Trade discount remains deductible where modest interest-free security deposits do not show the discount was recovered back.

Trade discount passed on to wholesale dealers could not be treated as recovered merely because the dealers maintained modest interest-free security deposits. The department had accepted that the discount was actually granted, and the record showed the discount was substantial while the deposits were comparatively small. On those facts, there was no basis to infer that the deposits depressed the price or that the discount was illusory. The trade discount therefore remained deductible from assessable value, and the duty demand based on disallowance of that discount was unsustainable.

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Issues: Whether trade discount granted to dealers could be treated as having been taken back merely because the dealers were required to keep modest security deposits without interest, so as to deny deduction of the discount from assessable value.

Analysis: The appellant supplied a major part of its goods to Government departments and the balance to wholesale dealers at invoice prices under the relevant notification, after allowing trade discount. The department did not dispute that the discount was actually passed on; its only case was that the discount stood neutralised because dealers maintained security deposits on which no interest was paid. The materials on record showed that the discount allowed was substantial, whereas the deposits were comparatively small, and there was nothing to show that the deposits depressed the price or that the discount was in substance recovered back from the buyers. A small interest-free deposit could not, by itself, justify the inference that the trade discount was illusory or not genuinely passed on.

Conclusion: The trade discount could not be disallowed on the ground alleged, and the demand of duty on that basis was unsustainable in favour of the assessee.

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