1993 (1) TMI 162 - AT - Central Excise

Tribunal Upholds Higher Discount for Distributors Based on Commercial Justification

The Tribunal held that distributors, due to their specific commercial obligations, constituted a separate class from wholesale buyers, justifying a higher ... Valuation Issues Involved:1. Classification of buyers (distributors vs. wholesale buyers).2. Legitimacy of different trade discounts.3. Nature of agreements and their impact on assessable value.4. Applicability of previous judgments on trade discounts.Issue-wise Detailed Analysis:1. Classification of Buyers (Distributors vs. Wholesale Buyers):The appellants argued that distributors, who entered into agreements to purchase a specified quantity of goods monthly, constituted a separate class of buyers from normal wholesale buyers. The Assistant Collector initially ruled that distributors could not be categorized as a different class merely due to the agreement. The Collector (Appeals) upheld this view, stating that the responsibilities of advertising and sales promotion undertaken by distributors did not warrant a higher discount. However, the Tribunal found that distributors, who were obligated to buy 2000 pairs of Tie Rod Ends per month, did constitute a separate class due to their distinct commercial obligations.2. Legitimacy of Different Trade Discounts:The appellants provided a 25% discount to wholesale buyers and a 35% discount to distributors. The Assistant Collector and the Collector (Appeals) both disallowed the additional discount to distributors, arguing that different trade discounts for the same class of buyers were impermissible. The Tribunal, however, referenced the Supreme Court's judgment in Union of India v. Bombay Tyres International, which allowed for different trade discounts if they were based on legitimate commercial considerations. The Tribunal also cited several other judgments, including those of the Madras High Court and the Andhra Pradesh High Court, which supported the view that trade discounts need not be uniform and could vary based on commercial exigencies.3. Nature of Agreements and Their Impact on Assessable Value:The appellants contended that the agreements with distributors, which included obligations for advertising and purchasing specific quantities, did not affect the principal-to-principal nature of the transactions. The Tribunal referred to the Bombay High Court's judgment in Mahendra and Mahendra Limited v. Union of India, which held that such agreements did not alter the principal-to-principal nature of transactions. The Tribunal concluded that the additional discount was a legitimate commercial consideration and did not affect the assessable value.4. Applicability of Previous Judgments on Trade Discounts:The Tribunal reviewed several judgments to determine the legitimacy of varying trade discounts. The Madras High Court in Union of India v. SSM Bros. Pvt. Ltd. held that trade discounts need not be uniform and could be allowed if not based on extra-commercial considerations. The Bombay High Court in Mahendra and Mahendra Limited v. Union of India supported the view that agreements for after-sale services and advertising did not affect the principal-to-principal nature of transactions. The Andhra Pradesh High Court in Jay Engg. Works Ltd. v. Govt. of India and the Tribunal in Ramdas Motor Transport Ltd. v. Collector of Central Excise also upheld the legitimacy of varying trade discounts based on commercial considerations.Conclusion:The Tribunal concluded that the additional 10% discount extended to distributors was based on legitimate commercial considerations and was admissible. The impugned order was set aside, and the appeal was allowed. The decision of the Bombay High Court in Godrej Boyce Mfg. Co. Pvt. Ltd. was deemed not relevant to the facts of this case.