Custom, Excise & Service Tax Tribunal
Cce, Chandigarh vs M/S Goetze (India) Ltd on 19 July, 2010
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL West Block No. 2, R.K. Puram, New Delhi 110 066. COURT NO. I Excise Appeal No. 1880 of 2005 CCE, Chandigarh Appellant Versus M/s Goetze (India) Ltd. Respondent
Excise Appeal No. 1881 of 2005 CCE, Chandigarh Appellant Versus M/s Escorts Pistons Ltd. Respondent [Arising out of the Order-in-Appeal No. 67/CE/CHD/2005 dated 28/02/2005 passed by The Commissioner (Appeals), Central Excise, Chandigarh.] For Approval and signature :
Honble Justice R.M.S. Khandeparkar, President Honble Shri Rakesh Kumar, Member (Technical)
1. Whether Press Reporters may be allowed to see :
the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2. Whether it would be released under Rule 27 of :
the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3. Whether their Lordships wish to see the fair :
copy of the order?
4. Whether order is to be circulated to the :
Department Authorities?
Appearance Shri Nitin Anand, Authorized Representatives (DR) for the appellant. Shri R.K. Hasija, Advocate - for the Respondent. CORAM : Honble Justice R.M.S. Khandeparkar, President Honble Shri Rakesh Kumar, Member (Technical) DATE OF HEARING : 11/05/2010.
DATE OF DECISION : 19/09/2010.
Final Order No. ________________ Dated : ,,,,,,,,,,,___________ Per. Rakesh Kumar :-
The facts leading to these appeals are, in brief, as under.
1.1 The respondents are manufacturers of piston/rings chargeable to Central Excise Duty under Chapter 84 of the Central Excise Tariff. Both the respondents clear the goods manufactured by them to their depots from where the same are sold and the duty is paid by them at the time of clearance from their factory on the price prevailing at depot at the time of removal. However, both the respondents claimed that they were giving turnover discounts to their customers which are finalised at the end of financial year. The quantum of turnover discount available to a customer depends upon the quantum of sales to him. The respondents, however, while paying duty on the goods at the time of their clearance to depot were claiming deduction towards turnover discount at average rates varying from 3.34% to 4.94% of the depot price on provisional basis. Since the exact quantum of turnover discount could be known only at the end of the year, they requested for provisional assessment, which was allowed. The provisional assessments in the case of both the respondents were finalised by the Jurisdictional Assistant Commissioner by two separate orders both dated 31/12/2004. In both these orders, the Assistant Commissioner, after observing that the deduction towards turnover discount taken by the respondent is more than the turnover discounts actually passed on to their customers and that to the extent the turnover discounts, whose deduction had been claimed by the respondents, and which was not passed on, would attract duty, disallowed the entire turnover discount claimed by the respondents on the ground that for admissibility of trade discount there has to be a sale, which is not there in these cases, where the entire production is, first, transferred to the depot from where the goods are sold and at the time of sale of goods from the depot to the stockists, the respondents do not pass any discount but the goods are valued at the full rate and the discounts are worked out only at a later stage. He also observed that when a discount is not offered at the time of sale from depot, the same is not eligible for deduction for determining the assessable value, as permitting the deduction of such discounts would be contrary to the provisions of Rule 7 of the Central Excise Valuation Rules. It is on this basis that the Assistant Commissioner by the provisional assessment finalisation orders confirmed Central Excise Duty demand of Rs. 56,62,809/- against M/s Goetze (India) Ltd. alongwith interest and duty demand of Rs. 5,09,790/- alongwith interest against M/s Escorts Pistons Ltd. Both the appellants filed appeals to the Commissioner, Central Excise (Appeals), Chandigarh, who disposed of these appeals by a common order-in-appeal No. 67/CE/CHD/2005 dated 28/2/2005, by which the appeals were allowed and the duty demands were set aside. It is against this order of the Commissioner (Appeals) that these two appeals have been filed by the Revenue.
2. Heard both the sides.
2.1 Shri Nitin Anand, the learned Departmental Representative, assailing the impugned order-in-appeal, pleaded that the issue involved in these appeals is as to whether the deduction of turnover discount would be admissible, if there is no evidence showing that the same had actually been passed on to the customers, that in this case, the entire sales of the respondents are through depots and the goods are first stock transferred to the depots, that in such a situation, as per the provisions of Rule 7 of the Central Excise Valuation Rules, the assessable value of the goods would be the sale price of the goods prevailing at the depots, at the time of removal, that is at the time of clearance from the factory, that since the turnover discounts are not given at the time of sale, but are determined at a much later date, their deduction is not permissible for determining the assessable value, that the respondent are not in a position to show that the turnover discount, whose deduction had been taken by them on average basis, had actually been passed on to the buyers and hence, in any case, they are not eligible for their deduction and, that in this regard, reliance is placed on the Tribunals judgment in the case of VIP Industries vs. CCE, Nasik reported in 2008 (226) E.L.T. 401 (Tri. Mumbai), wherein it was held that the deductions of the discount, in respect of, which there is no evidence that the same had actually been passed on to the customers is not admissible. He pleaded that same view had been taken by the Tribunal in the case of Electrolux Kelvinator Ltd. vs. CCE, Jaipur I reported in 2004 (163) E.L.T. 234 (Tri. Del.), wherein it was held that quantity discount is permissible only to the extent actually given and availed of and that certain discounts although originally deducted while discharging duty at the time of clearance of the goods, but were subsequently were not passed on for the reason that the buyers were not meeting the purchase targets, such discount are not eligible for deduction.
2.2 Shri R.K. Hasija, Advocate, the learned Counsel for the respondent, pleaded that while in these cases the assessable value of the goods would be their price at depot at the time of removal from the factory, the depot price has to be adopted after taken into account any trade discount, which had been given either at the time of sale or had been quantified subsequently, that the turnover discount is known and well understood and is quantified at the end of the year and just because it is quantified at a later date, its deduction cannot be disallowed and, that in the case of M/s Goetze (India) Ltd. for previous period, the Tribunal vide judgment reported in 2005 (186) E.L.T. 229 (Tri. Del.) has held that deduction of turnover discount would be admissible, as there is no legal provision for imposing a condition that no deduction on account of turnover discount is permitted at the time of clearance of goods from the factory to depot or from depot to the ultimate buyers. He, therefore, pleaded that there is no infirmity in the impugned order.
3. We have carefully considered the submissions from both the sides and perused the records.
3.1 The period of dispute in both the appeals is from 1/4/03 to 31/3/04. The respondents while paying duty on the goods at the depot price at the time of their removal from the factory, pay duty after claiming deduction of turnover discounts on an average basis. The turnover discount available to the customer is decided only at the end of the year. The point of dispute as to whether when the turnover discount is not given at the time of sale but is determined at a later date, its deduction is permissible. Honble Supreme Court in the case of Union of India vs. Madras Rubber Factory Ltd. and others reported in 1995 (77) E.L.T. 433 (S.C.) while interpreting the provisions of Section 4 of Central Excise Act, as it stood during the period prior to 1/7/2000 and in which there was a specific provision for deduction of trade discount from the assessable value, has held that the deduction of trade discounts known and understood at the time of removal of goods is permissible even if the same are quantified later and in para 58 and 60 of the judgment with regard to turnover discount given on half yearly basis depending upon the volume of purchases made by the dealers, held that its deductions is permissible as it is known and understood at the time of removal of the goods, though it is quantified later. Though the present Section 4 w.e.f. 1/7/2000 in which the assessable value is the transaction value of the goods, does not has a specific provision for deduction of trade discounts, the concept of transaction value, by its very nature would include the deduction of trade discount and, therefore, the judgment of Honble Supreme Court in case of Union of India vs. Madras Ruber Factory (supra) is also applicable to Section 4, as it stood w.e.f. 1/7/2000. Moreover in these cases, it is not the contention of the department that the deduction of trade discount is not permissible at all. The only contention of the department is that since the turnover discount is not given at the time of sale and is quantified much later its deduction is not permissible. This plea, in our view, is not correct, in view of the clear judgment of Honble Supreme Court on this issue in the case of Union of India vs. Madras Rubber Factory Ltd. (supra), wherein Honble Supreme Court with regard to turnover discount held in clear terms that its deduction would be permissible even though it is quantified on half yearly basis, depending upon the volume purchases made by the dealers. We also find that in the respondents own case reported in 2005 (186) E.L.T. 229 (Tri. Del.), the Tribunal has held that the deduction of turnover discount cannot be disallowed as there is no legal provision for imposing the condition that for permitting the deduction of trade discount, the same has to be passed on to the buyers at the time of sale. However, we agree with the contention of the learned Department Representative, that as held by tribunal in the case of VIP Industries vs. CCE, Nasik and Electrolux Kelvinator Ltd. vs. CCE, Jaipur I (supra), the deduction of trade discounts for determining the assessable value is permissible only to the extent such discounts have actually been passed to the buyers. We find that the extent to which the turnover discounts were actually passed on to the buyers has neither been discussed in the order-in-original nor in the impugned order-in-appeal. In view of this, the impugned order is set aside and the matter is remanded to the original Adjudicating Authority for denovo adjudication of this matter, keeping in view our observations in this order. The Adjudicating Authority has to allow the deduction of turnover discount, but only to the extent the same had actually been passed on to the buyers and in this regard, the respondents have to produce the evidence.
(Pronounced in open court on 19th July 2010.) (Justice R.M.S. Khandeparkar) President (Rakesh Kumar) Member (Technical) PK