TaxTMI 
TaxTMI 
2003 (5) TMI 439
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....ing the period under dispute such buyers were termed 'wholesalers'/'resellers'. (a) The agreements entered into by the buyers with HP (sample for 1-3-2000) consists of 'Wholesale Programme Terms' defining Wholesaler's Relationship with HP as follows : "WHOLESALER RELATIONSHIP : (A) The Wholesaler's relationship between its parties will be that of Wholesaler buying as an independent contractor from HP and reselling to a network of resellers (B) Wholesaler will not sell HP Products to end-user customers. Wholesaler will sell HP Products only through registered HP Resellers. A Registered Reseller is a company who purchases Products from Wholesaler which Registered Reseller to end-users other than Registered Reseller's corporate parent, division, or any subsidiary of corporate parent in the regular course of business (C) Wholesaler is responsible for understanding, monitoring and enforcing the above terms and conditions for the Wholesaler's Registered Resellers. HP may withdraw its permission for sales to a given Registered Reseller, or to all Registered Resellers at an ....
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....egrity and reporting issues. 5. Reseller is responsible for the accuracy of data provided to HP for benefits under any HP program which links the provision of benefits to sell-through or sell-to-information." B. MEASUREMENT HP will measure compliance based on (i) Adherence to format specifications as detailed in the HP Sell through and Inventory Guide (ii) Adherence to reporting deadlines (iii) Quality of reported Inventory and Sell-through data (iv) Responsiveness to issues regarding the quality of data reported C. "REMUNERATION HP will remunerate Reseller for this service with an additional discount of 1% already included upfront in Reseller's discounts. Failure to comply to any of the requirements will entitle HP to remove the additional discount on future orders." (b) The buyers place purchase orders on the appellants for the purchase of various models of computers. The said purchase orders, are made ....
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....nt is not relevant to the case. (ii) After considering the provisions of Section 4 of the Central Excise Act, 1944 and the provisions of Section 4(4)(d)(ii) ibid, found that discount should be in accordance with the normal practice of the wholesale trade and its deductions would be permissible if it is established from the term of sale agreements to be so and would include to cover 'commissions' if given to wholesale buyers on principal to principal basis as a normal practice. After drawing a distinction between 'Commission' and 'trade discount' he held that 'discounts' given for the purpose of any service rendered by an agent will not be eligible for deductions. (iii) Thereafter finding from the admitted nature of the 1% discount being given and taking into consideration the definition of wholesale trade in Section 4(4)(e) 'wholesale dealer' in Section 2(4) of the Central Excise Act, 1944 he found : - "....... In this case also the reseller/wholesaler have acted as the wholesale dealer and also as an agent of the assessee in as much as being responsible to the extent of the services....
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....e, the appellants also submit that the practice of sending the weekly report regarding market conditions has not been consistent with the purchaser. Some of the purchasers have sent the reports regularly while some of the purchasers have not. There are situations where the very same purchaser has chosen to send the details in a particular month, not to send the same in the next month, but sent the details in the third month. Notwithstanding this divergent practice that discount extended to such purchaser also has been to a minimum extent of 30%. (5) It would be pertinent to note here that the buyer or customer of Hewlett Packard India Ltd., is a wholesaler, and that his objective is finally to resell the product to the retail customer. It is a common business practice whether the sale is of computers to a wholesaler or tooth paste or refrigerators; the manufacturer will demand performance reports like sales promotions done, their impact, win loss reports etc., to manage the business and market share etc, in an appropriate manner. This practice of HPI is therefore in the normal course of business when products are sold to a wholesaler. (6) I....
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.... of any agency agreement. They are also not extended any amount as a commission for the services rendered by them. Consequently, the resellers cannot be considered as commission agents of the appellants. Thus, the amount of 1% contained in the 30% trade discount offered by the appellants cannot be considered as a commission warranting its inclusion in the assessable value. (2) The appellants submit that the impugned order misses the core point that in the case of commission, the property in the goods never gets transferred from the manufacturer to the transferee of the goods. In this case, as is clear from the agreement when the reseller purchases the goods from the appellants, the property in the goods gets transferred to the resellers. Once this happens, then the reseller can no longer be considered as a commission agent for a particular transaction. (3) The appellants further submit that what ultimately is to be seen is whether in the absence of an agreement, appointing the resellers as agents of the manufacturer and the providing of an amount, specifically as a commission to the resellers for the services rendered by them, whether there....
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....onging to others for the purpose of sale. What the provisions seek to recognize is the fact that a wholesaler can act not only as a dealer but also as an agent. This does not, however, mean that for the same consignment he can play a dual role. If for a particular consignment a wholesaler has acted as a purchaser of the goods to whom the property in the goods has been transferred, he cannot in the same vein be acting as an agent for the consignment. All that the definition recognizes is the fact that a wholesale dealer, apart from purchasing and selling goods, can also either for the same seller or for some other seller stock the goods and transfer it to others as per the directions of the principal. (7) The wholesalers are not under any obligation to the appellants after the goods have been purchased by them. It is their right to decide the person to whom they sell the goods as also the price at which they would sell the goods. It is also right of the wholesaler to decide the discount which he would extend to his purchasers. The appellants would have no right to decide the quantum of discount either. In such a situation, it can hardly be said that the wholesal....
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....reement that is provided by the appellants to the Department. In such a situation, it is the submission of the appellants that the longer period of limitation cannot be invoked in this case at all. And submitted that :- Penalty not imposable (1) In view of the fact that the demand itself is not sustainable both on merits and on limitation, the provisions of Section 11AC cannot be invoked and imposition of penalty is, therefore, not sustainable. (2) For the same reason, the order requiring the payment of interest under Section 11AB is not sustainable. (3) For the reasons indicated above, the impugned order of the Commissioner deserves to be set aside. 3. The ld. DR for the Revenue submits and relies upon : - (a) The definition of remuneration in 'Black's Law Dictionary', which is as follows :-  "Remuneration : Recompense, Salary, Compensation" and submits that from the above it would be clear that the amounts of 1% paid by HP to the resellers are for servi....
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....new pleas relating to facts, which cannot be entertained at this stage. (e) The ratio of the case of Bombay Tyres International reported in 1983 (14) E.L.T. 1896 (S.C.), which is summarized in the paragraphs of the Apex Court's judgments in MRF approved in Para 6, is squarely applicable in this case. A specious re-interpretation of the judgment is being made by the appellant. In this case, the amount paid to the dealer as a remuneration is an expense incurred by the manufacturer. The information given by the dealers is an ongoing service. It is an input to determine the production pattern of the manufacturer. The amount is not a discount but remuneration. (f) The order of the Commissioner does not hold the dealers to be sole selling agents, towards which the arguments were addressed. (g) In the facts of this case, the decisions cited and relied upon by the appellants are not relevant. 4. This matter was heard, thereafter it was placed for re-hearing to know how besides the appellants, the wholesalers/resellers were benefited from the process of sending the weekly reports to the appellants as was the position in ....
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.... collect any amount from the dealers after the removal of the goods. It was submitted that if the appellants had collected 1% from the dealers, resulting in effectively passing of 29% of discount but claimed deduction of 30%, then 1% could not be allowed as deduction. However, the appellants submitted that no part of the discount extended by the dealers was given back by the dealers to them. It was specifically submitted that in a manufacture where 30% discount was claimed, the entire 30% was extended and in the subsequent periods where 29% discount was claimed, the entire 29% was passed on and duty was calculated accordingly. It was submitted that in view of this position, since the activity taken benefited both the manufacturer and the dealer, this 1% could no be considered as an expense incurred on behalf of the manufacturer alone and should be granted since the decision of Philips India case had been rendered after the decision in the case of Madras Rubber Factory. (d) It was also submitted that this was not a case of an additional discount, if it was to be considered a cost incurred on behalf of the appellants, then it is a cost incurred for an activ....
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.... Philips India Ltd. [1997 (91) E.L.T. 540 (S.C.)]. (b) However, there are other reports, emanating, consequent to para 7 of another "agreement", termed as "Segment Operational Policy", which provides the clause for the said 'Remuneration' and the consequences thereof are impugned in this case; this Para 7(C) reads as under : - "7(C) REMUNERATION HP will remunerate Reseller for this service with an additional discount of 1% already included upfront in Reseller's discounts. Failure to comply to any of the requirements will entitle HP to remove the additional discount on future orders." This aspect of the Reports, consequent to this Para 7 of agreement are in addition to the reports and services, which are required vide Para 10 of the Wholesaler agreement. No demonstration, of them being not so, was made before us. A reading of Para 7, of this Reseller Sell-Through and Inventory Report, extracted herein above in para 1(b) of this order, indicates, not only what kind of services were required vide this Para 7(A), but also provide for an elaborate control and evaluation criteria of the same u....
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....ions' are amounts payable by master for 'services' rendered by a 'servant to a master'. The relationship, between principal to principal or/and principal and an agent, and master and servant, cannot be equated. There is doubt that the agreement termed as 'Wholesale Programme Terms' is on principal to principal basis, the same vide para 10 provides for certain reports when it is read with para 7. That agreement does not create a relationship of principal and an agent, to constitute payments consequent thereto to be commissions. Trade discounts offered therein would be eligible abatements. However, we have found that it has not been demonstrated before us that these reports, consequent to para 10 are the same and serve the same purpose as the reports consequent to para 7 of 'Segment Operational Policy', which is a separate agreement entered into. Therefore, while property may be getting transferred from HP to the 'wholesale buyer' vide 'Wholesale Programme Terms' the need to enter into a detailed agreement termed 'Segment Operational Policy' detailing 'Reseller Sell-Through and Inventory Reports' and evaluation by HP of such functions and consequential 'remuneration' for the same, al....
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....Remuneration is, effected and service as per Para 7 of 'Segment Operational Policy' agreement is expected. It is only in future a penalty is imposed, if service was not provided. The ld. Advocate in his submissions was emphatic in his statements that penal clause have never or rarely been enforced. If that be so, then no nexus exists between the goods sold, pursuant to "Wholesale Programme Terms' and services rendered or required/anticipated, consequent to para 7 of the 'Segment Operational Policy'. It would not be creating the wholesale dealer for the very same goods to be an agent or a servant. No bar under the Central Excise Law or any law was shown, that same 'Wholesale buyer' cannot enter into another agreement to perform "additional services" for HP. In this view of the matter, the plea that 'wholesale buyer' could not be an 'agent' or 'servant' cannot survive. This Remuneration is for 'services' flowing from a different contract. Therefore, we cannot uphold the abatement of this 1% since we cannot find 'remuneration', 'rewards', 'recompense', 'salary' and 'compensations' to be equivalent to discount eligible for abatement under Section 4 as the same cannot be equated to disc....
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....ve that the appellant's claim of filing the said agreement with the price declaration will not absolve them and shield them from the visit of a duty demand since the question of approval of a declaration does not arise under the substituted Rule 173C. It was for the assessee to declare truly and correctly all the particulars and clear the goods after assessing the correct duty due thereon under Rule 173F. Unlike in the past, the Department was under no obligation to visit, inspect, issue notice in case of disagreement and approve the lists under Rule 173C or and the assessments made under Rule 173F. If the declaration is erroneous and assessments are not made as per law, the extended period of limitation could be invoked for short levy as per the proviso clauses to Section 11A, as no duty or responsibility is on the Department officials to conclude and scrutinize the declarations. Therefore, the plea that the agreement was filed with the Department is not found to move us to conclude that there is no case or cause for determining the short levy as arrived at by the lower authorities. This plea could be considered only to consider the liabilities and the quantum of penalties arrived....