Custom, Excise & Service Tax Tribunal
Tata Motors Ltd vs Commissioner Of Central Excise on 29 November, 2013
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,WEST ZONAL BENCH AT MUMBAI COURT No. II APPEAL No.E/1362 to 1365/2012 (Arising out of Order-in-Original No.19/CE/2012 dated 25/05/2012 passed by Commissioner of Central Excise,Pune) For approval and signature: Honble Mr. P.R. Chandrasekharan, Member (Technical) Honble Mr. Anil Choudhary, Member (Judicial) 1. Whether Press Reporters may be allowed to see :No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the :Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether Their Lordships wish to see the fair copy :Seen of the Order? 4. Whether Order is to be circulated to the Departmental :Yes authorities? ========================================
Tata Motors Ltd., Shri S Krishnan Appellants Shri Rajesh Bagga Shri Nitin Seth Vs. Commissioner of Central Excise, Respondent Pune Appearance:
Shri.V.Sridharan, Sr. Advocate for appellant Shri.K.M.Mondal, Special Counsel, for respondent CORAM:
Honble Mr. P.R.Chandrasekharan, Member (Technical) Honble Mr.Anil Choudhary, Member (Judicial) Date of Hearing : 29/11/2013 Date of Decision :
ORDER NO Per: P.R.Chandrasekharan
1. The appeals are directed against Order-in-Original No.19/CE/2012 dated 25/05/2012 passed by Commissioner of Central Excise,Pune.
2. The brief facts of the case are as follows:
2.1 M/s. Tata Motors Ltd. (TML, for short) is engaged in the manufacture of passenger cars of Indica & Indigo brand and utility vehicles, such as Sumo, Safari in its factory at Pimpri, Pune.
2.2 Prior to August, 2008, the cars were sold to the dealers at the factory gate and were assessed to duty at the declared transaction value. From August, 2008, M/s. Tata Motors Ltd. Distribution Company (TMLD, for short) was formed and thereafter, the cars were transferred to TMLD which sold the same to the dealers. However, the present proceedings are not concerned with TMLD. The present proceedings are concerned with the period from April, 2006 to July, 2008.
2.3 Indica cars are smaller cars as compared to the Indigo cars. At the relevant time, Indica cars carried lower rate of duty, while Indigo cars and utility vehicles carried higher rate of duty. TML sold one car under one invoice and invoices in the relevant period stated that the transaction value was arrived at as per Section 4(1)(a) of the Central Excise Act, 1944.
2.4 Sometime in August, 2009, an information was received by the DGCEI, Pune that TML had evaded central excise duty by reducing the assessable value of Indigo cars (except Indigo CS Model) in the guise of Special discount. Based on this information, investigation was conducted by the officers of DGCEI.
2.5 In the course of investigation, it was found that TML had devised a scheme called Monthly Car targets and schemes. These schemes are linked with dealers achievement of monthly retail sales and monthly offtake targets. Once the dealers achieve the offtake and retail sale targets, they become entitled to certain incentives. These schemes can be in the nature of providing accessories, loans with soft interest rate, free extended warranty, and even free insurance cover provided for the vehicles. In some cases, it is a plain cash discount which is provided by the dealer. The dealers reselling margin should not get affected, therefore, TML was compensating or subsidizing the expenses incurred by the dealer in offering the above schemes to the dealers. Hence in respect of each of such schemes, TMLs contribution is mentioned. There are certain other schemes like loyalty bonus, dealers sales persons incentives, etc. Under the dealer sales persons incentives, TML gives incentives to the dealers sales person to sell a particular model of Tata car. Therefore the dealers sales person gets paid a certain amount which is borne by TML. It is these expenses which have been borne by the dealer while reselling the cars purchased from TML to the ultimate consumers, which are being compensated by TML. This compensation is done by way of reduction of the value of some of the Indigo cars sold in the subsequent months by an amount of Rs. 1,00,000/- per car. A representative copy of such a Monthly car targets and schemes for August, 2007 issued to Shri Inderjit Singh Ghura of M/s. Auto Point, Surat is submitted herewith for favour of ready reference.
2.6 During the investigation, statements of most of the senior officials of TML were recorded to get at the truth of the matter. Statement of Shri Suhas Kulkarni, Asstt. General Manager (Finance) was recorded on 03/08/2009. On being asked as to how discounts reflected in the invoices of TML to its dealers were worked out, he stated that quantification of discount is done by their Sales-Finance office at Thane in consultation with their Marketing office at Mumbai. Under that statement he had submitted copies of discount circulars addressed to all Car Dealers in respect of the passenger cars for May, June and July, 2008. One such circular reproduced under Table -3 at page 5 of the Show Cause Notice is also reproduced herein below for favour of perusal.
DISCOUNT CIRCULAR NS/858 Date: 7th May, 2008 To, All Car Dealers Dear Sir, Incentive Payable during the period 8.5.2008 to 11.06.2008
This to inform you that you will be entitled to the following discount for the period 08.05.2008 to 11.06.2008 Product No. of Vehicles Amount per Vehicle (Rs.) Indigo As per list 1,00,000.00 Thanking you, Yours faithfully, M/s. Tata Motors Limited Mr. Nitin Seth, General Manager (Car Product Group) CC: All Regional Managers please circulate to all dealers.
2.7 Statement of Shri S. Krishnan, Vice President (Passenger Cars) was recorded on 26/08/2009. Under that statement, he had, inter alia, submitted discount circulars for the months of January & February, 2008 addressed to Regional Managers, West, East, North & South. A copy of the said circular for the month of January, 2008 reproduced under Table-7 at page 13 of the Show Cause Notice is also reproduced herein below for favour of perusal.
DISCOUNT CIRCULAR To Jan 2, 2008 Regional Managers West, East, North & South Sub: Incentive Structure for the month of Jan08 We are pleased to inform the incentives Structure for the month of Jan08 All Utility vehicles - Rs. 85,000 All Indica/Indigo CS - Rs. 0 All Indigo, Marina & XL - Rs. 1,00,000 Kindly inform the dealers of the scheme for the month. Regards S.G. Saksena Nitin Seth (Head-UV Product Group) (Head-Car Product Group CC: Mr. S. Krishnan Vice President.
2.8 In his statement dt. 18.03.2010, Shri S. Krishnan had also, inter-alia, stated that the figure of special discount (i.e. Rs 30,000/-, Rs 45,000/- and Rs 1,00,000/-) was arbitrarily arrived at by them to pass on the total incentives to the dealers by reducing the transaction value of Indigo Cars. He also stated that the dealers were not concerned with the method of payment as long as they received the incentives.
2.9 Statements of a number of representatives of authorised dealers of TML were also recorded in that regard. They are:
(i) Shri S.C. Vartak, vice President, M/s. Pandit Automotive Pvt. Ltd., Pune
(ii) Shri Suraj Dada, Managing Director of M/s. Dada Motors Pvt. Ltd., Savitri, Ludhiana.
(iii) Shri Ravleen Singh Grewal, Director of M/s. Garyson Motors Pvt. Ltd., Sherpur Chowk, Ludhiana.
(iv) Shri Gautamchand Jain, Managing Director of Autofin Limited.
(v) Shri Sree Kumar P., Dy. General Manager of M/s. R.F. Motors Pvt. Ltd., Kochi
(vi) Shri Suman Kapur, General Manager of M/s. Society Motors Ltd.
(vii) Shri S. Shanmugasundaram, General Manager (Finance) of M/s. VST Motors Ltd., Chennai.
(viii) Shri P. Chandra Sekar, Sr. Manager, Finance & Corporate Affairs of M/s. Prerana Motors (P) Ltd., Bangalore.
All of them had, inter alia, stated that the car target schemes submitted by them were the only discount and sale policies circulated by TML.
2.10 Statements of some of the Regional Managers of TML were also recorded in this regard.
2.11 In his statement dtd. 05/11/2009, Shri Deepankar Tiwari, Regional Manager of TML, Mumbai had, inter alia, stated that apart from Car/UV target schemes, no other document is issued to the dealers on monthly basis.
2.12 In his statement, Shri K. Vijay Menon, Regional Manager-South-2, Passenger Car Business Unit, Chennai had, inter alia, stated that he had not seen the so-called circulars/incentive structure as submitted by Shri S. Krishnan under his statement dtd. 26/08/2009.
2.13 It, therefore, appeared that discount circulars/incentive structure as submitted by Shri Suhash Kulkarni and Shri S. Krishnan were false & fabricated documents. It also appeared that
(i) The Monthly Car Target Schemes were the only circulars issued by TML in the course of sale of their cars.
(ii) The Car Target Scheme contains various offers to the retail customers in case of cars already bought by the dealer from TML.
(iii) This Scheme also contains various incentives (separate incentive for each brand of car) for the dealer for lifting of more number of cars from TML.
(iv) Investigation also found that during the period April, 2006 to July, 2008, the Car Target Scheme did not contain any provisions where discount of Rs. 30,000/-, Rs. 45,000/- or Rs. 1,00,000/-, as the case may be, was to be given to the dealers at the time of purchase of Indigo Cars (except Indigo CS Model) from the factory of TML).
(v) As per the Car Target Schemes, the dealer gives various discounts to the retail customers, part of which is compensated by TML. Further, TML also gives incentives to the dealer on the Off- Take Targets being achieved by him on purchases from the factory of TML.
(vi) As per the Car Target Schemes, the amount in both the cases is different for different brand of Cars, such as Indica, Indigo, Indigo CS, etc.
(vii) Based on the performance of the dealer in the previous month vis-`-vis the Car Target Scheme, the Regional Offices work out the incentive amount payable by TML to the dealer in respect of each brand of Cars i.e. Indigo and Indica Cars.
(viii) The Regional Sales Offices relay this information to their Sales Headquarters in the beginning of the month. The Sales Headquarters in turn convey this to their Sales-Finance Office at Thane to load the amount of incentive payable to each dealer in the System as discount on the sale of Indigo Cars & Utility Vehicles only in the subsequent months from the factory of TML.
2.14 The investigation also found that during the period April, 2006 to July, 2008, incentives attributable to Indica Cars as per the Off-Take/retail targets achieved by the dealer were paid to the dealer by way of reducing the value of Indigo Cars @ Rs. 1,00,000/- per Car sold in the succeeding month from the factory of TML to the same dealer. This has been admitted by the senior officials of TML in their respective statements recorded during the investigation.
2.15 What finally emerged from the investigation is as follows :
i) During the period from April, 2006 to July, 2008, the incentive amounts attributable to Indica & Indigo Cars and payable to the dealers based on their performance as per the monthly Car Target Schemes were paid to the dealer by reducing the value of only Indigo Cars (except Indigo CS) under the guise of special discount @ Rs. 30,000/- or Rs. 45,000/- or Rs. 1,00,000/- (at different points of time) sold from the factory of TML to the dealer in the succeeding month(s).
ii) When sufficient number of Indigo Cars were not being lifted by the dealer(s), TML then reduced the transaction value of Utility Vehicles so as to pass on the incentives attributable to Indica & Indigo Cars for the past period.
iii) Thus the transaction value of Indigo Cars & Utility Vehicles was reduced for paying the incentive amount to the dealers in the guise of special discount as these vehicles attracted higher rate of Central Excise duty than Indica Cars.
2.16 During the investigation, TML took the stand that the discounts were passed on to the dealers through the sales of Indigo Cars and Utility Vehicles in order to enable them to sustain their operation in an extremely competitive environment. It was just a case of cross model utilization of discounts and no mala fide could be attributed to them. However, to put an end to the investigation, they have worked out the duty which comes to Rs. 13,65,04,371/- and that the same has been paid along with interest of Rs. 5,97,29,128/- and 25% penalty on the Excise duty amounting to Rs. 3,41,26,093/-.
2.17 However, on examination of various documents and records as also the statements of the dealers, it appeared to the investigation that the so-called special discount is not relatable to any particular transaction between the dealers and TML. It is actually a case of settlement of the old claims of the dealers. During the investigation, it was noticed from the Books of Accounts of M/s. Pandit Automotive Pvt. Ltd., one of the authorised dealers of TML that the incentive amount has been shown as receivable from TML.
2.18 After completion of investigation, a Show cause notice dtd. 6/5/2011 was issued to TML demanding total Central Excise duty of Rs. 59,00,94,013/- (including NCCD, Automobile Cess, Education Cess, Secondary & Higher Education Cess) for the period April, 2006 to July, 2008, besides proposing charging of interest on the payable Central Excise duty, imposition of penalties under Section 11AC of the Central Excise Act, 1944 and under Rule 25 of the Central Excise Rules, 2002 as also appropriation of the amount of Central Excise duty of Rs. 13,65,04,371/-, interest of Rs. 5,97,29,128/- and penalty of Rs. 3,41,26,093/- paid during the investigation. The notice also proposed imposition of penalties on Shri Krishnan, the then Vice President-Passenger Car, Shri Rajesh Bagga, Vice President-Legal and Shri Nitin Seth, General Manager Car Product Group of TML under Rule 26 of the Central Excise Rules, 2002 for their various acts of omissions and commissions.
2.19 In adjudication of the said notice, vide the impugned order dated 25/5/2012, the Commissioner has confirmed the total duty demand of Rs. 59,00,94,013/- and imposed equal amount of penalty of Rs. 59,00,94,013/-. The duty amount of Rs. 13,65,04,371/- and penalty of Rs. 3,41,26,093/- already paid have been appropriated against the duty and penalty confirmed. The Commissioner has also confirmed and appropriated the interest amount of Rs. 5,97,29,128/- against the interest payable vide this impugned order. The Commissioner has also imposed penalties on the following persons under Rule 26 of the Central Excise Rules, 2002:
(i) Shri S. Krishnan Rs. 25 Lakhs
(ii) Shri Rajesh Bagga Rs. 15 Lakhs
(iii) Shri Nitin Seth Rs. 5 Lakhs
3. The Ld. Counsel for the appellants submits the following:
3.1 The retails schemes discount is the discount given to the dealer which would be ultimately be passed on to the retail consumer. The retail schemes are prescribed in para 4 supra. Retails schemes are not connected to any of the target i.e., offtake target or retail target. The customers would not be concerned with dealers achieving the target and hence such schemes have to be passed on to the customers irrespective of dealer achieving/not achieving off-take target and retail target. This submission is duly supported by the affidavit of Mr. S. Krishnan filed before this Honble Tribunal.
3.2 The dealer has passed on the retail scheme benefits to the ultimate consumer and on back to back basis the appellants have given discount to the dealer. Therefore, there is effective reduction in the price of the vehicle sold to the dealer.
3.3 The relationship between the dealer and appellants are on principal to principal basis. There is only sale and purchase transaction between the appellants and dealer and between dealer and consumer. There is no other relationship exist between the appellants and the dealer or between dealer and consumer. The dealer is not providing any service to the ultimate consumer.
3.4 The discount given to the dealer is not a compensation for service. In fact, there is no service provided by the dealer to the consumer. The retails schemes are not the services but the benefits given to the consumers to boost the sale of Tata branded vehicles and on back to back basis the appellants have given the discount to the dealer. Effectively, there is indeed reduction in the sale price of cars due to consumer schemes. In other words, the discount given to the dealer is passed on to the consumer in the form of retail schemes. Therefore, the discount given to the dealer for retails schemes is not the compensation for service but indeed a discount or reduction in the price of the vehicle. Hence, the discount so given is clearly eligible for deduction from the assessable value.
3.5 In the case of CCE Vs. Gujarat Bottling Co. 1998 (99) ELT 330 (T) (Please refer page 7 & 8 of the case law compilation Volume II), the assessee gave discount to the wholesaler depending on the criteria of to whom the goods are subsequently sold by the wholesaler. The contention of the department is that the assessee gave higher discount on the goods sold to the wholesaler when the wholesaler subsequently sold the goods to the Government or Railway canteen and gave less amount of discount when the goods were sold by the wholesaler to the person other than Government or Railway canteen. The Honble Tribunal rejected this contention of the department and allowed the discount even when the discount was linked to sale made by the wholesaler to the consumer. The relevant para of the judgment is reproduced for ready reference:
6.?It is true that at the time of clearance by the manufacturer in favour of the wholesalers, the exact amount of discount allowable was not known. That was because discount at a particular rate was allowable in respect of goods which the wholesaler may sell to non-railway canteens and slightly higher rate of discount was allowable in respect of goods sold by the wholesalers to railway canteens. At the time of clearance in favour of wholesalers, it would not be possible to know what percentage of the goods would be sold in favour of railway canteens or non-railway canteens. Necessary trade discount actually payable in respect of each consignment could not be quantified at the stage of clearance or the preparation of the invoice. The quantification was being postponed to a stage after the goods were sold by the wholesalers to retailers. It was only then that the wholesalers would be in a position to inform the respondent as to the quantity sold to railway canteens and the quantity sold to non-railway canteens. The stage of quantifying the trade discount would arise only then. Since the rate of discount and the conditions of discount for grant of discount were not known before removal, the mere postponement of the quantification and payment of discount to the end of fortnight or month cannot be a valid ground to disallow the discount in question.
7.?We are not impressed by the contention that there was no correlation between the respondent and the sales affected by wholesalers to retailers. Whatever goods supplied by respondent to wholesalers were in turn sold to the retailers.
8.?We are not also in a position to accept the contention that wholesalers affected sales in favour of non-approved canteens and therefore, goods covered by either were outside the scheme of trade discount. Neither the order of the Assistant Collector nor that of the Collector (Appeals) refer to the circumstance that the discount would be available only if sales were made in favour of approved canteens. Even assuming that there was such a condition, there is no case specifically propounded till now that there were sales to canteens other than non-approved canteens or that the respondent was claiming discount in respect of goods sold to non-approved canteens. 3.6 In the case of Perfect Victor Circle Vs. CCE Order dated 25.6.1998 (Annexure-1), the assessee had sold the parts of automobile to the wholesaler. The wholesaler had inturn sold these parts to the garage owner or mechanics. In the packing of parts of the vehicle, the assessee had put a coin in every pack. The assessee had claimed discount of the coins which were put in the packs. The contention of the department was that the discount given to the wholesales is not the discount to the wholesaler but the same is discount to the ultimate consumer. The Honble Tribunal though remanded the matter but gave a specific finding in para 7 that such discount though ultimately passed on to the consumer, the same is eligible for deduction from the value. In the present case also, the discount has been given to the dealer with a condition that the dealer would in turn pass on to the consumer in the form of certain services such as free insurance, extended warranty etc. Hence, the present case is squarely covered by the above decision of the Tribunal.
The discount given to the dealer is not the compensation. The decision of Honble Supreme Court in the case of GOI Vs. Madras Rubber Factory 1995 (77) ELT 433 (SC) regarding TAC warranty discount is entirely on different issue and not applicable to the present case.
3.7 In the case of GOI Vs. Madras Rubber Factory 1995 (77) ELT 433 (SC) (Please refer page 130 to 132 of the case law compilation Volume III), the assessee had manufactured tyre and sold the same with the warranty that the tyre would run for certain distance and if tyre do not run for such certain distance, the customer would be eligible for discount in the next sale of tyre to the said customer. In other words, there was a contract of sale of tyre between the assessee and the customer for sale of tyre with a condition that tyre would run for certain distance. If there is a breach in the contract of sale for the reason that tyre do not run for certain distance, the customer is eligible to get the compensation for breach of such contract. The said compensation for breach of contract was given to the customer as discount in the next sale which was held to be not eligible discount by the Honble Supreme Court. The relevant portion of the judgment is reproduced hereunder:
53.?The question is whether the claim, put forward as TAC/Warranty discount is a trade discount within the meaning of Section 4(4)(d)(ii)? We think not. It is only a claim for refund by the buyer for the manufacturing defect in the tyre sold by the assessee, which is being honoured by the assessee in a manner acceptable to both the parties. In a given case, a buyer may well insist that he must be reimbursed in cash and not in kind. In such a case, the assessee cannot certainly refuse such a claim; it would have to pay cash. The nature and character of the amount so being refunded is certainly not a trade discount contemplated by Section 4(4)(d)(ii), whether the claim is honoured by paying cash or by deducting it from the price of the new tyre. As rightly pointed out by Bhagwati, C.J. in the Order dated December 20, 1986, what is really relevant is the nature of the transaction. The learned Chief Justice pointed out further that the warranty is not a discount on the tyre already sold, but relate to the goods which are being subsequently sold to the same customers. It cannot be strictly called as discount on the tyre being sold. It is in the nature of a benefit given to the customers by way of compensation for the loss suffered by them in the previous sale. He characterised it as a compensation in the nature of warranty allowance on a defective tyre. We express our respectful concurrence with the said observations. 3.8 In the present case, there is contract of sale of vehicle between the appellants and dealer. The contract was honored and therefore the incentive was given to the dealer as discount. There is no breach of any contract and therefore there cannot be any compensation for breach of contract. Hence, the discount given is not a compensation for breach of any contract which was the case before the Honble Supreme Court in the case of MRF.
3.9 In the present caes, there us contract of sale of vehicle between the appellants and dealer. The contract was honored and therefore the incentive was given to the dealer as discount. There is no breach of any contract and therefore there cannot be any compensation for breach of contract. Hence, the discount given is not a compensation for breach of any contract which was the case before the Honble Supreme Court in the case of MRF. the Honble Supreme Court in MRF has held that the quantity discount and year end bonus is allowable deduction from the value as referred to in para 13.2 infra. If deduction of this discount is disallowed than the deduction of discount held to be allowed by the Honble Supreme Court in the MRF case would be redundant and no discount would be allowed for deduction. Hence, the decision of Honble Supreme Court is not applicable to the present case of the appellants.
Discount given on the basis of retail and offtake target is clearly in the nature of quantity discount.
3.10 The appellants submit that the discount given on the basis of off take and retail target is certainly in the nature of quantity discount. The quantity discount is clearly eligible for deduction form the assessable value. The scheme of quantity discount is issued to the dealer and known to the dealers prior to the removal of goods. Hence, the quantity discount is eligible for deduction from the assessable value. The appellants submit that if this discount is not allowed to be deductible than no quantity discount would be eligible for deduction and the following decisions of Honble Supreme Court, High Court and Tribunals would be redundant.
3.11 In the case of GOI Vs. Madras Rubber Factory 1995 (77) ELT 433 (SC) (Please refer page 132 & 133 of the case law compilation Volume III), the quantity discount and year end bonus discount are eligible for deduction from the assessable value. The relevant portion of the judgment of the Honble Supreme Court is reproduced hereunder:
55.?The assessees case in this behalf is this : this is a discount granted to all dealers operating under Recurring Credit Scheme (RCS) with effect from April 1, 1980. The discount is being given on a half-yearly basis depending upon the volume of purchases made by each such dealer. Out of the total Madras Rubber Factory dealers, about eighty per cent are said to be RCS dealers and out of the total sales effected by the Madras Rubber Factory, over sixty per cent sales are made by these RCS dealers (as per the figures relating to the year 1981-82). The discount is being granted by issuing credit notes to dealers and though the said discount is not shown on the face of each invoice, it is known to all the Madras Rubber Factory dealers. The discount cannot indeed be shown in the invoice for the simple reason that the discount is known only at the end of the half year.
56.?The Assistant Collector allowed the said claim on the finding that this discount is given with a view to encourage the turn over of the sales and that having regard to the objects underlying the Recurring Credit Scheme, this deduction is liable to be allowed. He found that in the ultimate analysis the dealer pays one per cent less than the catalogue price and that the said claim is also consistent with the clarificatory order of this court in Bombay Tyre International.
57.?The learned Additional Solicitor General, however, contended that this discount, not being known or paid at the time of removal/sale, cannot be allowed.
58.?In the light of the findings recorded by the Assistant Collector, it must be held that this is a discount which is known and understood at the time of removal of the goods though it is qnantified later. The Assistant Collector has also recorded a finding, I also find that such system of grant of discounts is not uncommon in the trade. Keeping in view the clarificatory Order of this Court in Bombay Tyre International, this claim must be held to have been righly allowed by the Assistant Collector.
Year Ending Discount and Prompt Payment Discount :
59.?What is called `Year-ending discount is really a bonus given by Madras Rubber Factory to its dealers @ Rupees fifty per tyre in respect of a particular type of tyres. This discount is payable only where the payments are actually received within forty five days from the date of the invoice. Under this scheme, it appears that a declaration is to be received dealer-wise and thereafter provision is to be made at the head office of MRF for the bonus. The Assistant Collector has found that this discount was allowed by the assessee not out of any extra-commercial considerations but that they were meant only to boost the sales particularly in the year 1981-82 in respect of Leader Tyre in order to achieve the target of sales for that year. He has recorded a finding that such a system of grant of discount is prevalent in normal trade practice and the only difference may be that MRF Limited have granted the discount only at the end of the year and not at the time of actual sales. The learned Additional Solicitor General disputed the correctness of the basis on which the Assistant Collector has allowed this deduction. He commended for our acceptance the reasoning in Para 13(ii) of the judgment dated December 20, 1986 (Assistant Collector of Central Excise v. Madras Rubber Factory). The reasoning in the said order runs thus :
The allowance of the discount is not known at or prior to the removal of the goods. The calculations are made at the end of the year and the Bonus at the said rate is granted only to a particular class of Dealers. This is computed after taking stock of the accounts between MRF and its dealers. It is not in the nature of a discount but is in the nature of a Bonus or an incentive much after the invoice is raised and the removal of the goods is complete. In the circumstances, we are of the opinion that MRF is not entitled to deduction under this head. 3.12 In the case of Addison & Co. Ltd Vs. CCE 1997 (91) ELT 532 (SC) (Page 67 & 68 of the case law compilation Volume I), the assessee gave turnover discount which is provided as an incentive for the dealer to lift higher and higher volume of goods. The rate of discount ascends according to the rise in the volume of purchases. The rate of turnover discount varies from region to region, product to product within the same region and also depends on the volume of turnover achieved by each dealer. The Honble Supreme Court held that the discount is given ad hoc on the basis of the previous years performance and it is adjusted at the end of the year. If the volume of purchases falls to a lesser slab, the dealer has to refund to the assessee the difference amount and conversely if the volume ascends to the higher slab, the dealer will be paid the difference amount. It is also clear from the policy that this discount is known at the time of the purchase by the dealer and is found to be a well-accepted normal practice in the trade in these goods. It is accordingly held that the turnover discount is an admissible deduction. The relevant portion of the decision of Honble Supreme Court is reproduced hereunder:
4.?So far as the turnover discount is concerned we are of the opinion that it has to be allowed in the light of the judgment of this Court in Government of India & Ors. v. Madras Rubber Factory Ltd. & Ors. - 1995 (77) E.L.T. 433 (S.C.) = 1995 (4) SCC 349 at p. 384-385 Paragraphs 49 to 51. In these cases also the turnover discount is provided as an incentive for the dealer to lift higher and higher volume of goods. The rate of discount ascends according to the rise in the volume of purchases. For example, for Delhi City the figures are the following :
ANNUAL TURNOVER POLICY FOR ALL TYPES OF STANDARD CUTTING TOOLS (Period : April, 1988 to March, 1989) Applicable for the Dealers covered by :
Delhi City Turnover slabs on Gross value Turnover Discount on Gross value Above Upto
-
4.20 Nil 4.20 8.50 2.0% 8.50 12.00 3.0% 12.00 18.70 4.0% 18.70 24.80 5.0%
5.?The policy under which general discounts are given also contains a further clause to the following effect :
Turnover discount is given in addition to trade discount. The rate of turnover discount varies from region to region, product to product within the same region and also depends on the volume of turnover achieved by each dealer. Since the actual amount of annual turnover discount for which each dealer is eligible can be ascertained only in the year-end, we are allowing a portion of the same based on the previous years performance is claimed and allowed in the invoice itself at the time each delivery. The balance of TOD will be given in the form of Credit Notes and refund will be claimed by us at the later stage.
6.?A reading of the table and the note goes to show that the discount is given ad hoc on the basis of the previous years performance and it is adjusted at the end of the year. If the volume of purchases falls to a lesser slab, the dealer has to refund to the assessee the difference amount and conversely if the volume ascends to the higher slab, the dealer will be paid the difference amount. This is a case of adjustment and is not hit by the words (such discount not being refundable on any account whatsoever)" in Section 4(4)(d)(ii) of the Central Excises & Salt Act.
7.?It is also clear from the policy that this discount is known at the time of the purchase by the dealer and is found to be a well-accepted normal practice in the trade in these goods. 3.13 In the case of CCE Vs. Punjab Chemicals & Pharmaceuticals 1999 (107) ELT 57 (T) (Please refer page 12 of the case law compilation Volume - II), the Honble tribunal has held that trade discount based on the quantity lifted by the dealer is eligible for deduction. The relevant portion of the judgment is reproduced hereunder:
2.?Different prices for factory gate sales to dealers in different regions is consistent with proviso (i) to Section 4(1)(a) of the Central Excise Act, 1944. Trade discount based on quantity lifted by each dealer over a period is also recognised by law. The same cannot be rejected on the ground that the exact amount of discount allowable may not be known at the time of clearance of each consignment. Necessarily it will be known only at the time of the last consignment effected during the particular period. There is no infirmity in the order passed by the lower authorities. 3.14 In the case of Electrolux Kelvinator Ltd. Vs. CCE 2004 (163) ELT 234 (T) (Para 2, 6 & 7 at page 38 & 39 of the case law compilation Volume I). The relevant portion of the decision is reproduced hereunder
7.?The position however, is quite different in respect of quantity discounts. Learned SDR is right in his submission that it is well settled that the extent of deduction permissible for quantity discount is the discount actually given and availed of. The appellant has admitted that certain quantity discounts originally deducted while discharging duty at the time of clearance of the goods, did not get passed on, on account of buyers not meeting purchase targets. These amounts were therefore, not eligible for deduction and duty is payable. Duty so payable is Rs. 60,52,682/-. The lower authorities were correct in demanding this amount as short-levy. Accordingly, the demand to that extent is confirmed.
3.15 In the case of Fag Precision Bearing Vs. CCE 2000 (118) ELT 711 (T) (Para 3 at page 64 of the case law compilation Volume I), the Honble Tribunal held that the turnover bonus is deductible from the assessable value:
3.?We have considered the submissions of the Revenue and perused the records. It has been mentioned by the appellants that the wholesale cash price, declared by the them through various price lists, included various expenses such as freight, forwarding charges, etc. including cash discount and turnover bonus. They have also relied upon the decision of the Honeble Supreme Court in the case of Bombay Tyres International reported in 1983 (14) E.L.T. 1896 that discount is permissible if it is payable under an agreements or under terms of sale and the nature of discount is known prior to the removal of the goods. It is not the case of the revenue that turnover bonus was not known prior to the removal of the goods. The Honble Supreme Court in M.R.F. case reported in 1995 (77) E.L.T. 433 has allowed deduction of the turnover discount from the assessable value. As the discount was known prior to the removal of the goods and following the ratio of the Honble Supreme Court decision, referred to above, we hold that the turnover bonus given by the appellants is to be deducted from the assessable value and accordingly the appeal is allowed.
3.17 In the case of Reliance Industries Limited Vs. CCE 2001 (133) ELT 773 (T) (Please refer Page 87 & 88 of the case law compilation Volume I), the Honble Tribunal has held that the quantity discount given is eligible deduction. The relevant portion of the judgment is reproduced hereunder:
2.?(a) Annual incentive at 7% for suiting and 4% for shirting and dress material. This incentive provides for deduction from the price of the suiting and shirting depending upon the quantity purchased by the dealer in the course of the year a maximum of 7% for suiting and 4% for shirting and dress material. This has been denied on the ground that it is an incentive and not a discount, and that it is not quantified when the goods are sold. This incentive appears to us to be nothing other than annual turnover discount considered by the Supreme Court in its judgment in Government of India v. Madras Rubber Factory Ltd. - 1995 (77) E.L.T. 433. In paragraphs 55 to 58 of its judgment, the Court allowed discount given to the dealer depending upon the volume of the purchases made by each half year on the ground that this was a discount which is known and understood at the time of removal of the goods, though it is quantified later. Hence, the discount in the present case is also entitled to deduction.
3.18 In the case of Bhor industries Vs. CCE Final Order No.A/178-179/WZB/2005/C-I dated 5.1.2005 (Please refer page 99 to 105 of the case law paper book Volume II), the honble Tribunal has held that the trade discount which is known prior to the removal is eligible for deduction. The relevant portion of judgment is reproduced hereunder:
7. In regard to (b) above, it was argued that disallowing entire trade discount passed on to a buyer for ex-depot sales on the ground that in such cases it is not known at the time of removal (the factory gate) as to whom the goods will be sold ultimately, is not in accordance with the judicial pronouncement on the issue. The Ld. Advocate argued that when such depot sale price is being considered for the purpose of computing duty, discount allowed for the sales from the depots should be also considered. The issue according to him, is settled in the decision of Bombay High Court in the case of Goodless Nerolac Ltd Vs. Union of India [1993 (65) ELT 186 affirmed by the Supreme Court in [1994 (73) ELT A58]. He argued that suppression on the part of the appellant cannot be alleged in the face of the discounts claimed on the invoices under which goods are stock transferred to depots.
8. In regard to (c) above where trade discounts passed on by way of credit notes were disallowed, it was argued that the Commissioners contention that discounts passed on by way of credit notes were not known to the buyers the time of removal of the goods and therefore not admissible under Section 4, is incorrect for a variety of reasons. He referred to the various trade circulars issued by the appellant during the relevant time and argued that the discount as stated in the trade circulars were made known to the buyers in advance and therefore were known to the buyers at the time of removal of goods. These discounts were known to the buyers but were quantified later on in certain types of sales and it is for this reason the invoices do not show the discounts. The CEGAT in the case of Assam Asbestos Ltd Vs. Collector of Central Excise [1993 (63) ELT 141 (Tribunal)] held hat discount given in credit notes is an admissible discount. It was further argued that trade discount need not be uniform (Metal Box of India Vs. Collector of Central Excise - 1995 (75) ELT 449 relied upon). Similarly discount claimed in the price list on average basis subject to quantification of later on is an admissible discount as held in See Samtel Vs. CCE [1998 (78) ECR 943 and Nalco Chemicals India Ltd Vs. CCE [1998 (104) ELT 730]. In any case it was submitted that the demand is time barred as the sales policy of the appellant was filed with the department the details of which indicate the basis for claiming discounts. Further the invoice cum-challan filed by the appellant along with the RT 12 clearly indicate that the discounts are passed on in the manner in which was done and therefore suppression cannot be alleged.
11. Even on merits the order of the Commissioner cannot be upheld relying on the decisions cited supra. We hold that the demand is not sustainable. When a factory gate price is established (during the relevant time factory gate constitutes place of removal), that price is relevant for the purpose of ascertaining the price at which goods are sold for determining the assessable value in regard to disallowance of various discounts we observe that the Commissioners order is devoid of merits. The appellant indicted clearly that various discounts at varied rates were being given in advance and hence satisfy the condition that a discount to be admissible should be known in advance.
3.19 The Honble Bombay High Court in the case of Goodlass Nerolac Vs. UOI 1993 (65) ELT 186 (Bom) (Please refer page 56 to 62 of the case law compilation Volume I) has held that the trade discount which was known prior to the removal of goods is eligible for deduction. The decision of the Honble Bombay High Court is affirmed by the Honble Supreme Court reported at 1994 (73) ELT A58 (SC) (Please refer page 63 of the case law compilation Volume I). The relevant portion of the judgment of the Honble Bombay High court is reproduced hereunder:
6. The next item of deduction relates to product rebate and additional product rebate. The Assistant Collector has found that these types of discounts are given by way of reduction from the prices indicated in the price-lists. He has also found that the scheme for such discount was formulated by the petitioners well in advance. Yet, he has come to a conclusion that the scheme was not known to the buyers at the time of removal of goods from the sales godown, the scheme was known to the dealers. However,in this case, the Assistant Collector has made a distinction between removal of goods from the factory and sale of goods from the sales godown. The Assistant Collector has accepted the petitioners case that no sales have been effected by the petitioners from their factories at all. The goods are first brought by the petitioners from their different factories to their sales godowns and are sold from there. All other discounts have been allowed by the Assistant Collector on the basis that the schemes for such discounts were made known to the dealers when they purchased goods from the sales godown and before removal of goods. There is no reason why the same position should not prevail to the case of product rebate and additional product rebates The finding of the Assistant Collector that such rebate is not permissible/admissible is, therefore, on the face of it not supported by any principle or logic and must be set aside. The Assistant Collector is directed to calculate this rebate which may be allowed to the petitioners within a period of 12 weeks from today, on the basis of the material before him. In case he requires any further material, it will be open to him to ask the petitioners to furnish such material within such reasonable time as he may specify. Averaging of discount is permissible.
3.20 The appellants have computed the discount based on the qualifying criteria mentioned in the scheme. The appellants computed total amount of discount entitled to each dealer and passed on the same to the dealers. It is in the nature of averaging of discount which is permissible in law. Please refer:
i) Nalco Chemicals India Ltd. Vs CCE 1998 (104) ELT 730 (Tri.) (Para 8 at page 47 of the case law compilation Volume I);
ii) Samtel India Ltd. Vs CCE 1998 (103) ELT 92 (T) (Para 4 at page 48 & 49 of the case law compilation Volume I).
3.21 In the aforesaid judgments, the department denied the deduction of discount on the ground that the assessee has not given discount on individual sale but given the discount by averaging the total actual discount. The Honble Tribunal held that this cannot be a ground to deny deduction of discount. In other words, averaging of discount cannot be a ground to deny deduction of discount.
Discount by whatever name given to the dealer is eligible for deduction, if the same has been given as per the scheme which is known at the time or prior to the removal of goods.
3.22 The appellants submit that they have issued an incentive scheme in the beginning of every month and therefore the dealers are aware of the incentive scheme much prior to the removal of goods. The discounts are calculated as per the scheme and same is passed on to the dealer in the invoices. There can be a doubt in the cases where the discounts are given through credit note but when the discount is given in the invoice itself there cannot be any doubt that the discount are not known prior to the removal of goods.
15.2 The Honble Supreme Court in the case of UOI Vs. Bombay Tyre International 1984 (17) ELT 329 (SC) (Please refer page 28 & 29 of the case law compilationVolumeI) has held that Discounts are allowed in the Trade (by whatever name such discount is described) should be allowed to be deducted from the sale price having regard to the nature of the goods, if established under agreements or under terms of sale or by established practice, the allowance and the nature of the discount being known at or prior to the removal of the goods. Such Trade Discounts shall not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice price. The relevant portion of the judgment is reproduced hereunder:
1.? Trade Discounts. - Discounts allowed in the Trade (by whatever name such discount is described) should be allowed to be deducted from the sale price having regard to the nature of the goods, if established under agreements or under terms of sale or by established practice, the allowance and the nature of the discount being known at or prior to the removal of the goods. Such Trade Discounts shall not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice price.
3.23 In the present case, the discount scheme is known to the customer much prior to the removal of goods and therefore the discount is eligible for deduction.
The definition of transaction value use the word Actual which opposed to Estimated or Notional.
3.24 The definition of transaction value under Section 4(3)(d) provides the actual price paid or payable. In the present case, the actual price paid or payable by the dealer for the sale of car is the net price mentioned in the invoice. There is no other consideration which is flowing from the dealer to the appellants in connection with the sale of cars. The department has also not invoked Rule 6 of the Central Excise Valuation Rules, 2000.
There is no dispute on this fact. The word Actual used in the definition of transaction which is opposed to any estimation or notional. In the instant case, the department, by denying the deduction of discount from the value of the goods, demanded excise duty on the estimated or notional value which is not the actual. Hence, the contention of the department is contrary to the definition of transaction value.
Excise duty has been paid on the amount actually paid or payable by the dealer and any further demand of duty is contrary to the definition of transaction value and Section 4.
3.25 Section 4(1)(a) of the Central Excise Act, 1944 provides that the value of the excisable goods would be the transaction value if, the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale. In the present case, undisputedly, the assessable value is transaction value as all the aforesaid conditions are satisfied.
3.26 The transaction value as defined under Section 4(3)(d) of the Central Excise Act, 1944 provides that the amount actually paid or payable by the buyer to the assessee is transaction value. Please refer page 3 of the case law compilation Volume I. 3.27 The appellants have paid excise duty on the total amount received from the dealers. The appellants have received the amount from the dealers which is shown in the excise invoice. There is no dispute on the fact that the appellants have paid the excise duty on the entire amount received from the dealers and the appellants have not received any amount over and above the amount mentioned in the invoices. Therefore, any further demand of duty is contrary to the definition of transaction value and Section 4.
3.28 The aforesaid submissions is fully supported by the recent Larger Bench decision of CESTAT in the case of CCE Vs. Victory Electricals Order dated 18.11.2013 (Please refer page 58 to 59 of the Case law compilation Volume II). The relevant portion of judgment is reproduced hereunder:
19. In our considered view, post the amendment of Section 4 and the statutory definition of transaction value' in sub-section (3) (d) thereof, of the Act, the eventual value payable after factoring in any liquidated damages contractually stipulated for delayed supply would be the transaction value and this value would be the value relevant for levy of duty.
20. On the aforesaid analysis, we answer the reference by holding that wherever the assessee, as per the terms of the contract and on account of delay in delivery of manufactured goods is liable to pay a lesser amount than the generically agreed price as a result of a clause (in the agreement), stipulating variation in the price, on account a the liability to "liquidated damages", irrespective of whether the clause is titled "penalty" or "liquidated damages", the resultant price would be the "transaction value"; and such value shall be liable to levy of excise duty, at the applicable rate. Excise is concerned with the price. How price is arrived is not the concerned of the department.
3.29 Excise department is concerned with the price of the goods sold. How the price is determined is not the concerned of the excise department. The appellants have sold the vehicle on the price mentioned in the invoice which the amount actually paid or payable by the dealer. The vehicles sold by the appellants are liable to excise duty on the transaction, undisputedly. There is no flow back of consideration from the dealer to the appellants. Hence, the price mentioned in the invoice is the price of the goods.
3.30 The appellants have maintained detailed record to justify the basis and quantification of discount. For the purpose of transparency, the appellants explained the manner of quantification and determination of discount. What is relevant for excise, is only the price actually charged. How it is arrived at is relevant. In the present case, end over of the appellants, though strictly not necessary in law, is to show how the discount is quantified and the price is arrived. It would be seen that the deduction/reduction is entirely for commercial connection.
Incentive scheme is a qualifying or eligibility criteria for discount. The incentive scheme issued for the month does not provide the discount for the goods sold in that particular month. Hence, the finding that the discount already given on the goods sold in the previous month has been given in the sale made in the subsequent month, is incorrect.
3.31 The incentive scheme issued by the marketing department of the appellants which prescribes qualifying criteria for the eligibility of the discount. The incentive schemes are issued every month. The incentive schemes issued by the appellants do not provide that the discount, for which dealer is entitled, is to be given in the same month in which the scheme has been issued. In other words, the discount entitlement is computed based on the qualifying criteria mentioned in the scheme for the month in which the scheme is issued but the discount earned has been passed on in the subsequent months. The scheme does not provide that the discount earned based on the scheme is for the goods sold in the month for which the scheme is issued. The impugned Order-in-Original has incorrectly held that the appellants had given discount in the sale made in the subsequent month whereas the discount was pertaining to sale made in the previous month,.
3.32 The appellants sell vehicles to the dealers and the transactions of sale and purchase between the appellants and dealer are continuous in nature. In other words, the transaction between the appellants and dealer is not a one time transaction. Therefore, the discount of the month, let us say April 2008, may be computed based on the qualifying criteria which may be a turnover of March 2008. It is not required that there should a relationship with the qualifying criteria for computing discount and the goods in which the discount has been given. Hence, the appellants have correctly given the special discount and same is eligible for the deduction from the assessable value.
Value of each removal of goods has been correctly determined and duty has been paid.
3.33 The contention of the department that value of the goods is to be determined for each removal. The appellants submit that they have correctly determined the value of each removal. The value of each goods is the value mentioned in the excise invoice which has been paid by the dealer.
3.34 CBEC Circular dated 30.6.2000 clarifies that discount is eligible for deduction when it is established that the discount for a given transaction has actually been passed on to the buyer of the goods. The differential discounts extended as per commercial considerations on different transactions to unrelated buyers if extended, can not be objected to and different actual prices paid or payable for various transactions are to be accepted for working assessable value. (Please refer para 4 & 9 at Page 5 &6 of the case law compilationVolumeI) 3.35 The appellants submit that the department has incorrectly presumed that the discount given in the sale of vehicles is not the discount for that very vehicle. Merely because discount has been computed on the basis of sale of turnover of other vehicles cannot be ground to presume that the discount is not pertaining to the vehicle in which the discount has been given. The car target and incentive scheme does not provide that the discount computed based on the scheme is discount for the vehicles sold in that month only. There is no dispute on this fact. The appellants submit that it is not required that the criteria for computation of discount and vehicle in which discount is given should be related. The discount given in the vehicle is discount for that very vehicle though the qualifying criteria to compute the discount may not have any relation to the vehicle in which the discount has been given. Hence, the appellants have correctly determined the value of each removal of the vehicle.
Non following of procedure of provisional assessment cannot be a ground to deny deduction of discount when the nature of discount is known at the time of clearance of goods 3.36 In the case of CCE Vs. TFL Quinn India Pvt. Ltd. 2011(267) ELT 641 ( T) Please refer Page 156 & 157 of the case law compilation Volume III), the department contended that since the discount is not known at the time of removal of goods and therefore the assessee should have followed the procedure of provisional assessment. The Honble Tribunal has held that assessee failed to follow CBECs Excise Manual of Supplementary Instructions regarding disclosing intention of allowing the discount and request the department for provisional assessment, was immaterial as nature of discount was known at time of clearance of goods.
Their lordships had ordered that prompt payment discount did. not form part of the assessable value in terms of Section 4. We find that in an arms length transaction, conditions for payment & delivery remaining same, the value for assessment of excisable goods did not undergo change on introduction of the transaction value. The relevant value is the net consideration exchanged for delivery of the goods at the place of removal in an arms length transaction. We find that in the circumstances, the above observations of the Apex Court apply equally to the transaction value post 30-6-2000. The assessable value of the excisable goods has all along been the total consideration received by the manufacturer of excisable goods from the buyer. This will not include the discount allowed. In the instant case, there is no dispute that prompt payment discounts had been allowed. The same were disallowed by the original authority only for the reason that the communication to the department as regards new discount scheme had indicated only the DTA unit. We find that the impugned claim for refund cannot be denied in view of the categorical findings of the Apex Court on the non-includability of prompt payment discount in the assessable value. In the facts of the case, the assessee had not informed the department of the new scheme upfront or that it had not followed provisional assessment cannot alone be held against the assessee and the refund denied. In the circumstances, we reject the appeal filed by the Revenue. The impugned refund amounts shall be sanctioned subject to test of unjust enrichment. 3.37 In the present case also, the deduction of discount has been denied to the appellants on the ground that the appellants have not followed the procedure of provisional assessment. The impugned Order-in-Original admittedly held that the deduction of discount is available if the appellants would have followed the procedure of provisional assessment. In view of the above decision, the denial of deduction for not following the procedure of provisional assessment is incorrect.
Discount given to the dealer is not settlement of past dues.
3.38 The Commissioner in the impugned Order-in-Original has held that the discount is settlement of past dues for the following reasons:
i) The dealer has shown the discount in his books as amount receivable from the appellants;
ii) The amount of discount given in the invoices represent, the amount due from the dealer, the amount due to the dealer, recovery towards advertisement cost incurred, recovery towards free insurance and extended warranty. Reliance in this regard has been placed on the statement of the officials of the appellants;
3.39 The appellants submit that the accounting done by the dealer is not a determinative factor for any amount to be discount. Infact, this supports the submission of the appellants that the discounts were very well known to the dealers and therefore they were showing the discount as receivables in their books. In any case, this fact would not change the nature of discount given in the invoices.
3.40 The appellants submit that a specific amount incurred towards advertisement by the dealer is reimbursed by the dealer. The amount so reimbursed is adjusted in the discount given in the invoices. In other words, the amount of discount has been reduced to the extent of amount of advertisement given to the dealer and therefore the appellants have given less amount of discount as the amount of discount has been reduced due to advertisement reimbursement to the dealer. Therefore, the appellants have claimed less deduction on account of discount. This cannot lead to conclusion that the discount is settlement of past dues.
3.41 In view of the above, the appellants had erred in favour of the revenue by adjusting the amount relating to advertisement, extended warranty and free insurance. This is not a settlement of dues. Hence, the impugned Order holding that the discount is past settlement is incorrect.
Interpretation of the documents adopted by the department, which is different from the intention of parties at the time of execution of documents, based on the statements of the employee is not correct.
3.42 The appellants issued incentive scheme to the dealers. The scheme provides eligibility criteria and the amount of incentive for which dealer would be eligible. The amount of discount to be passed on to the dealer is not mentioned in the scheme. There is nothing in the scheme which provides that the eligible discount amount is a settlement of past dues. The department by relying on various statement of the employee has interpreted the incentive scheme issued by the appellants on the basis of the statements of the dealer and employees of the appellants. The department cannot go beyond what has been written in the document specially when the appellants follows proper documentary process regarding the discount given to the dealers.
3.43 The Honble Andhra Pradesh High Court in the case of Motors & General Insurance Stores Vs. CIT 1967 (66) ITR 701 (AP) has held that it is not open to the department to deduce the nature of the documents from the purported intention by going behind the document or to consider the substance of the matter or to accept it in part and reject it in part or to re-write the document merely to suit the purposes of revenue. The Honble High Court further held that where statutorily the parties have to reduce a certain transaction into writing, which transaction can only be evidenced in writing, it is not open to courts or any other authority to permit oral evidence to be adduced by the parties or to entitle them to go behind the statements made in the document. Please refer para 11 and 15 at Page 24 & 25 of the of the case law compilation Volume II.
3.44 The aforesaid judgment has been affirmed by the Honble Supreme Court reported at (1967) 66 ITR 692 (SC). Please refer page 26 to 32 of the case law compilation Volume II.
3.45 In the case of Honble Gauhati High Court in the case of Bhattacharjee Brothers Vs. Supdt of Taxes, Dibrugarh - 1986 STC 63 (346) held that when there is written contract between the parties, the issue should be decided based on the contract only. The oral statement of the director in this regard is not relevant and cannot be relied upon. Please refer para 5 at page 35 of the case law compilation Volume II.
Discount relating to Palio car, which is a traded item, is not included in the computation of special discount given to the dealers. The appellants were not given any opportunity to explain this issue of discount on Palio brand car as there is no charge in such Show Cause Notice.
3.46 The Commissioner in the impugned Order-in-Original has held that appellants have included the discount pertaining to Palio car, which is a traded item, while computing the special discount given to the dealers. The basis of this finding is that the incentive scheme issued by to the dealers also shows the discount in respect of the Palio car. The appellants submit that the discount pertaining to the Palio car has been given in the Palio car only. There is no evidence on record which states that the discount of Palio car has been taken in to account in computing the special discount given to the dealers. Merely because the scheme refers the discount in respect of discount on Palio car cannot be a ground to hold that the discount of Palio car has been given as special discount. The incentive scheme refers to discount on Palio car for the only reason that all the discount officers should be at one place.
3.47 In any case, this ground of the department is beyond the scope of Show Cause Notice as there is no such allegation in the Show Cause Notice and no opportunity was given to the appellants to explain this issue of discount on Palio car. Hence, the impugned Order is liable to be set aside.
There cannot be any intention to evade payment of duty when admittedly the discount is eligible for deduction in the previous sale and admittedly there is excess duty payment in the previous sale.
3.48 The Commissioner in the impugned Order has denied the deduction of discount on the ground that the said discount is pertaining to the sale made earlier and not pertaining to the sale of goods in which the discount has been given. In other words, the discount is eligible for deduction in the earlier sale. Since no deduction in the earlier sale has been claimed, the appellants have paid higher excise duty in the earlier sale. Having paid the higher excise duty, there cannot be any intention to evade payment of duty.
3.49 The Commissioner in the impugned Order has held that if the appellants would have followed the provisional assessment procedure, the present issue would not have arisen. Therefore, according to the Commissioner, the only mistake committed by the appellants is that they have not followed the procedure of provisional assessment. In any circumstances, non following of procedure of provisional assessment cannot lead to a conclusion of intention to evade payment of duty.
The entire demand is beyond the normal period of limitation. The extended period of limitation is not invokable when the appellants categorically informed to the department in respect of the fact relating to the core issue involved in the present case and there is no intention to evade payment of duty.
3.50 The only core issue involved in the present case is that the appellants have given the discount pertaining to sale made in the previous month in the sale made in the next month. This practice of giving discount in the subsequent sale was being followed by the appellants much prior to the period in dispute. The appellants vide letter dated 16.12.2001 (Please refer page 131 to 142 of the appeal Volume I) and vide letter dated 10.1.2003 (Please refer page 149 to 159 of the appeal Volume I) categorically informed to the department that they would be passing the discount computed for the FY 2000-2001 in the sale made in the FY 2001-02. Similarly, the discount computed for the period 2001-02 would be given in the sale made in the FY 2002-03. The appellants had also informed the calculation sheet showing how the discount is computed. The department never objected to these letters. This is the precise objection raised by the department in the present case that the discount pertaining to previous month cannot be given in the sale made in the subsequent month. Hence, there is no suppression on the part of the appellants when specific intimation was given to the department.
3.51 After 2003, the similar intimation could not be given by the appellants for the reason that their sale and finance department was shifted from Pune to Thane. In any circumstances, the department cannot ignore letters given by the appellants to the department in 2001 and 2003 on the ground that subsequent to 2003 no letter was given. The lapse of the memory of the department can not be a ground to hold suppression against the appellants.
3.52 The Commissioner has held that the scheme prevailing in 2001 and 2003 was different from the scheme prevailing in the present case. The appellants submit that though the scheme of discount was different in the year 2001 and 2003 but the principle of giving discount was the same i.e., the discount pertaining to previous year has been given in the next year. The Appellants submit that the precise case of the department is that the appellants have given discount pertaining to earlier sale in the subsequent sale. This very fact was submitted to the department in the year 2001 and 2003. Hence, the finding of suppression of facts on the part of the appellants is baseless.
No adverse inference can be drawn based on the demand on the count of cross model utilization of discount as the entire duty demand, interest and applicable penalty has already been paid.
3.53 The department had raised an objection that the appellants have passed on the discount which is pertaining to Indica car in the sale of Indigo car. Indica car is chargeable to less rate of excise duty compared to Indigo brand car with effect from 1.3.2006. Due to cross model utilization of discount, there is a short payment of duty on the Indigo brand vehicles. Without prejudice to any other submissions, the appellants had already paid this differential duty amount along with interest and 25% penalty. Hence, any adverse inference drawn based on this ground of cross model utilization is incorrect and not called for.
3.54 The appellants submit that they are following this method of cross model utilization from many years. The department never objected to this method. The change in the rate of duty has resulted in alleged short payment of duty. The appellants submit that they have not changed the method passing on of discount because of change in the rate of duty with effect from 1.3.2006. The appellants were following this method of cross model utilization prior to 1.3.2006 also. The appellants have also produce evidences to support this contention in the form of invoices. Hence, on this count also there is no suppression of facts and much less with willful intention to evade payment of duty.
The finding in respect of the submission of false and fabricated documents in the course of investigation has no relevance to the merits of the case. In any case, this finding is baseless and incorrect.
3.55 The Commissioner in the impugned Order has held that the appellants have submitted false and fabricated documents in the course of investigation to defraud the investigation. This finding has no relevance whatsoever on the merits of the case and therefore the same is liable to be set aside on this count alone.
3.56 In any case, the appellants submit that there is no document submitted to the department is false or fabricated. This issue of submitting false documents has arisen only because the nomenclature used by the department while asking for the documents and the nomenclature of the documents used by the appellants in day to day business.
3.57 The Commissioner has held that the incentive structure circulars issued by the marketing department to the Regional Managers are fabricated documents. The appellants submit that the discount has been passed on in the invoices based on these Circulars only. The amount mentioned in the Circular has only been passed on to the dealer. There is no dispute on the fact and hence the finding that such Circular is fabricated has no basis.
3.58 The Second document which has been alleged to be false is the documents submitted by Mr. Suhas Kulkarni. The appellants submit that the said documents are not false. The appellants submit that whatever amount of discount mentioned in the document submitted by Mr. Kulkarni has actually been passed on to the dealers. Hence, the allegation of submitting false documents is factually incorrect. The department has conveniently ignored this aspect. Hence, the impugned Order is liable to be set aside.
3.59 The finding of submitting false evidences is also based on the fact that some of the officials of the appellants have denied of having seen any particular document such as incentive structure circular etc. However, the said official who denied of having seen the document has specifically gave reason that since the particular document is not marked to him, he is not aware of that particular document. The department has conveniently ignored the reasons given by the officials and held that documents are false and fabricated.
3.60 The department has relied upon the statement of Mr. Vijay Menon, Regional Manager (Please refer page 914 to 917 of the appeal paper book Volume IV) to allege that the so called incentive structure circular which was addressed to the Regional Manager was not received by him. The appellants submit that during the period in dispute, Mr. Menon was not a Regional Manager. He became Regional Manager only in 2009. Further, the question which was asked to him was whether the incentive structure letter was received by him in the capacity of Brand Manager. (Please refer question number 15 at page 917 and question number 1 at page 914 of the appeal paper book Volume IV). The said Circular is admittedly not addressed to Brand managers and therefore he did not receive the said Circulars. Further, Mr. Menon has given a clarification letter to the Commissioner and requested to read his statement along with the clarification letter at page 1362 to 1364 in the appeal paper book Volume VI. The above submission has not at all been considered by the Commissioner in the impugned Order-in-Original. Hence, the impugned Order is liable to be set aside.
3.61 The department further relied upon the statement of Mrs. Sunvanti Ursekar, Assistant Manager, sales and finance department to allege that the incentive structure circular is fabricated document. The appellants submit that Mrs. Ursekar was not the Regional Managers and therefore the said incentive structure circular was not addressed to her. However, the content of the said circular was received by her in the email and accordingly number of vehicles eligible for discount is computed. Further, Mrs. Ursekar has given a clarification letter to the Commissioner and requested to read his statement along with the clarification letter at page 1362 to 1364 in the appeal paper book Volume VI. The above submission has not at all been considered by the Commissioner in the impugned Order-in-Original. Hence, the impugned Order is liable to be set aside.
3.62 The department has also alleged that dealers have not received the said incentive structure circular and therefore the said circulars are fabricated. The appellants submit that the said circular were never addressed to or sent to the dealers in the very form. The appellants never claimed that these circulars are issued to the dealer. It is the presumption of the department that the said circulars are issued to the dealers which is incorrect. In any case, the discount amount mentioned in the invoice issued to the dealer is the same as mentioned in the alleged Circular. Hence, the finding that the said Circular are false or fabricated is incorrect.
3.63 The appellants had appointed Chief Internal Auditor which is the highest Ethical officer of the noticee company to examine the documents submitted by the officials of the appellants during the course of investigation. The Chief Internal Auditor had given a report dated 7.12.2009. In the report, it has been stated that he has examined all the documents submitted by the officials of the appellants. He has also conducted a meeting of all the concerned official of the appellants. Chief Internal Auditor has examined each and every documents and authenticity of the documents. After examining all the facts, the Chief Internal Auditor has stated that the documents submitted by the officials are part of the process of giving discount by the appellants to dealers.
Documentary evidences disprove the revenues case.
3.64 The appellants vide letter dated 20.4.2011 submitted a Circular dated 2.6.2008 issued to all the eastern Region dealers mentioning the Scheme for the month of June 2008 (Please refer page 1159 of the appeal paper book Volume V). The Circular dated 2.6.2008 at page 1160 specifically provides that This month Rs.1,00,000/- (pre excise) per vehicle will be passed on all UV models (except taxi) for the incentive payable to the qualified dealership). Therefore, the department was aware that the discount of Rs.1,00,000/- has been given per vehicle and to the qualified dealerships. Therefore, this letter gives all the information of the documents which the department is alleging to be false or fabricated. Hence, the documentary evidence clearly disproves the aforesaid case of the department regarding submission of fabricated and false documents.
3.65 The appellants further submit that the aforesaid Circular was submitted to the department in the course of investigation and the same was part of the reply to the Show Cause Notice also. The Commissioner has simply ignored this Circular. Hence, the impugned Order-in-Original is liable to set aside on this count alone.
Penalty and Interest not imposable 3.66 The appellants submit that the demand itself is not maintainable and therefore penalty and interest is not imposable. In any case, the appellants submit that there is no suppression of fact and much less with intent to evade payment of duty and therefore no penalty can be imposed on the appellants. Further, the issue involved in the present case is purely a interpretation of definition of transaction value and therefore penalty cannot be imposed on the appellants.
Penalty on the co-appellants are not imposable.
3.67 Penalty imposed on the co-appellant under rule 26 is incorrect as the there is no proposal for confiscation of goods and therefore Rule 26 is not invokable. Rule 26 can only be invoked in the cases where the assessee has dealt with the goods which are liable to confiscation. In the instant case, the department itself has not alleged or held that the goods are liable to confiscation under Rule 25. In any case, the issue involved is one of the interpretations of definition of transaction value and therefore no penalty should be imposable on the co-appellants.
3.68 Further, the penalty has been imposed on the co-appellants on the ground that they have submitted false or fabricated documents. This allegation is factually incorrect. In any case, it is submitted that Rule 26 can not be invoked for the alleged submissions of false and fabricated documents. Hence, penalty on co-appellants is not imposable.
4. The Ld. Special Consultant for the Revenue submits the following:
4.1 At the outset, it may be mentioned that ld. Sr. Counsel for the appellants made it clear at the hearing that the appellant is neither challenging nor seeking refund of the amounts of Central Excise duty of Rs. 13,65,04,371/-, interest of Rs. 5,97,29,128/- and penalty of Rs. 3,41,26,093/- already paid during the investigation. These sums are, therefore, required to be confirmed.
4.2 As a measure of sales promotion and marketing policy, TML issues Car Targets and Schemes to its dealers on a monthly basis. These Car Targets and Schemes specify the quantum of retail sales to the retail customers and the number of Cars of various brands to be lifted by the dealers from TML during a particular month called Off-Take Target. These schemes contain various incentives to be given to the retail customers by the dealers in respect of each brand of Car. The incentives include, inter-alia, cash discount, soft loan with low interest rate, free gift, extended warranty, etc. In the process, the dealers incur certain expenses in granting such incentives to retail customers. However, to compensate the burden of such expenses, TML bears major portion of the burden. Therefore, the Car Target Scheme specifies the extent of TMLs contribution and dealers contribution separately towards the said expenses. Once dealers achieve the target at the end of each month, incentive amounts of TMLs contribution are calculated and passed on to the dealers as special discount against the purchases of cars during the subsequent months by reducing the transaction value of certain numbers of Indigo Cars which carry higher rate of duty. At this stage, it is necessary to mention that the incentive amounts are shown as receivables in the Books of Accounts of the dealers. It may also be mentioned here that Car Targets and Schemes do not specify or spell out in what form or manner the incentive amounts (TMLs contribution) are to be given to the dealers. Incidentally, it may also be mentioned here that each of the dealers has a running account maintained with TML. Therefore, as a matter of accounting, in the normal course the incentive amounts should have been credited to the dealers running account maintained with TML. However, TML chose to pass on the incentive amount to the dealer(s) in the guise of special discount by reducing the transaction value of only the Indigo Cars purchased by the dealers during the subsequent months. At this stage, it is also important to note that TML undertakes the job of advertisements on behalf of the dealers and on account of this, TML charges Rs. 500/- per Car and Rs. 1,500/- per Utility Vehicle. These sums are deducted from the incentive amounts and then the balance is passed on to the dealer(s) as special discount. Be that as it may, the incentive amounts earned by the dealers by achieving both retail & Off-Take Targets cannot be termed as special discount by any stretch of imagination. The so-called special discount has no co-relation to any particular transaction that has already taken place during the last month. The Commissioners finding that the so-called special discount is nothing but settlement of past claims of the dealers cannot, therefore, be faulted.
4.3 Under Section 4(1)(a) of the Central Excise Act, 1944, transaction value is to be arrived at for each removal of goods. It is the price actually paid or payable for the goods when sold. Although there is no specific provision for deduction of discount from the transaction value, this can be allowed if it is known prior to removal of the goods. There is no agreement between the dealers and TML permitting such discount from the transaction value. In its clarificatory order in the case of Union of India & Ors. V/s. Bombay Tyres International Pvt. Ltd. 1984 (17) ELT 329 (S.C.), the Honble Apex Court has held that discounts allowed in the Trade (by whatever name such discount is described) should be allowed to be deducted from the sale price having regard to the nature of the goods, if established under agreement or under terms of sale or by established practice, the allowance and the nature of discount being known at or prior to removal of the goods. Such Trade Discounts shall not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice price. In the present case, there is no agreement between TML and its dealers allowing discount from the sale price of the goods. Terms of sale also do not provide for such discount from the sale price of the goods. There is also no established practice allowing such discount. Moreover, the nature of so-called special discount is also not known at or prior to the removal of the goods. Therefore, the Commissioner has rightly relied upon the judgment of the Apex Court.
4.4 It is already submitted herein before that the dealers incentives due for a particular month are paid by way of reduction of transaction value of Indigo Cars & Utility Vehicles purchased by the dealer during the subsequent months. In the present case, there cannot be any doubt that the special discount shown in the invoice is nothing but compensation due to the dealers for the losses incurred by them during the previous months transaction. Therefore, this special discount is in the nature of a benefit given to the dealers by way of compensation for the loss suffered by them in the previous sale, as held by the Honble Apex Court in the case of Asstt. Commissioner of C.Ex. & Ors. V/s. Madras Rubber Factory Ltd. & Ors 1987 (27) ELT 553 (S.C.).
4.5 It is also submitted herein before that the so-called special discount is not relatable to any particular transaction. Therefore, this so-called special discount cannot be permitted to be deducted from the transaction value of Indigo Cars & Utility Vehicles. This submission is supported by the Apex Courts judgment in the case of Commissioner of Customs V/s. Bureau Veritas 2005 (181) ELT 3 (S.C.). Though this judgment is in the context of Customs Valuation, it is equally applicable to the Central Excise Valuation for the reason that transaction value under the Central Excise Act is similar to that of Customs Valuation.
4.6 A look at the Car Target Schemes would reveal that the majority of the schemes were offered to the end customer by the dealer i.e. the retail discount, free extended warranty, free insurance, soft loan financing etc. were all offered to the end customers by the dealer who purchased the cars from the dealer. The Commissioner in his findings at para 19.6 of the Order has held that the incentive amount is mostly consisting of retail incentives of different models of Indica & Indigo Cars. This was also supported by other relied upon documents submitted by the officials of TML in the investigation. It is also not disputed by TML that majority of the incentive amounts relate to compensation for services offered by the dealer to the retail customers. Free extended warranty, free insurance, soft loan financing are in the nature of services offered by the dealer to the retail customers. There are other incentives, such as, dealers sale persons incentive, loyalty to the retail customers, etc. 4.7 All these schemes cannot be said to be relevant for the determination of value of goods for the purpose of payment of duty by the manufacturer. Since the goods were already sold and marketed by the manufacturer, Excise is concerned with the first entry into the stream of wholesale trade. Excise is not concerned with what happens to the goods thereafter. TML in the sale invoices for the relevant period for sale of Indigo Cars and Utility Vehicles for which demand has been made has mentioned that the transaction value is arrived at in terms of Section 4(1)(a) of the Central Excise Act, 1944.
4.8 Section 4(1)(a) of the Central Excise Act, 1944 envisages the method of collection of tax at the point of first sale effected by the manufacturer. It is the first immediate contact between the manufacturer and the trade that is made decisive for determining the transaction value. It is the measure of value of goods for the purpose of Excise. Any activity undertaken by the dealer is not relevant for the purpose of Excise since the goods have already been sold and marketed to the dealer. This would violate the true nature of Excise duty and also the concept of factory gate sale which is the basis for determination of value of goods for the purpose of Excise.
4.9 Limitation: At the outset, it may be mentioned that Show cause notice dtd. 6/5/2011 covers the period of demand from April, 2006 to July, 2008. Referring to the appellants letters dtd. 16/12/2001 & 10/1/2003 addressed to the Range Superintendent of Central Excise, learned Senior Counsel for the appellant contended that the Department was aware of the appellants discount policy right from 2001 onwards. Therefore, the extended period of limitation is not available to the Department. Perusing these two letters (one at page 131 and another at page 149 of Paper Book Vol-I), it is seen that these letters talk about assessable value of Indica Cars. In that connection, these two letters mention about the manufacturers Bonus Scheme for the year 2000-01 and 2001-02 which will be offered to the Dealer in the form of discount of Rs. 20,000/- per Car. It is needless to say that Bonus is not same as discount. In the present case, the basic allegation is that the appellant had reduced the transaction value of Indigo Cars and Utility Vehicles carrying higher rate of duty in the guise of special discount. During the investigation, Shri S. Krishnan, Senior Vice President-Commercial had stated in his statement dtd. 18/3/2010 that it was he who formulated the policy Scheme in 2006 of reduction of transaction value of Indigo Cars & Utility Vehicles for adjustment of incentives attributable to Indica Cars. Therefore, the two letters referred to by the learned Senior Counsel for the appellant have no bearing on the present case where duty has been evaded deliberately by reducing the transaction value of Indigo Cars & Utility Vehicles at the rate of Rs. 30,000/-/ Rs. 45,000/-/, Rs. 1,00,000/- at different points of time. Therefore, the Show cause notice has rightly invoked the extended period of limitation.
4.10 Penalty under Section 11AC of the Central Excise Act, 1944: Since it is a case of deliberate evasion of Central Excise duty by reducing the transaction value of Indigo Cars & Utility Vehicles, the Commissioners order imposing penalty on TML under Section 11AC cannot be faulted. The Commissioner has, therefore, rightly imposed penalty on TML under Section 11AC of the said Act.
4.11 Penalty under rule 26 of Central Excise Rules, 2002: Shri S. Krishnan, Sr. Vice President-Commercial: Shri S. Krishnan has clearly admitted that he was the person who formulated the policy of reduction of transaction value of Indigo Cars & Utility Vehicles for payment of incentives attributable to Indica Cars under the guise of special discount. He was also responsible for fabrication of discount circulars addressed to the Regional Managers, West, East, South, North. He has also admitted in his statement dtd. 18/3/2010 that he was aware that Indigo Cars & Utility Vehicles carried higher rate of duty compared to Indica Cars. Therefore, the Commissioner has rightly imposed penalty on him under Rule 26 of the Central Excise Rules, 2002.
4.12 Shri Nitin Seth, General Manager (Car Product Group). He was the person who implemented the policy formulated by Shri S. Krishnan. He was the person who signed the fabricated discount circulars shown to have been issued to the Regional Managers & to all Car Dealers. His action cannot, therefore, be said to be innocent. Having regard to all these facts, imposition of penalty on him under Rule 26 is quite just and fair.
4.13 Shri Rajesh Bagga, Legal Head : Though he was not in employment during the relevant period, he was guilty of supporting the stand taken by the appellant that reduction of assessable value of Indigo Cars under the guise of special discount was to encourage the sale of Indigo Cars. Therefore, he cannot escape from the liability to penalty under Rule 26 of the Central Excise Rules, 2002.
4.14 In view of the foregoing premises, the impugned order passed by the Commissioner deserves to be confirmed and the appeals are required to be dismissed and I pray accordingly.
5. We have considered the submissions made by both the sides.
5.1 (Pronounced in Court on ..) (Anil Choudhary) Member (Judicial) (P.R. Chandrasekharan) Member (Technical) pj 1 53