Trade discount on principal-to-principal distributor sales remains deductible and cannot be treated as commission.

Where distributors purchase goods on a principal-to-principal basis at arm's length, the discount allowed to them is deductible as trade discount in computing assessable value and cannot be recharacterised as commission. The fact that distributors were obliged to promote sales and observe resale price limits did not change the character of the transactions, especially where there was no evidence of any additional consideration flowing back to the manufacturer and the goods were not returnable to it. On those facts, the distributors were treated as wholesale buyers rather than consignment agents, and the deduction of trade discount was upheld.

---

---

Issues: Whether the discount allowed to regional distributors was deductible as trade discount in determining assessable value, or whether it was liable to be treated as commission paid to consignment agents and therefore disallowed.

Analysis: The distributors purchased the goods at agreed prices, were allowed trade discount, and the transactions were on a principal to principal basis at arm's length. There was no material to show any flow of additional consideration from the distributors to the manufacturer. The obligation on distributors to promote sales and to adhere to the price limits fixed for resale did not alter the character of the transactions, and the agreements indicated that the goods sold to distributors were not to be taken back by the manufacturer. These features showed that the distributors were wholesale buyers and not consignment agents.

Conclusion: The discount paid to the distributors was admissible for deduction and could not be treated as commission.

Final Conclusion: The department's challenge to the deduction of trade discount failed, and the orders allowing the deduction were sustained.

Ratio Decidendi: Where distributors purchase goods on principal to principal terms at arm's length, without any additional consideration flowing back to the manufacturer, the discount allowed to them is deductible as trade discount and cannot be recharacterised as commission.

---