No Excise Duty Can Be Charged On 'Dharmada' Receipts By Assessees: SC [Read Judgment]

Dharmada is a donation or an offering made for the purpose of charity as distinct from a commercial transaction. The Excise raised a demand of duty in respect of Dharmada collected by M/s D.J. Malpani, claiming it was part of the price for the sale of manufactured goods and included it for computing assessable value.

The Central Excise and Service Tax Appellate Tribunal (CESTAT) rejected the contention of the assessee that Dharmada was not part of the transaction value. It purported to follow the Supreme Court judgment in Collector vs. Panchmukhi Engineering Works, whereby this Court held that Dharmada charged by the assessee is liable to be included in the assessable value.

In its appeal before two judge bench of Supreme 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, Jamshedpur, which did not apply to the present case at all. Rather, it was urged that the applicable precedent is the judgment in Commissioner of Income Tax (Central) Delhi, New Delhi vs. Bijli Cotton Mills (P) Ltd. Hathras, District Aligarh, which had held 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, and thus these receipts cannot be regarded as income of the assessee. Noticing the conflict between these two judgments, the matter was referred to larger bench.

The three judge bench comprising of Justice SA Bobde, Justice Deepak Gupta and Justice Vineet Saran, referring to provisions, observed that 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 alongside such a transaction cannot be treated as consideration for the goods, it said.

The bench also noticed that the Panchmukhi (supra) case was 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". It also noted that the dictum in Tata Iron & Steel (supra) concerned with 'surcharge' and thus not applicable to collection of Dharmada. The bench held that Panchmukhi is not a good law and is not binding since it was decided "without argument, without reference to the crucial words of the rule, and without any citation of authority".The bench observed:

"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"

Answering the reference, the bench held:

"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."

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