Central excise valuation: only additional consideration for sales promotion is includible, not the entire trade discount.

A distributor buying as principal, and not as a commission agent, did not create a principal-agent relationship merely because the agreement required showrooms, sales staff, repurchase of unsold stock, and sales promotion arrangements. The distributor's obligation to undertake sales promotion, publicity and advertisement at its own cost amounted to additional consideration flowing from the buyer to the assessee, so the disclosed price was not the sole consideration. Rule 5 of the Central Excise (Valuation) Rules, 1975 therefore applied, and only the money value of that additional consideration was includible in assessable value. The entire 27.5% discount could not be disallowed merely because such additional consideration existed.

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Issues: Whether the entire 27.5% discount allowed on sales to the distributor was liable to be disallowed, or whether only the money value of the additional consideration for sales promotion, publicity and advertisement was includible in the assessable value.

Analysis: The distributor was found to be an independent purchaser selling the goods as principal and not as a commission agent. The agreement terms regarding showrooms, sales staff, repurchase of unsold stock, and sales promotion were held to be consistent with a normal distribution arrangement and did not establish a principal-agent relationship. At the same time, the distributor's obligation to undertake sales promotion, publicity and advertisement at its own cost constituted additional consideration flowing from the buyer to the assessee, so the price disclosed in the price list was not the sole consideration. In such a situation, Rule 5 of the Central Excise (Valuation) Rules, 1975 applied, requiring inclusion only of the money value of the additional consideration in the assessable value. The entire discount could not be disallowed merely because additional consideration existed.

Conclusion: The entire discount was not liable to be disallowed. Only the money value of the additional consideration for sales promotion, publicity and advertisement was includible in the assessable value, and the demand had to be revised accordingly.

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