Customs, Excise and Gold Tribunal - Mumbai
Crompton Greaves Ltd. vs Commissioner Of C. Ex. on 27 February, 2007
ORDER K.K. Agarwal, Member (T)
1. These are two appeals one filed by M/s. Crompton Greaves and the other filed by the Revenue, both arising out of the same order-in-original. Since the issue involved is same, they are being decided through a common order.
2. The brief facts of the case are that M/s. Crompton Greaves are engaged in manufacture of electrical fans and were filing price list from time to time claiming trade discount on different varieties of fans cleared by them. It appeared that the assessee prepared invoices and claimed discount at the time of clearance which were not fully passed on to the wholesale dealers by their depots. The assessee was therefore asked to produce copies of invoices issued from depots to ascertain difference between discounts claimed and the one actually passed on for the period 1991 to 1995 for verification. Due to voluminous nature of the number invoices, the assessee expressed practical difficulties in producing all the invoices and after protracted correspondence a cost accountant was appointed by the Chief Commissioner to conduct audit on a random basis to check the correctness of the discount claimed by the assessee and alleged to have not been passed on fully to the wholesale dealers. For this purpose depots at 8 locations were selected and invoices of these depots for the month of April for each of the 5 years were taken up for random verification. During audit it transpired that the assessee has not passed on the trade discount either fully or partially in respect of 2759 No. of fans and the corresponding trade discount amount not passed on fully or partially came to Rs. 15,878/-. It is the assessee's contention that the total No. of fans cleared during April by the 8 branches came to 51364. The cost accounted also certified that the assessee's system of claiming trade discount and passing it on to the dealer is based on quantity viz. per fan.
3. In view of above show cause notices were issued for the period 1991 to 1995 and thereafter 1995 to 1999 alleging that they have not passed on the discount and therefore they were liable to pay duty on the entire trade discount so claimed by them. While some of the show cause notices did not quantify the amount of duty, the others quantified the same and sought to deny the entire discount availed by the assessee. These show cause notices were adjudicated by the Commissioner and in view of the difficulties in determining the exact No. of cases in which the discount was not passed on due to voluminous and huge number of invoices involved, it was agreed by the assessee that the duty can be demanded on a pro rata basis and they vide then letter dated 13-11-2000 submitted that amount of excise duty payable could be worked out by multiplying the said amount to arrive at annual basis and then calculating the appropriate excise duty payable at the rates prevailing during the period in dispute. The Commissioner thereafter worked out the demand as per the understanding reached with the assessee. However while working out the demand, the Commissioner adopted the following formula:
Total amount of trade discount not passed on, fully or partially, Rs. 15,878/- divided by the total number of fans (where trade discount is not passed on, fully or partially) 2759, is equal to Rs. 5.755 rounded off to Rs. 5.76 per fan on pro rata.
4. This rate of Rs. 5.76 per fan being the discount which was not passed on by the assessee in respect of 2759 fans cleared during the month of April by the 8 depots was however applied by the Commissioner in respect of the entire clearances of the fan during the period 1991 to 1999 and duty amounting to Rs. 69,28,042/- was accordingly confirmed.
5. The learned advocate for the appellants submits that though it is their claim that trade discount in every case has been passed on but since the scrutiny involved a voluminous exercise which was appreciated by the Commissioner, they had agreed to pay duty on a pro rata basis in respect of the discount not passed on. However the formula adopted by the Commissioner is totally wrong as the Commissioner has failed to appreciate that the cost auditor has not considered the total clearances of fans during the period covered by his order but had taken into account only those clearances/invoices where trade discount was allegedly not passed on/partially passed on. Therefore he should have appreciated that for collection of differential duty on a pro rata basis the amount of trade discount amounting to Rs. 15,787/- should have been divided by the total number of fans cleared by the 8 branches in the month of April which were taken into account by the cost accountant and not by the number of fans cleared for which discount was either not passed on or partially passed on. If the formula is worked out in the manner suggested by them then the amount of trade discount not passed on per fan will come to Rs. 0.31 as against Rs. 5.76 per fan worked out by the Commissioner. The learned Advocate also submitted a copy of the certificate given by the Chartered Accountants which specifies the quantity of fans cleared during the audit period by the 8 branches as 51367 Nos. and the amount of trade discount not passed on as Rs. 15,878/-. The pro rata discount not passed on comes to Rs. 0.31. It was submitted that if the differential duty is worked out in the manner suggested by them the amount will come down Rs. 4,26,640.92 as against Rs. 69,28,042/- confirmed by the Commissioner. The learned advocate also pleaded that once the duty comes down from Rs. 69,28,042/- to Rs. 4,26,640/- the penalty of Rs. 5 Lakhs imposed on them should also be accordingly reduced.
6. We find there is an appeal by the revenue also which states that once the assessee was unable to produce invoice in respect of all the 24 depots, the Commissioner should have confirmed the entire demand for the period April 1996 to February, 1999 when the amount was quantified as Rs. 3,36,72,536.96 and that the formula could not have been uniformly applied to all the 24 depots and the Commissioner should have summoned and verified all the invoice of the 24 depots of the assessee before quantifying the duty to be confirmed. His order is therefore liable to be set aside.
7. We have considered the submissions. So far as the appeal filed by the assessee is concerned we find that the short payment in duty has been arrived at on the basis of a mutual understanding that shortages discovered in respect of 8 depots for the month of April as verified by cost accountant should be applied on an annual basis pro rata for the entire clearances. We agree with the appellants that the formula applied by the Commissioner is wrong as he has determined average discount not passed on per fan in respect of those fans where the discount was either not passed on fully or passed on partially but has demanded duty in respect of the entire clearances of fans by applying this formula. Once the total amount of discount not passed on, has been determined to be Rs. 15,878/-in respect of the entire clearances made by the 8 depots in the month of April for which the scrutiny was taken up, this amount should have been divided by the total number of fans cleared during that period to determine the discount not passed on per fan and not by the number of fans in respect of which the discount was not passed on. The ratio in that case would be Rs. 0.31 as per Chartered Accountant's certificate instead of Rs. 5.76/- worked out by the Commissioner. However, the total number of fans cleared by the 8 depots as reflected in the Chartered Accountant's certificate needs verification by the Commissioner especially when we find that the Chartered Accountant's certificate reflects clearance by 7 branches only and not 8. We therefore remand the matter back to the Commissioner with a direction that he should determine the total number of fans cleared by the 8 depots for the period which was taken up for scrutiny by the cost accountant and then he should divide the amount of Rs. 15,878/- by the total number of fans so determined. The differential duty should be determined accordingly. As regards penalty, the Commissioner should re-determine the penalty taking into account difference in the duty originally demanded and determined afresh as per the remand order.
8. As regards the Revenue appeal, we find that the show cause notice does not produce any evidence to show that the discount were not passed on and in fact the cost accountant has certified that the appellants have an adequate system of recording and accounting the trade discount given to the dealers and it was only in stray cases that the discount was not passed on. Once the show cause notices were issued without proper and complete investigation, the orders passed cannot be faulted on the ground that the investigations were incomplete and the Commissioner cannot be asked while adjudicating to first cause investigation, procure evidence and then adjudicate. All these should have been done before issue of show cause notice. Appeal filed by the revenue is accordingly dismissed.
(Pronounced in Court)