TaxTMI 
TaxTMI 
2005 (2) TMI 503
X X X X Extracts X X X X
X X X X Extracts X X X X
....lso exported. For the purpose of sale, the entire country had been divided into different regions and for every region they had a dealer network and the dealers were appointed by way of Letter of Indent (LOI in short) issued by them. The LOI contained the terms and conditions relating to Show Room, Workshop and staff to be maintained, the storage capacity to be provided, deposits to be made, Sales Promotion Activities to be undertaken and target of sale to be achieved by the so-called dealers. The two wheelers were sold to the dealers by delivery at the factory gate to the Transporter under cover of invoices showing the dealers name and address and the Lorry Receipt issued by the Transporter showing the dealer as consignee and MAL as consignor. The transit risk was covered through an Open General Insurance Policy taken by MAL. In case of any mishap, payment under the claim is made by Insurance Company to the dealers. For sale from the Depots, invoices and lorry receipt show similar details as in the case of sale at the factory gate. The two wheelers were sold at varying prices announced/revised through the Price Lists circulated to the dealers from time to time.  2.A Specia....
X X X X Extracts X X X X
X X X X Extracts X X X X
....transported through their own vehicle and those through the hired ones. (7) The equalized freight was not different for different regions though the basic prices were different for different regions. (8) At the time of appointment, they received from the dealers contribution towards Central Publicity Fund against the so-called supply of the publicity materials, the consideration against the so-called supply of the essential spare parts, the handsome amount of security, and the advance against the initial supply 20 Nos. of Hero Puch and 15 Nos. of Hero Winners. (9) They had received Rs. 50.00 lacs as advance in connection with the BMW Motor cycles during 1995-96. No interest had been paid on the said amount. (10) The amount received against the so-called supply of the publicity materials and the special spare parts and tool kits have not been accounted for in the balance sheets. These amounts related to the sales promotion and after sales service. (11) They have been paying interest @ 12% on the security deposits before 1996-97. From 1996-97, however, they stopped payment a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... limit. (21) The facts and figures furnished by MAL are incomplete, inadequate, and some contradictory and several material facts have been suppressed from and misdeclared to the Department. 4.The above  details led the Department to deduce that the dealers were nothing but mere cheap stockists and the sub-dealers, sub-distributors. Based on the above, show cause notice dated 30-4-2001 covering the period 29-9-1996 to 31-12-2000 was issued alleging undervaluation, proposing recovery of duty of Rs. 59,04,45,896/- invoking the extended period of limitation. The notice also proposed recovery of interest and imposition of penalty on MAL and its Director, Shri Pankaj Munjal. The notice was adjudicated by the Commissioner of Central Excise, who held inter alia that there is no buyer-seller relationship between MAL and dealers and that LOI was in the nature of agency agreement and that the two wheelers in question were delivered to the agents only for further sale from their premises. 5.The  Commissioner determined the assessable value of the two wheelers by including running show room expenses, sales/promotion/ advertisement and publicity expenses, Pre-deli....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... that the essence of 'sale' is the transfer of title to goods from one person to another for price paid or to be paid. No finding has, however, been recorded as to whether, by applying the aforesaid provisions of the Central Excise Act and Sale of Goods Act, the transfer of title to goods took place between MAL and its dealers, although it is admitted that goods were delivered to the dealers. In paragraph 5.3.19 of the order, the Commissioner finds that the essence of a contract of sale is the transfer of title to goods for a price paid or promised to be paid. In paragraph 5.7.1.3, it is found that the prices between MAL and its dealers were not independent and genuine prices, that those were influenced prices depending upon several extra commercial consideration and that these prices are artificially created, suiting the needs of the company, which necessarily acknowledges that MAL sold the goods to dealers for a price. The word "transfer" has been pre-fixed with these prices. There is no term like "transfer price" in Section 4 of the Central Excise Act, nor does any such term appear in any of the documents of MAL. It is, therefore, established that the title to goods was passed o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... view of the provisions of Section 23 and Section 39 of the Sale of Goods Act, 1930, it was found that goods are to be treated as delivered to buyer and property and possession of the goods passed on to buyer when the goods were handed over to transporter. In such a case element of freight and transit insurance were not to be included in the normal value of the goods. We approve of the view taken by the CEGAT". 10.The facts in the present case are similar to the above. MAL had circulated price lists to the dealers of different regions showing therein ex-factory price, excise duty, sales tax and dealer's margin etc. (page 628 Vol. 2. Part-II of the paper book - relied upon document No. 60). The goods were removed under cover of prescribed invoice as seen from page 358 - Vol. 2 Part-II, showing dealer's name and address. The amount of excise duty, sales tax, freight etc. was reflected separately in the invoice; the goods were delivered by MAL to the transporters; lorry receipt issued by the transporter showed MAL as the consignor and the dealer as the consignee (pages 322 to 334 of Vol. 3 Part-II). These documents form Annexure II to the reply to the show cause notice. The price o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ined the same since 1992. The issue of varying regional prices to dealers in different parts of India was raised in assessee's own case and was finally settled by the Hon'ble Supreme Court which held that different prices for dealers of different regions are in conformity with Section 4 of the Act (Supreme Court rejected Revenue's appeal against Tribunal's Order No. 392/95 dated 19-7-1995 holding that there could be separate price for dealers in different regions [see 1998 (97) E.L.T. A.223]. Since sale at factory gate and seller-buyer relationship between MAL and its dealers has been established, different regional prices and assessable value determined on that basis by MAL is, therefore, in conformity with the settled law in this issue as held by the Tribunal in Gora Mal Hari Ram v. CCE, Delhi [1994 (69) E.L.T. 269], Shriram Food & Fertilizers Ltd. v. CCE, Delhi [1996 (85) E.L.T. 34] [approved by Apex Court as seen from (91) E.L.T. A179] and Sri Sarvaraya Sugars Ltd. v. CCE, Hyderabad [2004 (64) RLT 594]. 14.We also note that for the entire period covered by the impugned order, issues on valuation were raised from time to time when the department categorically contended that M....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cisions cited in paragraphs prior to paragraph 5.3.21. In those cases, the facts were entirely different from the facts of the present case inasmuch as the prices were to be fixed by the marketing company which was at liberty to enter into contract with the parties and fix the selling prices at its discretion, while no such situation exists in the present case. 15.The Commissioner has heavily relied upon the decision of the Supreme Court in the case of Snow White Industrial Corporation v. CCE [1989 (41) E.L.T. 360 (S.C.)] to arrive at the conclusion that relationship between MAL and its dealers was that of principal and agent. He has held that the facts of the present case are more akin to the facts in the Snow White Industrial Corporation case (hereinafter referred to as SWIL), and that the decision in the SWIL case was not brought to the notice of the Hon'ble Supreme Court while deciding the earlier case of MAL. However, on a comparison of the facts of the two cases, we are clearly of the view that the facts in the case of MAL are totally different from those in SWIL. Some of the differences in facts are as under :- (i) In the SWIL case, agreem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ter the dealership agreement is terminated, there is no provision permitting the dealers to return the goods in question to MAL. (vi) In the case of MAL, insurance claim was to be settled and paid by the Insurance company to the dealers in case of mishap whereas SWIL was to prefer all claims for recovery of damages from the carriers. (vii) In the SWIL case selling agent was to be allowed overriding commission for booking orders and follow up action. There is no such provision in the MAL case. 16.Even in the case of SWIL, it is noted by the Apex Court that SWIL is passing the title to goods from seller to purchaser. This test stands satisfied in the present case. Therefore, the finding of non existence of seller-buyer relationship between MAL and its dealers on the basis of incorrect interpretation of LOI is patently wrong.  17.The Commissioner has compared return of stocks lying unsold in SWIL case with the rebate/discount in price shared between MAL and its dealers to conclude that facts in MAL are similar to those in SWIL. In MAL case, goods stood sold to its dealers against a price and payment of duty on the assessable value determi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....LOI No such clause Stocks to be maintained as mutually agreed Stocks to be maintained by dealers. From the above its brought out that (a) the relationship of seller/buyer between MAL and its dealers is an independent relationship, (b) the statements of dealers such as MD Enterprises, Ghaziabad, Mahadev Agencies, Noida and Shyam Lal & Co. Delhi recorded in this case prove that the orders are generally placed through the company's sales representatives personally on phone/fax and that the goods are supplied as required by the dealer, which belies the stand of the Revenue that dealers were not free to place orders, (c) the principal to principal relationship between MAL and its dealers is clearly brought out with greater force than in Mahindra & Mahindra and Telco case, wherein there is a requirement of maintenance of adequate stocks as mutually agreed and yet it was held that the dealings between the above mentioned 2 companies and its dealers were on a principal to principal basis. 2. SWIL agreed to accept return of all stock held by the buyer for a period of more than 2 years and replaced such stock free of charge. No such condition in LOI but reduced the prici....
X X X X Extracts X X X X
X X X X Extracts X X X X
....OI No such clause No such clause No such clause This condition present in the case of SWIL is entirety different from the facts in MAL's case as it is MAL's dealer who had to lodge the claim with the Insurance company and the payment of the claim is made by Insurance company to the dealer. 5. SWIL should take all suitable action for damages. No such condition in LOI. Damages or short receipt of vehicles were to be reported to MAL by its dealers as transportation was arranged by MAL. No such clause No such clause No such clause The reporting of damage or short receipt by the dealers to MAL was only to ensure efficient transportation and there is nothing on record to show that MAL was liable for damages. The loss was made good by the insurance company by payment of claim to the dealers. 6. All losses and damages were to be reimbursed to Gillanders. No such condition in LOI. No such clause No such clause No such clause The department relies upon the statement of Shri Hari Om Tyagi to conclude that since transportation was arranged by MAL, such damages were borne by them and moreover, open general insurance policy "warehouse to ware....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ention of the department is that cash discount was available to dealers of MAL against their outstanding balances and therefore, the discount represented payment of interest against outstanding balance of dealers. We, however, note that as per credit policy adopted by MAL, a discount was to be given on the amount received in advance from the dealers. Where any sum was lying on the credit of a dealer at the time of making the sale, it was adjusted against the price of goods sold and a cash discount was allowed on that account. Therefore, this is clearly a cash discount and it was also well known to all dealers of MAL and does not represent interest on outstanding balance of dealers 10. Additional turnover discount was also provided subject to certain conditions. No such condition in LOI No such clause No such clause No such clause On this point, the facts of SWIL cannot be compared with that of MAL. 11. SWIL agreed to supply to Gillanders all necessary publicity material. Sales promotions activities were to be intimated by MAL to dealers. Dealers will carry out, at their own expenses, the advertisement campaign. The advertisement was to be conduct....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to all dealers outside Madras provided firm instructions were received to that effect from Gillanders and in such circumstances SWIL had to credit Gillanders with commissions. No such condition in LOI No such clause No such clause No such clause. 17. SWIL could deduct from the commission any discount on the specific instructions of Gillanders No such condition in LOI No such clause No such clause No such clause. 18. SWIL agreed to execute such orders against the guarantee of Gillanders No such condition in LOI No such clause No such clause No such clause. 19 If the goods found to be sub-standard, SWIL was required to take the goods at its own cost and replace the same. No such condition in LOI but the prices were reduced by MAL in respect of old stock lying with the dealers. No such clause No such clause No such clause. Sr. No. 16, 17, 18 & 19. The issue of reduction in prices has already been explained by us while dealing with Sr. no. 2 herein above. 20. The agreement was in force for one year but the parties had right to terminate it by giving 3 months notice. No period was provided in LOI but terminati....
X X X X Extracts X X X X
X X X X Extracts X X X X
....based upon the presumption that the dealers were the agents of MAL and hence dealers' premises was "place of removal" under Section 4 of the Central Excise Act as amended from 28-9-1996, while the factual position is that the title to goods stood transferred from MAL to dealers at the factory gate and therefore, the dealers premises is not the place of removal, and the place of removal is factory gate of MAL. Duty demand of Rs. 1,82,10,526 on spare B. parts. Out of 700 items of spare parts sold from the spare division of MAL, 680 items were purchased from other manufacturers on payment of duty and only 20 items of spare parts were manufactured by MAL. Therefore, the above demand is not sustainable. Another reason why this demand is not sustainable is, because the duty has been demanded by re-determination of value by treating the dealers as agents of MAL. Certain expenses have been held to be includible in C. the assessable value of vehicles cleared by MAL :- (i) The demand of Rs. 12,17,97,572 (see paragraph 5.7.2.1 to 5.7.2.4 of the order) has been confirmed by including expenses of running show room and workshop for spare parts ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the place of removal was dealers premises and not the factory of MAL. We have already held that the place of removal is the factory of MAL from where the goods were sold in wholesale to the dealers. Therefore, this demand is set aside. (vi) Demand of Rs. 15,09,291 on cash discount (see paragraph 5.7.7.6) is also required to be set aside as unsustainable as we have held that price at the factory gate of MAL was the normal price under Section 4(l)(a)(i) of the Act and cash discount was a permissible deduction like any other discount, in accordance with the Supreme Court decision in Bombay Tyre International. We, therefore, set aside the finding in paragraph 5.7.7.6 of the impugned order that the ultimate price was the price at the dealer's end and therefore, the cash discount was not deductible. (vii) The demand of Rs. 1,46,044 on advance against sale of BMW Motorcycle also cannot be sustained because the advance was taken by MAL from each customer and has no nexus with the price of the goods, in the light of Board's circular No. 215/49/46 dated 27-5-1996 and the Tribunal's decision in Hero Honda Motors Ltd. [2000 (124) E.L.T. 552]. The demand o....