Cash discount /Trade Discount

[MUNIRAJ SRINIVASAN]

Dear Sir,

My client has calculated Assessable after deducting cash discount of 3% whether it is allowable under the the valuation rule 4 of the act or after arriving duty amount we will give discount or before duty we have to calculate which is correct?

[YAGAY and SUN]

Cash discount permissible

The Central Department has confirmed that cash discount is allowable as deduction, if actually passed on to buyer, if transaction is on principal to principal basis.  CBE&C Circular No. 643/34/2002-CX dated 01-07-2002.

 Discount on quantity, cash and turnover is deductible from assessable value if given under terms of sale or trade practice, known before removal of goods and actually passed on to buyers- Wearwell Tyres v CCE   2009 (12) TMI 416 - CESTAT, NEW DELHI = (2010) 257 ELT 126 (CESTAT).

Cash discount is cost of Finance – In CCE v Pace Marketing Specialities 2004 (167) ELT 401 (CESTAT) also, it was held that cash discount is cost of finance.  It cannot form part of assessable value – same view in Malwa Cotton Spinning Mills v CCE  2007 (10) TMI 209 - CESTAT, NEW DELHI= (2008) 224 ELT 425 (CESTAT).

AI Summary

Cash discount deduction allowed when passed to buyer and established before removal, reducing assessable value. Cash discount is allowable as a deduction from assessable value if actually passed on to the buyer, given under terms of sale or trade practice known before removal, and applicable in principal-to-principal transactions; case law treats cash discount as a cost of finance that should not form part of assessable value when legitimately available and evidenced prior to removal.