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M/s. D.J. Malpani v. Commissioner of Central Excise, Nashik

Civil Appeal · 2019 INSC 478Decided 9 Apr 2019
Civil Appeal No. 5282 of 2005
Justice S.A. Bobde · Justice Deepak Gupta · Justice Vineet Saran

Background

The appellant, a manufacturer, charged its customers the price of goods plus an additional amount called "Dharmada": a traditional, voluntary charitable donation collected alongside the sale price and credited to charity. Excise authorities wanted to treat this Dharmada amount as part of the taxable sale price ("assessable value") and demanded extra excise duty on it. Tax tribunals had gone back and forth on the issue, with the Tribunal (CESTAT) ultimately ruling against the appellant by relying on an earlier Supreme Court decision (Panchmukhi Engineering), prompting this appeal. A connected appeal involving a different company (Commissioner of Central Excise vs. JSW Steel) raising the identical question was decided together.

Decision Breakdown

The Supreme Court held that the earlier Panchmukhi decision, which the Tribunal had relied on, was not good law because it had been decided without proper argument and had wrongly applied a different precedent (Tata Iron & Steel) concerning a compulsory statutory surcharge: a fundamentally different kind of payment from a voluntary charitable donation. The Court held that Dharmada, being an optional payment made by the buyer and genuinely held in trust for charity (not retained as the seller's income), is not part of the "consideration" for the sale of goods and therefore cannot be included in the assessable value for excise duty purposes. It set aside the Tribunal's judgment and allowed the appeal; the connected JSW Steel appeal was dismissed in the Revenue's favour in light of this same ruling (i.e., Dharmada was held non-taxable there too).

Lesson Learnt

A genuinely voluntary charitable collection added onto a sale price, where the money is actually credited to charity and not kept as business income, is not treated as part of the price for tax purposes; businesses can validly separate true charitable donations from taxable sale consideration as long as the funds are truly earmarked and used for charity.

Official source (sci.gov.in)View Judgment (PDF)

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