2006 (9) TMI 395 - AT - Central Excise

Tribunal excludes performance incentive from assessable value, deeming it sales promotion, not trade discount.

The Tribunal held that the 'performance incentive' provided by the respondents to their dealers should not be included in the assessable value of goods ... Valuation Issues:1. Inclusion of 'performance incentive' in the assessable value of goods sold.2. Nature of 'performance incentive' - trade discount or sales promotion expenditure.Analysis:1. The case involved a dispute regarding the inclusion of 'performance incentive' in the assessable value of goods sold by the respondents to their dealers during 1996-97. The original authority had included the incentive in the assessable value, leading to a demand for differential duty. However, the first appellate authority allowed the appeals filed by the assessee, considering the 'performance incentive' as a trade discount and hence excluded it from the assessable value. The Department challenged this view in the present appeals.2. Upon examination, it was found that the respondents provided 'performance incentive' ranging from 1% to 2% on the sale price to their dealers based on various parameters such as inventory level, promotional spending, target sales achievement, and others. The rate of incentive was not solely dependent on the quantity or value of goods, as different dealers with identical quantities of goods did not receive equal incentives. The Tribunal noted that the parameters used to determine the incentive were unrelated to the value of goods, supporting the argument that the 'performance incentive' was not a trade discount but rather a sales promotion expenditure.3. The respondents claimed a deduction of the 'performance incentive' from the assessable value during the finalization of provisional assessment. The Tribunal observed that the parameters used to calculate the incentive did not have any connection to the quantity or value of goods, reinforcing the conclusion that the incentive was not a trade discount. The Tribunal agreed with the appellant's argument that the 'performance incentive' was part of sales promotion expenditure and hence not deductible from the assessable value. The decision in Auto Lamps Limited v. CCE, New Delhi was cited to support this interpretation.4. Consequently, the Tribunal set aside the impugned orders and allowed the appeals, affirming that the 'performance incentive' should not be included in the assessable value of the goods sold by the respondents. The judgment highlighted the distinction between trade discounts and sales promotion expenditure, emphasizing that the nature of the incentive provided by the respondents was more aligned with the latter category.