TaxTMI 
TaxTMI 
2001 (6) TMI 690
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....M/s. Elgi), under Rule 173Q of the CE Rules, 1944. 2. Facts of the case as narrated in the order-in-original, are reproduced below : "2. M/s. Elgi Equipments Ltd., (hereinafter referred to as M/s. Elgi) having registered office at India House, Trichy Road, Coimbatore, have four factories at (i) Trichy Road, (ii) Elgi Industrial Complex, Singanallur, (iii) Sowripalayam, Coimbatore and (iv) Industrial Estate, Kurichy. They manufacture compressors, pumps, Service Station Equipments etc. 3. M/s. Elgi Limited gave trade discounts varying from 10% to 45% on different products and declared that such discounts may be allowed uniformly to all the buyers. 4. During the course of assessment of RT 12 returns, the officers noticed some corrections which were made on the duplicate entries of gate passes, so that the prices tallied with the price shown in the price list the original gate passes bearing Sl. No. 434/16-06-1990 and 478/25-06-1990. Verification of these gate passes proved that duplicate and triplicate copies have been corrected by M/s. Elgi after issue of original. Sri. T. Frank, Director, in his statement claimed that when the sale at the factory gate....
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....dmitted that Elgi had asked him to correct gate pass copies which he had not done. 7. Sri. T. Frank, Director, Elgi gave a further statement on 25-04-1991. Sri. Frank explained that Elgi had appointed main dealers in respect of borewell compressors and distributors in the name of other products and also had branches all over India; that they had effected (i) sales of main dealers/distributors (ii) Transfer to branches (iii) Sales through main dealers/distributors (iv) Sales through branches; that in respect of (i) and (ii), discount had been passed on in full. In respect of (iii) and (iv), if the buyer was allowed any discount, the balance discount was passed on to the branch/main dealer/distributors. He also admitted that if a buyer approached the company directly, a portion of the discount which was not passed on to the buyer was passed on to the jurisdictional branch/distributor/main dealer or retained by the company, since such buyers were not wholesale buyers. He admitted that the distributor/main dealer/branch got a part of discount as Area Sales Commission. He also justified higher discounts to distributor/main dealers than to dealers/distributors on the ground that ....
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.... (iii) Why a penalty should not be imposed on Elgi under Rule 173Q of Central Excise Rules, 1944. 10. While the matter was under consideration to decide whether extended period can be invoked under Section 11A in this case, the Asstt. Commissioner of Central Excise, Coimbatore I Division has issued show cause notices for the period from 1-1-1991 to 31-3-1994. The details are as under : (i) C.No. V/84/17/37/91-92 Dated 26-08-1991 (ii) - do - 4-2-1992 (iii) - do - 4-8-1992 (iv) - do - 4-2-1993 (v) - do - 30-6-1993 (vi) - do - 3-1-1994 (vii) - do - 3-6-1994 11. By a letter of even no. dated 3-6-1994, Elgi was informed that these show cause notices would also be taken up for adjudication and personal hearing was fixed for 14-6-1994. The show cause notice issued by Asstt. Commissioner, Coimbatore I Division, in OC No. 1088/95 dated 25-7-1995 was transferred to Hqrs. Office, which had also been taken-up while adjudicating this case. 12. M/s. Elgi had not replied to the show cause dated 31-3-1993 but had approached Madras High Court and filed a writ petition seeking stay against show cause notice....
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....aving target commitments and their off takes were much larger when compared to that of dealers; that the dealers only dealt in retail and no bulk offtake can be expected of them; that while partial discount was passed to the dealer, full discount was passed on to the distributor; that the portion of discount not passed on to the dealer was passed on to the jurisdictional distributor/dealer; that the dealers could only be equated with consumer and could not be treated at par with the distributors. M/s. Elgi have also contended that the additional considerations viz. the advertisement cost incurred by the distributor/dealer should only be added to the price of their product. 14. In their letter dated 9-8-1994, M/s. Elgi have contended that the show cause notice issued by this office was time barred as parallel proceedings were initiated by the Asstt. Commissioner of Central Excise, Coimbatore I Dvn. and they relied upon the decision in the case of Nayveli Lignite Corporation v. Collector of Central Excise [1992 (58) E.L.T. 76]; that in view of the observations of the Supreme Court in Bombay Tyre International case, they were eligible for the deduction of discount; that the ra....
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.... case of retail sales as held by Tribunal in CCE v. Escorts Ltd., (ix) CEGAT in Electrical Products Corporation v. CCE [1989 (43) E.L.T. 70] had held that discount cannot be denied on the ground that a portion of discount is passed on later provided it was known at the time of removal. (x) The expenses incurred on after sales service were not includible as they were incurred long after the sale. (xi) In MRF case, the Supreme Court has held that only those expenses which contribute to the value up to the date or the date of delivery are to be includable in the assessable value. Expenditure on distribution is not to be included. (xii) Distributors are not related persons. 18. After the personal hearing was over, Elgi furnished additional information and arguments. They are briefly enumerated below : (i) In respect of borewell compressors, 12.5% discount has been allowed to all categories viz. dealers/sub-dealers/distributors/ main dealers etc. Therefore, in regard to borewell compressors, there can not be any differential duty. (ii) They also furnished detailed gate pass wise clearances details in respect of all the products. El....
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....n accepted by the department which is not the subject matter of any dispute in the present show cause notice. 24. Coming to the stock transfer, he stated that sales from the depots are made to dealers, distributors and stray sales by way of retail sale. As far as sales from the depots are concerned, the settled position as per Central Excise law is that where Part I price is available, the same would form the basis for charging duty on goods transported to the depots and hence the price charged by the depots are not relevant for the purpose of determination of assessable value. In this connection, he stated that the Department's contention is that in respect of some sales made from the depot, the discounts given are less than that declared in the price list and hence differential duty has been demanded. In this connection, he clarified that even though the permissible discount to distributors which has been approved in Part I of the price list is 20% they had paid duty in all such cases where lesser discounts have been given after claiming abatement of actual discount passed on in such cases. He stated that this is the position for almost the entire period covered by the sh....
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....as they sought to pay duty under protest on the differential discount passed on to the distributors and branches; that the reliance placed on the statemant dated 23-4-1991 of Shri T. Frank, Director was entirely erroneous; that the statement of Shri T. Frank that full discount was not passed on to a dealer until target commitment was achieved was not correct and was contrary to the record, particularly in respect of sales of borewell compressors made from the factory gate; that there had been a mix-up of two distinct aspects viz. discount and commission in the statement of Shri T. Frank and that the statement of Shri T. Frank was not relevant to the present case." 3. The Commissioner after carefully going through their records and reply to the show cause notice and the submissions made at the time of personal hearing on 9-8-1994 and 30-3-1995 and the written submissions made on 30-11-1994, 8-12-1994 and 4-9-1995 in his findings observed that the main allegations made by the department in the show cause notice is that the full trade discount claimed in the price lists has not been actually passed on to the buyer but only a portion has been paid as over-riding commission to t....
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.... in different orders. But I notice that in all these cases the orders were passed on the basis of the following assumptions : (a) There was a sale at the factory gate to the distributors/ main dealers and the discount was passed on fully. The discount so passed on was a normal trade discount. (b) Since there was normal price available at the factory gate, even if full discount was not passed on to the sub-dealers and others who bought at the factory gate, the normal price would be applicable. (c) In any case, the sale to the dealers/sub-dealers at the factory gate were either through branches or distributors (This fact has emerged from the statement of Shri T. Frank, Director dated 13-7-1990) and para 10 of Order-in-Original of Asstt. Commissioner, Coimbatore I Dvn vide C.No.V/30A/17/192/92 VC dated 24-6-1983. This was repeated in subsequent orders also. 32. The investigation made by the department with the dealers in Trichy and Mangalore and the statements recorded show that the difference between the discount passed on to the sub-dealers and the discount claimed on the price lists is paid to the distributor/branch, if the dealer happens to be locat....
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.... not deductable Sri. T. Frank, director of the company in his statement dated 13-7-1990 has clearly admitted that the differential discount is passed on to the branches/dealers/distributors to cover the inventory and after sales service during guarantee period and therefore this amount is clearly covered by the Supreme Court decision as an inadmissible deduction. 36. From the statement of the dealer in Trichy, it is also clear that the sales through branch or distributors is only a myth and what is mentioned in the invoice is only to mislead the department. The dealers have clearly admitted that they have nothing to do with the branch or distributors. Another fact that is very relevant is that the branches make profits which clearly proves that there is a flow back of the discount. In view of this fact, the details furnished by the company in support of their centention that discount shown in the invoice has been passed on, does not help the assessee's base. It is not the department's contention that discount shown in the invoice has not at all been passed on. The department's contention is that discount shown in the gate pass has not been passed on. This fact has not been ....
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....ate copy was corrected for indicating the assessable value and submitted to the department along with RT 12s. This practice continued till 25-6-1990 and the department booked an offence case against the assessee for this malpractice. The assessee claimed that this was due to a mistake on the computer system which was set right subsequently. However, the mistake in the computer system was not intimated to the department as they felt it not necessary to inform the department about the lapse in the computer. The assessee has stated that higher discount was given to the branches and distributors to take care of the expenses incurred on account of the inventory, after sales service and other sales expenses. The detection of mismanagement of computer and modifications made in duplicate copy of gate pass without the knowledge of the department led to the investigation by the department. Manipulations of the invoices showing that the sales are through branches when in fact it was not so, amount to not only to suppression of facts and mis-declaration by the assessee but also serves as an unimpeachable proof of the intent to evade Central Excise duty at the cost of exchequer. But for this de....
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....sor 1. Multistate distributor 20% 20% 20% 20% 10% 2. Singlestate distributor 15% 12.5% 15% 15% 5% 3. Main dealer 12.5% 10% 12.5% 12.5% 5% 4. Dealer 10% 10% 12.5% 10% 5% 5. Sub-dealer 10% 7.5%) 5%) 10% 10% 12.5% 5% 44. Elgi have not categorically denied that differential discount has not been passed on to main dealer/distributor/branch. They have also not denied the reasons for giving higher discounts. Shri T. Frank, Director of Elgi in his statement dated 13-7-1990 has stated that the difference between the assessable value and retail price collected was passed on to their distributor or branches according to area under their jurisdiction once in 6 months. In his further statement dated 25-4-1991, Shri T. Frank has stated that the discount was passed on to the branches/main dealers/distributors in the name of area sales commission by way of credit notes issued from time to time; that the reason for passing on this discount was to cover the cost of inventory. Cost....
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....Moreover, the amount involved in the show cause notices is Rs. 1.25 crore which cannot by any stretch of imagination be considered as a small amount. Show cause notice was issued in 1991-92 and 1993. M/s. Elgi chose to reverse their stand only after the personal hearing was over. 47. In this connection, I consider it relevant to refer to the findings of following cases of Tribunal. K. Thangaswamy v. Collector of Customs, Madurai [1985 (21) E.L.T. 525 (T)] "It is settled proposition of law that when a statement which is inculpatory in nature and confessional in character is retracted by a person, the Court will look into the factors and reasons to find out whether the reasons for retraction are true and voluntary. In the instant case, there was no immediate retraction. It is only in reply to show cause notice after a period of 10 months, the Appellant chose to retract from his earlier statement. The statement in the above circumstances has to be taken as true and voluntary." CCE, Madurai v. N. Parasmal and Others [1986 (26) E.L.T. 596] "An incriminatory statement containing factual details by no stretch of reasoning can be characterised as figment of authorities ....
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....by the company through these distributors, through the branches and also direct from the company during their warranty period and other sales expenses of the branch, dealer/distributor. It is also to be noted in this connection, that almost all the sales to the two Delhi distributors have taken place not at the factory gate but only from the Delhi branch which is only a stocking point to facilitate the supply of goods to the distributors in terms of the statement given by Shri T. Frank. In view of the non-disclosure of the additional consideration flowing from these distributors by way of after sales service rendered by them in respect of the goods supplied by the company, invoking the extended period is justified in this case. The company has also produced a number of service bills of other dealers to establish the fact that other dealers also render after-sales service in respect of the goods supplied by them. It is a fact that any dealer, whether big or small will be undertaking some after sales service and the bills produced by the company for the period subsequent to the case could be treated only as after sale bills of this category. Out of the 12 service bills produced, 4 ar....
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....ble to the normal trade discount and may be permissible to distributors after making due adjustment from the higher discount claimed for the additional considerations flowing indirectly back to the assessee by way of after sales service and other sales promotion activities. 51. M/s. Elgi have written in their letter dated 16-4-1992 that they would claim uniform discount of 10% henceforth and pay duty on extra discount passed on to the distributors under protest. When the assessee himself has chosen to adopt a uniform discount of 10% in respect of all clearances, I have no hesitation to allow this 10% discount for the past clearances also. Therefore, I hold that the assessees are eligible for a uniform discount of 10% on their clearances to dealers/distributors/branches and differential duty is demandable on the ineligible portion of the discount passed on to their branches/distributors. In view of the above, I hold that M/s. Elgi is eligible for deduction of a discount of 10% only which is allowed uniformly to all dealers/sub-dealers. 52. In respect of retail sales, the differential duty is worked out after allowing the actual dicount, if any, given on such retail s....
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....ches for sale therefrom. Sales also made to sub-dealers from the factory and to retail also. 3. Appellant has paid excise duly for all despatches based on wholesale price at the factory gate charged from the distributor. In the impugned order, Collector has given a discount of 10% only even to distributors. On the balance value duty has been demanded. 4. Collector has recorded a finding of fact that even when sales are made to sub-dealers, etc. at a lower discount, balance discount has been passed on to the concerned distributor. Realisation for sale is the same. (see para 34 of the impugned order at page 182 of the paper book). 5. This may be illustrated. Suppose for sale directly made to the distributor from the factory, discount of 20% is given. In certain other cases suppose for sale made to sub-dealer a discount of 8% is given. Balance discount of 12% is given to the distributor. 6. In the above circumstances it has been held consistently in the following cases by CEGAT that the total discount given to the distributor would be permissible deduction. (a) 1989 (43) E.L.T. 70 (Tri.), affirmed in 1991 (54) E.L.T. A92 - Ele....
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....es to the distributor the labour element involved in attending to the warranty scheme of the customer. Thus this expenditure is also borne by the company. Therefore it is clear that the discount is not given because the distributor has to incur warranty cost, etc. 12. Also the discount given to the distributor is given on outright basis, unconditional and without any reservation in the invoice itself. Even when the goods are sold to sub-dealer and balance discount is passed on to the distributor it is passed unconditionally without any reservation. Passing on discount is not itself contingent upon distributor achieving broad target of sales, producing proof of service to the customer, etc. Even the credit notes given to the distributor at pages 204 to 237 of the paper book do not say that it is for area sales, commission, etc. Statement of Mr. Frank is contrary to the records and therefore cannot be relied upon. 13. Collector has relied upon the statement of Mr. Saravanan dated 8-9-1990. This is explained in grounds Q.1 to Q.4 by the appellant in the memo of appeal at pages 35-36. 14. Collector had relied upon the statement of Mr. M.V. Mallaya of Maroor Mach....
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....are allowed trade discount of 20% and this is given at the time of clearance of the goods from the factory. Similarly sale to the sub-dealers is also at the factory gate and duty is paid at the time of clearance of the goods on the price of the goods approved by the department. They pay trade discount of 8% to the sub-dealers and the balance 12% is given to the Distributors of that area. They have three types of sales viz (1) Sale to the Distributors (2) Branch transfer (3) Sale to sub dealers. They have filed price lists under Section 4(1)(a) of CE Act, 1944 and have filed price lists in part I stating that price which they got approved from the department in part I under Section 4(1)(a) is after a round of litigation before the Assistant Collector and the Collector, Central Excise (Appeals). They also declared the price and got it approved from the department that they would be passing on the full discount at the time of clearance of the goods. He has submitted that they have mentioned in the price list that they would be passing on full discount at the time of clearance of the goods. He has submitted that they have mentioned in the price list that full discount shall be allowed ....
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....essee in all the cases were as per the price lists filed and approved. Therefore, the appellants were eligible for full discount as approved by the departmental authorities in respect of the whole range of transactions. The learned Counsel then took us to the statement of Sri T. Frank, Director of the organization. He submitted that answer to the Question No. 4 given by the said T. Frank, Director is incorrect and should not be relied upon and this is also relatable to the Question No. 12. He also took us to the question No. 3 of the statement of the T. Frank and submitted that there are no area sales commission given by them as held by the adjudicating authority. The expenses towards warranty is borne by the manufacturer and not by the Distributor. Therefore, the statement of T. Frank that they are giving higher discount to the distributor because of various reasons is not correct. He also took us to question Nos. 8, 9, 10, and 11 and submitted that the statement of T. Frank is irrelevant for branch sales. He also informed that after a round of litigation before the Assistant Collector and the Collector (Appeals), the price list filed in part I was got approved from the department....
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....ew of the above submissions, the learned Counsel prayed that the order of the Collector be set aside and the appeals allowed with consequential relief. 5. Shri S. Kannan, learned DR appeared on behalf of the department and submitted that the amount has been pocketed by the Distributor for maintenance of inventory etc. He submitted that the voluntary statements have been given by two sub-dealers to the effect that they never deal with their branches or distributor but directly deal with M/s. Elgi only. The learned DR took us through paras 32 and 33 of the impugned order and submitted that in para 4 of the statement of T. Frank, Director of the Company had admitted in his voluntary statement that the sales commission given to the distributor was by way of credit note. He also relied upon para 35 of the impugned order wherein the Commissioner has held that the investigation conducted by the department clearly brings out the fact that the Trade discount passed on to the main dealers/distributors is not the trade discount in the normal course of trade and consists of area sales commission provided for looking after the after sales service during warranty period, maintenance and ....
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....the discount to area distributors was also in consideration for also providing after sales service which is not required to be taken into account while dealing with trade discount within the meaning of explanation to Section 4(a) of the Act. Therefore, the Central Government rightly did not take into account such area distributors who may have to provide after sales service. The trade discount given to such wholesalers who were under no obligation to provide after sales service is the relevant trade discount given to the wholesalers." The submission made by the appellants for themselves in that case before the Central Govt. was that the discount to the area distributor was also in consideration for providing after sale service which is not required to be taken into account while dealing with trade discount within the meaning of explanation to Section 4(1)(a) of the CE Act, 1944. The Hon'ble Apex Court, therefore, held that the Central Govt. rightly did not take into account such area distributors who may have to provide after sale service and the trade discount given to such wholesale dealers who were under no obligation to provide after sale service, is the relevant trade disco....
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....om the sale price if nature of the discount is known to the wholesale dealers at or prior to the removal of the goods. Trade discount is inadmissible for deduction if not known prior to the removal of the goods but is given after invoice is raised and removal of the goods is completed within the meaning of Section 4(4)(d)(ii) of the CE & Salt Act, 1944. It was also held that over-riding commission is not trade discount but commission for service rendered by the agents. It is not trade discount known prior to the removal of the goods and is accordingly not deductible from the assessable value as held in para 15 by the Hon'ble Apex Court in the case of Assistant Collector Central Excise and Others v. MRF reported in 1987 (27) E.L.T. 553 (SC). Trade discount can be allowed if the rate of discount is declared in advance and if it is uniformly available to all the wholesale dealers, otherwise not, as held by the Hon'ble Supreme Court in the case of Bombay Tyre International. M/s. Elgi would have continued to evade payment of duty but for the alertness on the part of the assessing officials. During the course of assessment of RT 12 returns they noticed some corrections which were made in....
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....nd that shown in the gate passes and that she went by invoice price and that she was not aware of the reasons for such difference between invoice and GP1. She also stated that even though order of acceptance and invoice showed as if the transaction was through Madurai Branch of M/s. Elgi, she never dealt with Madurai Branch but always with M/s. Elgi only. She also admitted that M/s. Elgi reimbursed 50% of advertisement charges spent by her. She had also admitted that M/s. Elgi had sent a letter asking her to correct the original gate pass No. 46/11-4-1990. Another customer Sri R. Saravanan, owner of an automobile service station at Trichy in his statement on 8-9-1990 admitted that M/s. Elgi had charged him a higher price than shown in the gate pass and did not pass on the discount even when he requested. He also admitted that M/s. Elgi had asked him to correct the original gate pass but he had not done. From these sample statements, it is evident that trade discount was not given uniformly though shown in the gate passes and in few cases, in spite of requests made by dealers, trade discount was not allowed to them. It is pertinent to mention that commercial invoice was never submit....
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....imbursed 50% of the advertisement charges to dealers and 25% to distributors. He also admitted that the branches used the discount and area sales commission for after sales service, inventory and other expenses. Branch Managers of Madurai and Cochin fully corroborated the statement of Shri T. Frank. A plea has been taken by the learned Counsel that the statements of Shri T. Frank and Smt. Shantha Sethuraman cannot be relied upon as they are incorrect. We are not able to agree with this plea of the learned Counsel in this regard. We find from para 46 of the impugned order that Shri T. Frank has retracted his statement on 8-12-1994 which is after a period of 3 years and 7 months. Therefore, the statements made by Shri T. Frank has evidentiary value and his retraction has been rightly rejected. As rightly held by the adjudicating authority, Shri T. Frank was a responsible officer holding the position of Director of the Company responsible for the entire operations of the Company. It is unbelievable that such an officer would have given a false account of what was happening in the Company. Further the statements of all other persons including Shri T. Frank is corroborated by documentar....
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....ce the goods were sold to independent buyers at the factory gate at the price declared by them. From the above it is seen that they had declared to the department that the goods are sold at the factory gate at the price declared by them. In the questionnaire filed along with the price list they had actually stated that they are allowing trade discount to all the buyers uniformly. By this mis-statement and suppression of these vital facts, the department was kept in dark about the different rates of discount being given to various wholesale dealers and in some cases no trade discount was given at all. It has been held by the Hon'ble Supreme Court in the case of M/s. Kirloskar Brothers reported in 1992 (59) E.L.T. 3 (SC) that higher discount given to the area dealers for providing after sale service is not deductible. Therefore, the discount as claimed by them is inadmissible. Although they had declared to the Department at the time of filing statutory price list in part I under Section 4(1)(a) that they would be passing on full trade discount to the wholesale dealers who were independent and had no interest in the business of each other yet they have never passed on full discount un....