have on hand unfulfilled, together with all deposits made thereon by the purchasers and also the list of prospective buyers with the dealer. (B) In the event of the termination of this agreement, however, the dealer shall not be released from any obligation arising out of any transaction entered into or consummated prior to the date of such termination, either by him or his branches. These are the material terms and conditions on which mopeds are supplied by the appellants to the dealers.
(3.) The appellants submitted their price lists for approval to the excise authorities and the price lists showed the price charged by the appellants to the dealers after deducting the so-called commission of Rs. 110. 00 in respect of Suvega Standard Moped, Rs. 145. 00 in respect of Suvega Deluxe Moped and Rs. 165. 00 in respect of Suvega Samrat Moped These price lists were approved by the excise authorities and excise duty was paid by the appellants on the basis of these price lists at the time of clearance of the mopeds. This practice continued right lip to 30/04/1979 when the Assistant Collector of central Excise. Nellore took the view that the appellants were not entitled to deduction of the commission of Rs110 for Suvega Standard, Rs. 145. 00 for Suvega Deluxe and Rs. 165. 00 for Suvega Samrat mopeds from the price charged to the dealers for arriving at the excisable valve of the mopeds liable to excise duty. The Assistant Collector of central Excuse. Nellore thereupon issued a notice dated 15/05/1979 to the appellants demanding a sum of Rs. 6,96,177. 00 representing the amount of differential duty in respect of mopeds manufactured and cleared by the appellants from their factory during the period October 1, 197 5/04/1979. This demand was purported to be made by the Assistant Collector of central Excise under clauses (a) and (b) of Rule 10 (1) of the central Excise Rules, 1944. The appellants thereupon preferred a writ petition in the High court of Andhra Pradesh contending that the appellants were entitled to deduction of the amount of commission in arriving at the excisable value of the mopeds and the demands made by the Assistant Collector of central Excise was therefore, not justified.;