2015 (10) TMI 2202 - AT - Central Excise

Service charges not trade discounts for deduction; transparency in invoicing crucial; evidence needed for deductions

The Tribunal dismissed the appeals, affirming that service charges were not eligible for deduction as trade discounts. It was held that the change in ... Determination of assessable value - Trade discount - Held that:- Service charges do not appear to be a trade discount for the simple reason that in the same invoice there is a discount with the name trade discount. The learned counsel for the appellant, in spite of 2-3 adjournments, has not been able to bring out any evidence whatsoever to support his contention that deduction due to service charges are nothing but trade discount. In the absence of any documentary evidence, we are unable to accede to the contention. - department raised this objection that the appellants changed the nomenclature to additional trade discount. To our mind, by changing the nomenclature, they are only trying to mislead the department and by change of the nomenclature, service charges cannot become additional trade discount. In view of this position, in our view, even after 1.9.1999, the said deduction has to be considered as deduction towards service charges. - Decided against assessee. Issues:1. Whether service charges should be considered as part of the assessable value and not eligible for deduction as a trade discount.2. Whether the change in nomenclature from service charges to additional trade discount after a specific date affects the eligibility for deduction.Analysis:1. The case involved a dispute regarding the treatment of service charges by the appellants. The revenue contended that service charges should be included in the assessable value, while the appellants argued that it should be treated as a trade discount. The appellants claimed that service charges were uniformly given to wholesalers/dealers and known to both the department and customers. They also highlighted that the change in nomenclature to additional trade discount was made to address the department's objection post-1st September 1999.2. The appellant's counsel cited various case laws to support their argument that any discount, regardless of name, should be allowed if uniformly available and known in advance. However, the Revenue argued that for a deduction to qualify as a trade discount, it must be proven as such. The Revenue emphasized that charges for post-clearance services, like service charges, enhance the value and marketability of goods, as per the Supreme Court's ruling in Bombay Tyres International. The Revenue also referenced a Tribunal judgment stating that after-sales service charges are not trade discounts.3. Upon considering the submissions, the Tribunal referred to previous judgments emphasizing that trade discounts must align with established trade practices. The Tribunal noted that the appellants failed to provide evidence supporting their claim that service charges were trade discounts. The absence of documentary evidence led the Tribunal to reject the contention that service charges could be treated as trade discounts.4. The Tribunal further observed that changing the nomenclature to additional trade discount post-1st September 1999 did not alter the nature of the deduction. The Tribunal viewed this change as an attempt to mislead the department and affirmed that service charges could not be transformed into additional trade discounts merely by altering the name. Consequently, the appeals filed by the appellants were dismissed, upholding the decision that service charges were not eligible for deduction as trade discounts.In conclusion, the judgment clarified the distinction between service charges and trade discounts, emphasizing the need for evidence to establish the nature of deductions. The Tribunal's decision highlighted the importance of transparency in invoicing and trade practices to determine the eligibility of deductions in assessing the value of goods.