2024 (7) TMI 1354 - AT - Central Excise

Luxury car incentives don't qualify as trade discounts, but demand barred by limitation under excise law

M/s. Toyota Kirloskar Motor Private Limited Versus Commissioner of Central Tax, Bengaluru

CESTAT Bangalore ruled in favor of the appellant regarding cross-model utilization of incentives/discounts for luxury cars. Following Tata Motors Ltd. ... Valuation - Admissibility of cross model utilisation of incentives/discounts - whether the incentive of discounts declared for small/mid segment cars be allowed to luxury model cars i.e., Fortuner, Innova and Corolla attracting higher rate of duty? - Extended period of limitation - suppression of facts. HELD THAT:- In Tata Motors Ltd. case [2014 (6) TMI 162 - CESTAT MUMBAI], this Tribunal held that discounts passed on by the appellant to the dealers does not satisfy the requirement of a trade discount to qualify for deduction in as much as if the discount is declared for a particular model of car, the end-user is not receiving the discount and the discount is purely arbitrary; hence, not available as an abatement from the price of the goods. Invocation of extended period of limitation - suppression of facts or not - HELD THAT:- The appellant has been following the said mechanism of passing incentives/discount since 2008 and no objection has been raised by the department. The issue raised only after the judgment of the Tribunal in Tata Motors Ltd.’s case by Central Excise Revenue Audit and the demand has been computed on the basis of available records; show-cause notice was issued to the appellant demanding differential duty proposing denial of said deduction from the price. Hence, there are no suppression or mis-declaration or mis-statement of facts on the part of the appellant. In absence of any suppression or mis-declaration of the facts, larger period of limitation cannot be invoked. Consequently, the demand is barred by limitation. The impugned order is modified and appeal is allowed on the ground of limitation only. Issues Involved:1. Admissibility of cross-model utilisation of discounts.2. Applicability of extended period of limitation.3. Imposition of penalty.Issue-wise Detailed Analysis:1. Admissibility of Cross-Model Utilisation of Discounts:The primary issue was whether the incentive of discounts declared for small/mid-segment cars could be allowed for luxury model cars (Fortuner, Innova, and Corolla) attracting higher rates of duty. The appellant argued that since the price was reduced by the incentive discount passed on the face of the invoice, the same should be allowable from the price, irrespective of the applicability of the discount to any model of cars. However, the department contended that cross-model utilisation of discounts was not permissible, citing the Tribunal's judgment in the case of Tata Motors Ltd.The Tribunal in Tata Motors Ltd. held that discounts passed on by the appellant to the dealers did not satisfy the requirements of a trade discount to qualify for deduction. Specifically, if the discount was declared for a particular model of car, the end-user did not receive the discount, making it purely arbitrary and not available as an abatement from the price of the goods. The Tribunal in the present case found no reason to differ from this principle and concluded that cross-model utilisation of discounts was inadmissible to the appellant.2. Applicability of Extended Period of Limitation:The appellant argued that the extended period of limitation could not be applicable as they had not suppressed any facts, and all facts were within the knowledge of the department. They had been following this methodology since 2008, with periodical visits from Departmental Officers who examined the invoices without raising objections. The appellant cited the judgment of the Hon'ble Supreme Court in Commissioner of Central Excise, Bangalore vs. Pragathi Concrete Products (P) Ltd., which supported their claim that there was no suppression or mis-statement of facts.The Tribunal agreed with the appellant, noting that the issue was raised only after the judgment in Tata Motors Ltd.'s case by the Central Excise Revenue Audit. The demand was computed based on available records, and the show-cause notice was issued demanding differential duty by proposing the denial of the said deduction from the price. Therefore, the Tribunal concluded that in the absence of any suppression or mis-declaration of facts, the larger period of limitation could not be invoked, rendering the demand barred by limitation.3. Imposition of Penalty:Given the Tribunal's decision on the inadmissibility of the cross-model utilisation of discounts and the non-applicability of the extended period of limitation, the imposition of a penalty was also deemed unsustainable. The Tribunal held that since the demand itself was barred by limitation, the penalty imposed on the appellant could not be justified.Conclusion:The Tribunal allowed the appeal on the ground of limitation, modifying the impugned order and concluding that the cross-model utilisation of discounts was inadmissible. However, the demand was barred by limitation due to the absence of suppression or mis-declaration of facts by the appellant. Consequently, the imposition of a penalty was also deemed unwarranted.