2004 (9) TMI 538 - AT - Central Excise

Tribunal rules trade discount not subject to excise duty

SRI BHAVANI CASTINGS LTD. Versus COMMR. OF C. EX., VISAKHAPATNAM

SRI BHAVANI CASTINGS LTD. Versus COMMR. OF C. EX., VISAKHAPATNAM - 2005 (181) E.L.T. 66 (Tri. - Bang.) Issues:1. Additional discount allowed to a buyer - whether to be included in assessable value for Central Excise duty.2. Challenge to the demand of duty, penalty, and interest before the Tribunal.Issue 1: Additional discount inclusion in assessable valueThe case involved M/s. Sri Bhavani Castings Ltd. selling motor vehicle parts under the brand name 'SBP' to dealers at varying discounts. A higher discount of 33.5% was allowed to M/s. Mehta Trading Company (MTC) compared to other dealers. The Department argued that this extra discount was a commission for services by MTC and should be part of the assessable value for excise duty. The Commissioner confirmed a demand of Rs. 10,92,053/- and imposed a penalty and interest. The appellants contested, claiming the discount was a trade discount, allowable deduction, and not extra commercial consideration. The Tribunal noted that the discount was allowed based on agreements with MTC for sales promotion activities. It was observed that under the old Section 4 of the Central Excise Act, trade discounts were not included in the assessable value. The Tribunal held that as long as the discount was shown in the invoice and not withheld from the buyer, the Department had no basis to add it to the assessable value. The Tribunal found no suppression of facts and allowed the appeal, citing the earlier decision in favor of the appellants by the Assistant Commissioner.Issue 2: Challenge to demand of duty, penalty, and interestThe appellants argued that duty was paid based on the invoice price, MTC was not a related party, and no extra commercial consideration was received. The appellants highlighted the previous adjudication where the trade discount was allowed. The Department contended that the additional discount was a commission for services by MTC. The Tribunal analyzed the agreements between the parties, noting the different discounts allowed to MTC and other buyers. It was observed that the excess discount to MTC was considered an overriding commission for sales promotion activities. The Tribunal held that the Department failed to prove that the appellants claimed a higher discount but did not pass it on to the buyer. The Tribunal found no legal basis for the Department to deny the discount in arriving at the transaction value. As the discount was shown in the invoice, the Department could not add it to the assessable value. The Tribunal allowed the appeal, stating there was no justification for invoking the proviso to Section 11A of the Central Excise Act.In conclusion, the Tribunal allowed the appeal, ruling in favor of the appellants and providing consequential relief against the demand of duty, penalty, and interest imposed by the Department.