Dharmada charges collected from the buyer for charity, which is optional, cannot be considered as part of the transaction value

No Comments

Facts: M/s. D.J. Malpani (“The Assessee”) was a manufacturer of goods falling under Chapter 24 of the Schedule of The Central Excise Act, 1944 (“The Act”) and charged Dharmada in addition to price of goods to the customers. As per assessee, Dharmada was paid voluntarily by customers and was meant for charity, and doesn’t form part of assessee income, should not considered in transaction value.

Manufacturer charges from the buyer a specific amount, used for charitable purposes, which is optional to buyer. This amount is known as charity amount or Dharmada. Further, the revenue issued show cause notice 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.

Issue Involved: Whether voluntarily charged Dharmada collected from buyer includes in transactional value of sale of goods or not?

Assessee’s Interpretation of Law: The Assessee contended that Dharmada was paid voluntarily by customers and was meant for charity, accordingly, credited to charity. Further, the appellant stated that SC in the case of The Commissioner of Income Tax (Central) Delhi, New Delhi vs. Bijli Cotton Mills (P) Ltd. Hathras, District Aligarh 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. Therefore, these receipts cannot be regarded as income of the assessee”

Held: The Hon’ble SC Larger Bench (LB) vide its Civil Appeal No. 5282 of 2005 held that with reference to Section 4(3)(d) of Act and Rule 6 of Central Excise Valuation (Determination of Price and Excisable Goods), Rules 2000, 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 and also for the reason that such payment is not for the transfer of possession of goods.

Further, SC opined 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. SC remarked that “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 then they cannot be included in the transaction value or assessable value of the goods”. Therefore, “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.”

Citation: [ TS-226-SC-2019-EXC ]