Custom, Excise & Service Tax Tribunal
Cce, Chennai Iii vs M/S. Tvs Motor Company Ltd on 11 June, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
E/472 to 477/2009 (Deptt. Appeal)
E/482 to 487/2009 (Assessees Appeal)
(Arising out of Order-in-Appeal No. 109 to 114/2008 (M-III) dated 15.5.2009 passed by the Commissioner of Central Excise (Appeals), Chennai)
CCE, Chennai III
M/s. TVS Motor Company Ltd. Appellants
Vs.
M/s. TVS Motor Company Ltd.
CCE, Chennai III Respondents
Appearance
Shri Raghavan Ramabhadran, Advocate for the Assessee
Shri K.P. Muralidharan, AC (AR) for the Revenue
CORAM
Honble Shri R. Periasami, Technical Member
Honble Shri P. K. Choudhary, Judicial Member
Date of Hearing : 09.10.2015
Date of Pronouncement:
Final Order Nos. 40166-40169 & 40178-40185 / 2016
Per P.K. Choudhary
The appeals filed by the assessee and Revenue are taken up together as the issue involved are identical and arising out of common Order-in-Appeal dated 15.5.2009.
2. The brief facts of the case are that the assessees are manufacturers of motor vehicles and mopeds falling under Chapter 87 of CETA, 1985 and they are registered with Central Excise Department and discharged duty for the clearance. The assessee requested for provisional assessment on the final products cleared as they intend to claim certain abatements from the price quoted in the invoice like freight, discounts, turn over tax, tax paid under section 3(4) of TNGST Act and cash discounts and trade discounts and Pre Delivery Inspection (PDI) and Free Service Coupon (FSC). Accordingly, provisional assessment was ordered for financial years 1999 to 2004 05. The adjudicating authority finalized the provisional assessment with the respective Order-in-Original for the respective financial years and consequently demanded differential duty and also ordered for refund for the excess payment which is as under:-
S. No.
Appeal No.
Order-in-Original No. and Date
Period of finalization
Amount of duty demanded (in Rs.)
Amount of refund given to filing of separate refund claims
1.
70/07 (M-III)
8/2007 dt. 31.7.2007
1999-2000
56,88,204/-
---
2. 113/70 (M-III) 21/2007 dt. 27.9.2007 2000-2001 5,57,57,825/-
1,66,37,990/-
A. Cess 98,851
3. 114/07 (M-III) 22/2007 dt. 27.9.2007 2001-2002 3,96,72,190/- A.Cess 3,09,939/-
--
4. 115/07 (M-III) 23/2007 dt. 27.9.2007 2002-2003 4,70,25,781/- A.Cess 3,39,414/- NCCD: 95,756 35,80,771/- A.Cess: 27,975/- NCCD 1,89,154/-
5. 116/07 (M-III) 24/2007 dt. 27.9.2007 2003-2004 2,06,23,453/- A.Cess: 1,61,211/-
20,80,190/- A.Cess: 16,251/- NCCD: 1,30,012/-
6. 113/08 (M-III) 19/2008 dt. 16.9.2008 2004-2005 3,29,22,624/-
8.90,711/-
3. The adjudicating authority has allowed certain deductions and disallowed certain deductions. He has also disallowed deductions towards equalized freight, tax paid under section 3(4) of TNGST Act and trade discounts, PDI and FSC. Against these, assessee preferred appeals before Commissioner (Appeals) and the Commissioner (Appeals) in his common impugned order partly allowed the appeals. For the sake of convenience table of various discounts are reproduced as under:-
S. No. Abatements Original Authority First Appellate Authority Pre- 1.7.2000 Post 1.7.2000 Pre 1.7.2000 Post 1.7.2000
1.
Equalized Freight Allowed Disallowed
-
Disallowed
2. Turn Over Tax Allowed Allowed
--
--
3. 3(4) Tax Disallowed Disallowed Allowed Allowed
4. Cash Discount Allowed Disallowed
--
Disallowed
5. Trade Discount Disallowed Disallowed Allowed Allowed
6. FSC Allowed Disallowed
--
Disallowed
7. PDI Allowed Disallowed
--
Disallowed
4. Against the said Order-in-Appeals, the assesses filed appeals on four issues before this Tribunal wherein the Commissioner (Appeals) has disallowed the deductions partly on equalized freight, cash discount, FSI and PDI and also on the manner of quantification of finalization of provisional assessment whereas Revenue reviewed the said order-in-appeal and preferred appeals on that portion of the order where the Commissioner (Appeals) has allowed relief in respect of two issues namely section 3(4) of TNGST Act and trade discounts.
5. Learned counsel on behalf of the assesse submitted a written synopsis dated 16.12.2014 and also submitted paper books of case laws relating to issue-wise and Annexures Vol. 1 to 12 submitted along with paper book. He reiterated the Synopsis and submitted that though they have units both at Hosur and Mysore but the marketing pattern is same for both the units. As far as Hosur unit is concerned, which is the subject matter of the present appeals, the motor vehicles are sold at factory gate price for dealers in Tamil Nadu as well as transferring to their depot and from there to dealers located outside Tamil Nadu. He submits that they are on appeal only on four issues arising out of the same order. For the purpose of deciding the issue, Appeal No. E/482/2009 is taken for argument and discussion.
6. On the first issue, that is equalized freight, it is submitted that the issue pertaining to the period 1.7.2000 to 28.2.2003 where the vehicles are cleared from depot to dealers premises or from factory to dealers premises. He submits that as per section 4 of Central Excise Act, 1944 freight is to be excluded from the transaction value. Since the equalized freight will be known at a later date. Accordingly, they claimed deduction. Department disallowed the claim on the ground that it is not separately indicated in the invoice at the time of removal. He relied on the decision of the Tribunal in their own case vide Final Order No. 1860/2006 dated 3.11.2006. He has also relied on the following case laws for equalized freight:-
(iv) The Indian Hume Pipe Co. Ltd. Vs. CCE 2005-TIOL-431-CESTAT-MUM
(v) CCE Vs. Shreyans Industries 2013 (296) ELT 537
(vi) Reliance Cellulose Products Ltd. Vs. CCE 2006 (205) ELT 750 Cash Discount
7. He drew attention to page 48 of the Order-in-Appeal and explained the cash discount is for prompt payment whereas Department denied only on certain transaction where they have not proved that they have passed on the discount. He submits that they are not required to prove that the discount is actually passed on or not. He submits that the issue is already settled by the decision of the Larger Bench in the case of CCE, Ahmedabad III Vs. Aravind Mills Ltd. 2006 (204) ELT 570 (Tri. LB) wherein the Larger Bench held that cash discounts are to be allowed. He submits that the only condition is that seller and buyer should know in advance about the discount. He submits that the practice is followed by the automobile industry throughout the country. He relied on the following case laws:-
1. M/s. Purolator India Ltd. Vs. CCE, DelhiIII - 2015-TIOL-193-SC-CX.
2. Konkan Synthetic Fibres Processed Yarn Vs. CCE 2007-TIOL-277-CESTAT-MUM
3. CCE, Mysore Vs. TVS Motor Co. Final Order No. 25567 to 25569/2013 dated PDI / FSC
8. He drew attention to page 51 of Order-in-Appeal wherein the Commissioner (Appeals) in his findings has allowed deduction in principle but held that the appellant also collected excise duty on the PDI charges and FSC. He submits this is factually incorrect. It was neither their submission before the adjudicating authority nor before the appellate authority. He submits that they never collected excise duty element on the PDI/FSC. He also explained with reference to sale price at the time of factory gate and withheld certain amount from the factory price till the dealer has executed PDI/FSC and immediately paid the balance amount by way of credit note as and when dealer submits the record and bill. He drew attention to copy of invoices annexed in Volume I at pages 46 & 47 and the Invoice No. 13834 dated 10.11.2004 and explained how the transaction value was arrived with reference to TVS Vector GX Black. He submits that wholesale price is Rs.27,419/-. From that, after deducting FSC, CD, TOT and freight, the assessable value per vehicle is Rs.26,079.42. He explains that FSI amount is Rs.160/- and Rs.53.92 towards cash discount and Rs.957.71 towards turnover tax and Rs.150/- is towards equalized freight and submits that the assessable value is arrived at not after deduction and clearly showed that they have not collected excise duty from the dealer on these PDI/FSC. He submits that the transaction value of the vehicle is at the price on which the vehicles are cleared at the time and place of removal which is their factory gate. He relied on the decision of the Tribunal in their own case vide Final Order No. 25567 to 25569/2013 dated 8.7.2013 and submits that the Tribunal after considering the Honble High Courts order in the case of TATA Motors Vs. Union of India 2012 (286) ELT 161 (Bom.) allowed their appeal.
The manner of finalization of provisional assessment:-
9. He drew attention to Order-in-Original where the adjudicating authority while finalizing the provisional assessment for each transaction and the Annexure to the Order-in-Original Volume I Pages 1413 where he computed for each issue incurred, claimed and denied and arrived at the net for each discount. At the end of the working he has calculated individually the short paid value and excess paid value for each transaction and demanded duty on the short paid value and whatever the portion where he has allowed the discounts. He failed to adjust the amount instead passed the order and directed the assessee to claim refund subject to provisions. He relied on the decision of ACCE Vs. MRF Ltd. & Ors. 1987 (27) ELT 553 (SC).
10. On Revenues appeal, in respect of deduction claimed under section 3 (4) of TNGST Act, he reiterated the findings of Order-in-Appeal at pages 46 & 47 and also he explained that the provisions of section 3(4) of TNGST Act annexed at page 21 of his submission and submits that the tax is levied on the manufactured goods if stock transferred outside Tamil Nadu. His emphasis is on the manufacture of finished goods. If there is no manufacture even though they procured the raw material by availing concessional rate of service tax within Tamil Nadu, the taxability under section 3(4) does not arise. In the event of taxability, it is probably on the manufacture of final products and clearance by stock transfer. Therefore, the nature of levy has not changed and it is not a tax on purchase or on raw material. The case laws relied by the Revenue are not applicable. Further, he submits that since the incident of tax is on the manufacturer of finished goods the quantum / computation of 1% tax is calculated on the value of raw material is not the criteria for treating it as a purchase.
11. On the trade discount, the appellate authority has already allowed the benefit. He reiterated the findings at page 50 of Order-in-Appeal. He submits that the trade discounts are given as per the established practices which are already disclosed well in advance prior to removal of goods. Copies of the circulars were also relied by the appellate authority. He also drew attention to copy of sample circular dated 1999 and dated 26.7.1999 annexed at pages 31, 32 of Volume I of paper book and submits that the company comes out with various discounts every year depending upon the season and also for a particular model. Therefore, the discount is already known to the trade before removal. The adjudicating authority taking the view that the invoice does not show the actual discount is not justified as it will be known only after the target is achieved and will be known at a later date and that is the reason they have opted for provisional assessment. He also drew attention to para 9 of Board Circular dated 30.6.2000 where Board has categorically said that in case the discount is not readily known, the transaction is to be made on provisional basis. They have followed the procedure as per the Board circular and the lower appellate authority has rightly allowed the trade discount.
12. The learned AR for Revenue submitted his arguments for the Revenue Appeal Nos. E/472 to 477/2009. On section 3(4) of TNGST deduction, he drew attention to statement of facts at paragraphs 5, 6, 7 at page 4 of Revenue appeal and reiterated the grounds of appeal (iii), (iv), (v) and (vi) of Ground I. He submits that the original authority has rightly disallowed and drew attention to Order-in-Original No. 21/2007 dated 27.9.2007 from pages 46 to 48 of the Revenue appeal. What is to be allowed is deduction only on sales tax paid on the finished goods whereas in the present case, the goods are transferred on stock transfer basis. There is no sale involved. He submits that the Commissioner (Appeals) has not discussed the findings of the adjudicating authority and also relied on the decision of the Tribunal in the case of CCE, Calcutta Vs. Khaitan Fans (P) Ltd. 1986 (26) ELT 321.
13. On the second issue, i.e. trade discount, he reiterated the grounds of appeal II and submits that the adjudicating authority has rightly disallowed the abatement of trade discount as discount was not declared at the time of removal of goods. He relied on the decision of the Honble Supreme Court in the case of Govt. of India Vs. Madras Rubber Factory Ltd. 1995 (77) ELT 433 (SC).
14. On the assessees appeal, in respect of four issues, that is equalized freight cash discount and PDI/FSC, he reiterated the findings of Order-in-Appeal at page 43 and Order-in-Original No 19/2008 dated 16.9.2008 paragraphs 12, 12.3, 12,4 and 12.5 at pages 56 & 57. He relied the case laws of Maruti Suzuki India Ltd. Vs. CCE 2010 (257) ELT 226 (Tri. LB) and TATA Motors Ltd. Vs. Union of India 2012 (286) ELT 161 (Bom.)
15. Regarding the cash discount and method of finalization of assessment done by the adjudicating authority, he reiterated the findings in Order-in-Appeal at page 48 and also relied on the Annexure to Order-in-Original where the adjudicating authority has correctly demanded on the actual shortage and excess amount as ordered to be claimed as refund.
16. Learned counsel in his rejoinder countered the departments allegation. He once again reiterated the decision of the Tribunal in theirown case which is in their favour for the equalized freight and regarding cash discount, the Commissioner (Appeals) in fact has allowed the cash discount but only held that the assessee has not passed on the discount.
17. Regarding PDI/FSC, he again reiterated that they have not charged excise duty on the amount of deduction claimed from the customers. He also submits that even though the adjudicating authority has ordered for claiming refund, they have not filed any refund as they were contesting the issue that the amounts be adjusted against the finalization of the provisional assessment.
18. We have heard both sides. In the instant case, both the assessee/appellant and the revenue have filed respective appeals. These appeals are taken up together for disposal.
19. The appellant had appealed against the following findings given by the Commissioner (Appeals) in the impugned Order in Appeal.
(i) Equalized freight is not allowed for abatement for the period from 1.7.2000 to 28.2.2003.
(ii) Cash discount is not allowed for abatement wherever it is not actually passed on for the period post 1.7.2000.
(iii) Free service charges and pre-delivery inspection charges are not allowed as abatement when passed through credit notes to the dealers for the period post 1.7.2000.
(iv) The order in appeal is silent about the manner in which the provisional assessment is to be finalized and the manner in which the assessment value is to be determined when abatements are allowed.
20. On the other hand, the revenue has filed appeal against the findings of the Commissioner (Appeals) in the impugned order in appeal on the following issues:
(i) The Commissioner (Appeals) should not have allowed on the abatement of tax paid under the provisions of section 3(4) of the TNGST Act as the said tax paid is not a sales tax on the final product.
(ii) The Commissioner (Appeals) should have disallowed the abatement of trade discount as the same were not disclosed to the dealers at the time of prior to removal of goods.
21. The above grounds for appeal by both the sides are dealt with and the findings are given as below:
APPELLANT / ASSESSEE GROUNDS:
The Commissioner (Appeals) has disallowed the abatement of freight from the assessable value on the ground that for the period up to 28.2.2003 the said element of freight should have been shown separately in invoices. He has relied upon provisions of valuation rules (Rule 5) to come to the conclusion that price should have been shown separately in the invoices if abatement is to be claimed. We notice from a reading of Rule 5 of the Valuation Rules as they existed till 28.2.2003 that the condition for showing separately the freight in the invoices for such excisable goods arose only in cases where the cost of transportation is charged to the buyer in addition to the price for goods. On a reading of the entire rule itself, it is clear that there is no absolute prohibition for denying the abatement on freight in cases where the freight is not shown separately in the invoices. On the other hand, the notice that the rule itself specifically excludes the actual cost of transportation from the place of removal up to the place of delivery of such excisable goods and it requires a condition for showing the freight separately in the invoices, only in cases where the cost of transportation is charged to the buyer in addition to the price. Therefore, we are of the view that in the instant case where the freight from the place of removal to the delivery point is in-built in the price itself, the question of showing it separately in the invoices does not arise. In the following decisions, the Tribunal have allowed the abatement of freight from the assessable value/price even when the freight is not shown separately in the invoices.
(i) Relying on the Supreme Court decision in the case of CCE, Noida Vs. Accurate Meters Limited 2009 (235) ELT 581 (SC), the Tribunal in the case of National Peroxide Ltd. Vs. Commissioner of Central Excise, Thane, 2013 (298) ELT 423 had allowed the abatement of price even when the freight is not shown separately in the invoices and collected by raising debit notes.
(ii) In the case of Cheeramalil Plastics Pvt. Ltd. Vs Commissioner of Central Excise, Cochin, 2006 (206) ELT 406 the Tribunal at Bangalore have allowed the abatement of equalized freight from the assessable value.
22. In the instant case, the appellant are able to prove the extent of actual price involved by submission of a Chartered Accountants Certificate which should be sufficient for claiming the abatement. Therefore, we are of the view that the rejection of availment of abatement on equalized freight in-built in the price itself is not correct, merely because freight element has not been shown separately in the invoices. Appellants are eligible for deduction of equalized freight.
1. Denial of cash discount on the ground that the same is not passed on to all the dealers.
Regarding this ground of the assessee/appellant, we find that the said cash discount is granted in the invoices themselves and irrespective of whether the buyer claims the same or is eligible for the same, the said discount is claimed as deduction from the price. The transaction value under section 4 of the Act refers to price paid or payable for the goods removed. It is not the case of the department that whomsoever is not eligible for the discount is asked to pay back the same by the appellant through debit notes. In other words, once the cash discount is allowed in the invoices, irrespective of the eligibility to the said discount, if any, of the buyer, same is passed on in the invoice itself. Therefore, the valuation provision read with the rules would not envisage rejection of such discounts when the same is not recovered later by the Manufacturer. The buyer based on the net price charged in the invoices, pays the amount to the Manufacturer and that becomes the transaction value. Therefore, there is no question of rejecting the benefit of abatement of such discount on the ground that the same is not actually passed on to the buyer. In the following decisions, the Tribunal in Larger Bench and other decisions had held that cash discount is abatable irrespective of the fact whether it is availed by the buyer or not.
(i) 2006 (204) ELT 570 (Tribunal L.B.) in the case of Commissioner of Central Excise, Ahmedabad III Vs Arvind Mills Limited (supra), wherein the Larger Bench of the Tribunal held that the price shown in the invoices where cash discount has been claimed, is the price even when the said discount is not allowed.
(ii) 2004 (167) ELT 401 in the case of Commissioner of Central Excise, Ghaziabad Vs. Pace Marketing Specialty Limited (Tri. Del.), wherein the Tribunal held that the price received at the time of removal of goods is relevant for deciding the transaction value and when cash discount is claimed, the same cannot form part of the assessable value, so long it is discounted in the invoice itself. In view of the above, we hold that the appellants are eligible for deduction of cash discounts.
2. Abatement of Free Service Charges and Pre-delivery Inspection Charges.
We find that in the assessee/appellants own case, reported in 2016 (331) ELT 3 (SC),/2015-TIOL-299-SC-CX the Honble Supreme Court, in the case of pre-delivery inspection and After-sales service charges (free service charges), have held that where the dealer incurs expenditure for such charges after the vehicles are bought from the Manufacturer, the same cannot be added back to the sale price, charged by the Manufacturer from the dealers for computing assessable value. The Court also held that such post sale activity by the dealer is not relevant for excise as goods have already been marketed to dealers.
In the instant case, the Commissioner (Appeals) has disallowed the benefit of non-inclusion of such charges in the assessable value on the presumption that the appellant had collected the entire amount from the dealer in the price charged in the invoice, including duty portion of the same and giving the benefit of non-inclusion, according to the Commissioner, would result in the duty becoming a profit in the hands of the appellant.
We find that the above ground for rejecting the benefit is not tenable in view of the Supreme Court decision in the appellants own case cited above. This bench in the case of M/s. Hyundai Motors (I) Ltd. Vs. LTU, Chennai in Final Order No. 41614 41623/2015 dated 01.12.2015, have already allowed PDI & FSI, by relying the Honble Bombay High Court Order in the case of Tata Motors. So the Honble Apex Court in the appellants own case has upheld the Honble High Courts order. Accordingly, we hold that the appellants are eligible for deduction of these charges.
(a) We find that the appellant had resorted to provisional assessment at the time of clearance of the goods to the dealers and claimed abatement of the said charges and did not pay duty on the same. Therefore, when no duty was paid, initially in view of the provisional assessment, the question of issuing credit notes, including the duty amount on such charges, never arose. The Commissioner (Appeals) has not applied the facts of the case to the issue in question.
For the reasons cited above, we do not accept the Commissioners findings on the said issue.
3. Plea regarding proper finalization of provisional assessment based upon proper computation of assessable value, taking into account the abatement claimed and the short levy/excess levy involved.
We find that though this plea has been raised in the Grounds of Appeal, there has been no findings either in the impugned Order in Appeal or in the Order in Original. While finalizing the assessment, the impugned orders do not arrive at the value of each Motorcycle/Moped after taking into account all the abatements allowed/disallowed and arriving at assessable value from cum-duty value. Abatements are applicable for all vehicles cleared and each exclusion or inclusion is applicable for every motor cycle, scooter, moped cleared and the original authority should have determined the assessable value by first deducting the abatement element and thereafter arriving at assessable value for calculating the differential duty/excess duty. Reliance made by the appellants in the case of ACCE & Others Vs. MRF 1987 (27) ELT 553 (S.C), wherein it has been held that abatements should be cumulatively deducted from the cum-duty price to arrive at the cum-duty value and thereafter the assessable value should be arrived at.
Accordingly, we direct the authority to recompute after adjusting the excess paid. Vis-`-vis the demand and finally arrive at the differential duty.
23. REVENUE APPEAL GROUNDS
1. Abatement towards cash paid under Section 3(4) of TNGST Act.
In the Grounds of Appeal, the revenue has appealed against the Commissioner (Appeal)s findings that the said tax should be abated. The Commissioner (Appeals) has allowed the abatement of tax paid under section 3(4) of the TNGST Act on the ground that it is a sales tax and not a purchase tax.
It is the case of the revenue that the said tax is not a tax on the final products of the Manufacturer but it is only a tax paid or payable on the materials purchased by the Manufacturer for manufacture of the final products. Section 3 (4) of TNGST is reproduced below:-
Section 3(4) Where any dealer, after availing the concessional rate of tax under sub-section (3), does not sell the goods so manufactured, but despatches them to a place outside the State either by branch transfer or by transfer to an agent, by whatever name called, for sale, or in any other manner, except as a direct result of sale or purchase in the course of inter-State trade or commerce, shall pay, in addition to the concessional rate of tax already paid under sub-section (3), tax at one per cent on the value of the goods so purchased. The liability to pay this tax on the value of input purchased arises only in the event of transfer of final products outside Tamil Nadu, i.e., on stock transfer. This tax is nothing but a levy on the finished excisable goods cleared from the factory and therefore excludable from value in t terms of Section 4. The event of taxation is the sale of manufactured final products. The appellant paid the tax as a seller of goods, of course, on the purchase value of inputs. Besides, it is a levy on sale of goods. The abatement for this Tax allowed in the impugned order is correct and therefore, the appeal filed by the department merits dismissal.
2. Abatement of Trade Discounts We find that the Commissioner (Appeals) in the impugned Order in Appeal, have allowed abatement of discount on the ground that all the factors propounded by the Supreme Court in various decisions have been satisfied by the appellant manufacturer and he has held that the rejection of the abatement of such discounts on the ground that they were not made known prior to the removal of goods is not correct. We also find that the Commissioner (Appeals) relied upon mainly two factors (i) various circulars have been issued by the Manufacturer/Appellant regarding granting of such discounts, much before the removal of goods and (ii) even otherwise, the granting of such discounts were known under established practice to the dealers. The findings of the Commissioner (Appeals) have not been rebutted by the revenue in their grounds of appeal. Citations relied by by the department in the case of Macca Brakes Automotive Pvt. Ltd. Vs. CCE -2014 (312) ELT 772 and Goodlass Nerolac Paints Ltd. Vs. Union of India 1993 (65) ELT 186 approved by Honble Supreme Court reported in 1994 (73) ELT A58 (SC) are not applicable to the present case.
24. In view of the above position, we are unable to accept the revenues grounds and reject the same.
25. In view of the foregoing discussions, the appellants are eligible for abatements on equalized freight, cash discount, PDI & FSI charges, and the impugned order is set aside to that extent and the impugned order is upheld in respect of Section 3 (4) of TNGST Act and Trade Discount. Accordingly, we allow the six appeals filed by the assesse with consequential relief if any and reject the six appeals filed by the Revenue.
(Order pronounced in open court on .)
(P.K. CHOUDHARY) (R. PERIASAMI)
Judicial Member Tehnical Member
Rex/BB
18