Trade discount on quantity-based off-take, fixed in advance and built into contract price, was deductible from assessable value.

A quantity discount communicated in advance, accepted by buyers, and built into the contractual net price was deductible as a trade discount under central excise valuation principles. Because the discounted price was the actual factory-gate price on removal, with the contracts and price lists approved by departmental officers and no evidence of flow-back, suppression, or escalation clause, the discount was not a contingent post-sale allowance. It formed part of the contract price and had to be excluded from assessable value, making the departmental rejection of the approved prices unsustainable.

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Issues: Whether the quantity discount offered on monthly off-take basis and reflected in the contractual net price was admissible as a trade discount for deduction from assessable value under the central excise law.

Analysis: The discount scheme was communicated in advance through a circular, accepted by the buyers, and incorporated in the contracts and price lists filed in Part II. The net discounted price was the price actually charged at the factory gate on removal of the goods, and the relevant contracts were verified and approved by the departmental officers. There was no escalation clause, no allegation of flow-back, and no suppression of relevant information. The governing principle is that a discount known at or prior to removal of the goods, and established by agreement or practice, is deductible from the sale price even if its payment is worked out later by credit note. On the facts, the discount was not a contingent incentive or post-sale allowance but a built-in trade discount forming part of the contract price.

Conclusion: The quantity discount was admissible as trade discount and had to be excluded from the assessable value. The departmental order rejecting the approved prices was unsustainable.

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