2008 (2) TMI 105 - AT - Central Excise

Tribunal upholds discount as legitimate commercial practice, dismisses Revenue's arguments.

The Tribunal held that the discount given by the respondent was a commercial practice and permissible for deduction from the list price in determining the ... Discount as deduction from assessable value - assessable value - after sales service allowance not includible in assessable value - discount known at or prior to removal - credit notes evidencing commercial discount - burden on revenue to prove discount not passed on or retainedDiscount as deduction from assessable value - after sales service allowance not includible in assessable value - credit notes evidencing commercial discount - burden on revenue to prove discount not passed on or retained - discount known at or prior to removal - Whether the 5% amount described as 'after sales service allowance' and credited to dealers by credit notes is includible in the assessable value or allowable as a commercial discount for deduction. - HELD THAT: - The Appellate Tribunal accepted the findings of the Commissioner (Appeals) that the assessee actually passed on the 5% to dealers by credit notes and by periodic crediting to dealer accounts, and that revenue did not produce evidence showing retention of the discount by the assessee or that the amount represented compensation for after-sales services incurred by dealers on behalf of the assessee. The Tribunal relied on the principle in Bombay Tyres International that a discount described by any name is deductible from assessable value if it is known at or prior to removal, and that the timing of grant (invoice or later credit note) does not preclude deduction. Decisions of the Tribunal in Mahavir Spinning Mills Ltd. and Maruti Udyog Ltd. were noted as supporting the admissibility of discounts passed through credit notes and the non-inclusion of certain dealer charges in assessable value. Applying these principles, and absent proof that the amount was not passed on or was additional consideration for services rendered to the assessee, the 5% credited to dealers was a commercial discount allowable in computing assessable value. [Paras 2, 7]The impugned order allowing deduction of the 5% discount as not forming part of assessable value is upheld and the revenue's appeal is rejected.Final Conclusion: Revenue's appeal dismissed; the 5% amount credited to dealers by way of credit notes/discount was held to be a permissible deduction from list price in determining assessable value for the period indicated, since revenue failed to prove retention or that the amount constituted additional consideration. Issues:1. Whether the 5% amount described as 'after sales service allowance' should be treated as additional consideration received by the assessee.2. Whether the discount passed on to dealers was actually compensation for selling and distribution expenses in the guise of an annual discount.3. Whether the discount constituted after sales service charge.4. Whether the discount given was admissible for deduction from the list price in determining the assessable value.Analysis:1. The appeal filed by the Revenue contended that the 5% amount described as 'after sales service allowance' should be treated as additional consideration received by the assessee. The original authority found that the discount was actually passed on to the dealers at the end of every year/month. The Commissioner (Appeals) did not accept the department's argument that the discount was a way to evade payment of duty. The circular issued by the respondent among the dealers clearly outlined the process of issuing credit notes for the annual discount, which was later credited to the dealers. The Commissioner (Appeals) concluded that the discount given was a commercial one and admissible for deduction.2. The Revenue argued that the discount passed on to dealers was compensation for selling and distribution expenses in the guise of an annual discount. However, there was no evidence to show that the dealers had actually incurred any expenses towards after sales service. The Commissioner (Appeals) noted that the revenue had not established that the discount was not passed on to the dealers and was retained by the assessee. The impugned order upheld that the discount given was permissible deduction as long as it was actually passed on.3. The Revenue contended that the discount constituted after sales service charge. The Commissioner (Appeals) found no evidence to support this claim. The circular issued by the respondent indicated that the discount was a commercial practice and not related to after sales service charges. The Tribunal upheld the impugned order, stating that the discount given was purely commercial and admissible for deduction from the list price.4. The issue of whether the discount given was admissible for deduction from the list price in determining the assessable value was analyzed. The Tribunal referred to a previous case where it was decided that discounts known at or prior to the removal of goods on sale were not to be disallowed from the assessable value. In the absence of evidence showing that the discount was not passed on to the dealers, the Tribunal upheld the impugned order, stating that the discount was admissible for deduction.In conclusion, the Tribunal found that the discount given by the respondent was a purely commercial practice, admissible for deduction from the list price in determining the assessable value. The appeal filed by the Revenue was rejected as devoid of merit.