2011 (5) TMI 775 - AT - Central Excise

Tribunal allows quantity discount in Central Excise duty calculation

The Tribunal allowed the deduction of quantity discount in Central Excise duty calculation, stating that known and understood trade discounts at the time ... Trade discount - appellant had given quantity discount to their customers as per their quantity discount schemes - price charged was for quantity lesser than the quantity actually supplied, which has the effect of reducing the net sale price - contention of the department is that the deduction of quantity discount cannot be allowed, as the same was not mentioned in the Central Excise invoices issued at the time of clearance from the factory – Held that:- in the case of UOI vs. Madras Rubber Factory (1995 - TMI - 44005 - SUPREME COURT OF INDIA) deduction of trade discounts known and understood at the time of removal of goods is permissible even if the same are quantified later and in para 58 and 60 of the judgement with regard to 'turnover discount' has held that though the turnover discount is determined on half yearly basis depending upon the volume of purchases made by the dealers, its deductions is permissible as it is known and understood at the time of removal of the goods, though it is quantified later, matter is remanded to the original adjudicating authority for denovo adjudication in accordance with the ratio of judgement of the Hon'ble Supreme Court in the case Madras Rubber Factory, appeal stand disposed of Issues:1. Whether deduction of quantity discount is permissible in Central Excise duty calculation.2. Whether quantity discount must be mentioned in Central Excise invoices issued at the time of clearance from the factory.3. Whether the refund claim is hit by the bar of unjust enrichment.Analysis:Issue 1:The appellant provided quantity discounts to customers under their discount schemes, where a certain quantity of goods was offered free based on the purchased quantity. The department argued that the deduction of quantity discount should have been mentioned in the Central Excise invoices issued at the time of clearance from the factory. However, the Tribunal referred to the Supreme Court's judgment in a similar case and held that deductions for known and understood trade discounts at the time of removal of goods are permissible, even if quantified later. The Tribunal found that the quantity discount schemes were known and understood at the time of sale from the depot, therefore allowing the deduction of quantity discount in the Central Excise duty calculation.Issue 2:The department contended that the quantity discount should have been mentioned in the Central Excise invoices issued at the time of clearance from the factory. The Tribunal clarified that since the goods were first transferred to the depot and then sold, it was not feasible to include the quantity discount in the factory clearance invoices. Relying on legal precedents, the Tribunal emphasized that what should be known and understood prior to sale is the quantity discount scheme or policy, not the exact quantum of discount available to a buyer. Therefore, the absence of quantity discount in the factory clearance invoices did not invalidate the deduction of quantity discount in this case.Issue 3:The department raised concerns regarding the refund claim's unjust enrichment. The Tribunal directed the original adjudicating authority to determine whether there was a quantity discount policy during the dispute period and if the discounts given to customers were in line with the policy. Additionally, the authority was instructed to consider the aspect of unjust enrichment, especially if duty had been collected for the free supply quantity. The Tribunal highlighted that the appellant's claim that free quantity was cleared on payment of duty from the factory needed to be examined.In conclusion, the Tribunal set aside the impugned order, remanding the matter for fresh adjudication in line with the Supreme Court's judgment. The original authority was tasked with assessing the existence of the quantity discount policy, ensuring compliance with the policy, and addressing the unjust enrichment concerns related to the refund claim.