2007 (8) TMI 20 - SC - Central Excise

Supreme Court affirms uniform trade discount practice under Central Excises and Salt Act

ELGI EQUIPMENTS LTD. Versus COMMISSIONER OF C. EX., COIMBATORE

ELGI EQUIPMENTS LTD. Versus COMMISSIONER OF C. EX., COIMBATORE - 2007 (215) E.L.T. 348 (S.C.) Issues involved:1. Entitlement to 20% trade discount by the assessee.Analysis:The case involved the question of whether the assessee was entitled to a 20% trade discount. The assessee, a manufacturer of compressors, pumps, and service-station equipments, claimed trade discounts ranging from 10% to 45% on different products as part of their sales pattern. The Department raised concerns about price discrepancies, leading to a show cause notice for a duty differential of Rs. 40 lakhs and a penalty of Rs. 10 lakhs. The Department contended that the assessee did not possess a uniform sales pattern, giving different discounts to area distributors and dealers, thereby challenging the entitlement to a 20% trade discount.The Supreme Court analyzed the sales pattern of the assessee, noting that goods were sold directly to distributors at the factory gate with a 20% discount, while sub-dealers received an 8% discount, and the remaining 12% was given to the distributors as commission. The Court emphasized the importance of establishing a uniform trade discount practice in wholesale trade to determine entitlement under Section 4(1)(a) of the Central Excises and Salt Act, 1944. Referring to the judgment in Kirloskar Brothers Ltd v Commissioner of Central Excise Pune, the Court highlighted the need to demonstrate that the claimed discount aligns with the normal practice of wholesale trade for different classes of buyers.Upon examination, the Court found that the majority of dealers received a 20% trade discount, indicating a consistent practice by the assessee. The Court rejected the Department's argument that some dealers received an 8% discount, emphasizing that the overall trade discount practice was uniform at 20%. The Court also addressed the valuation of excisable goods under Section 4(1)(a), focusing on the terms 'ordinarily' and 'in the course of wholesale trade' to determine the assessable value based on the wholesale price at the factory gate.Furthermore, the Court discussed the denial of abatement to the assessee for goods sold in retail and the assessable value calculation for goods under stock transfer. In the case of goods sold through the depot, despite a ruling favoring the wholesale price at the factory gate as the assessable value, the Department had based it on the depot price. Ultimately, the Court set aside the Tribunal's decision, allowing the appeals with no order as to costs.