Trade discount deduction requires proof of actual passing on, and new valuation grounds cannot be added without notice.

Trade discount was deductible only where clear evidence showed that the discount had actually been passed on to buyers; because the depot sale invoices did not reflect the claimed discount and the record did not establish its transmission to customers, the disallowance was upheld. A new valuation basis could not be introduced at adjudication or appeal when the show cause notices had not raised adoption of the highest daily depot price as the normal price. The additional valuation observation was therefore set aside, while the duty and penalty were sustained only to the extent linked to the trade discount issue.

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Issues: (i) whether deduction towards trade discount could be disallowed where the depot sale invoices did not reflect such discount and there was no clear evidence that it had been passed on to buyers; and (ii) whether the observation that the highest price prevailing during the day at the depot should be adopted as the normal price for valuation could be sustained when that point was not raised in the show cause notices.

Issue (i): whether deduction towards trade discount could be disallowed where the depot sale invoices did not reflect such discount and there was no clear evidence that it had been passed on to buyers.

Analysis: Deduction on account of trade discount can be allowed only when there is clear evidence that the discount was actually passed on to the buyers. The depot sale invoices did not reflect the claimed discount, and the record did not establish that the discount had in fact been extended to the customers. On that footing, the disallowance of the trade discount was justified.

Conclusion: The disallowance of trade discount was upheld and the issue was decided against the assessee.

Issue (ii): whether the observation that the highest price prevailing during the day at the depot should be adopted as the normal price for valuation could be sustained when that point was not raised in the show cause notices.

Analysis: A ground not forming part of the show cause notices could not be introduced at the adjudication or appellate stage. Since the valuation observation regarding adoption of the highest daily depot price was never set out in the notices, it could not validly form the basis of the appellate finding.

Conclusion: The valuation observation was set aside and the issue was decided in favour of the assessee.

Final Conclusion: The duty demand and penalty were sustained to the extent of the trade discount issue, but the additional valuation finding based on the highest depot price was not permitted to stand.

Ratio Decidendi: Trade discount is deductible only when its actual passing on is established by clear evidence, and a new valuation basis cannot be introduced at the adjudication or appellate stage if it was not raised in the show cause notice.

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