Customs, Excise and Gold Tribunal - Delhi
Majestic Auto Ltd. And Shri Pankaj Munal vs Commissioner Of Central Excise on 18 February, 2005
ORDER
Jyoti Balasundaram, Vice President
1. M/s. Majestic Auto Limited (Hereinafter referred to as MAL) manufactures Mopeds and Scooters of different engine capacities and models falling under Chapter 87 of the Schedule to the Central Excise Tariff Act, 1985. They have two manufacturing units-one at Ghaziabad and the other at Ludhiana. At Ghaziabad there are two divisions - one for the manufacture of mopeds and scooters and parts thereof and the other for trading of parts. They also have four depots each situated in M.P., A.P., Karnataka and Tamil Nadu. The scooters and mopeds manufactured by them were sold in the domestic market and also exported. For the purpose of sale, the entire country had been divided into different regions and for every region they had a dealer network and the dealers were appointed by way of Letter of Indent (LOI in short) issued by them. The LOI contained the terms and conditions relating to Show Room, Workshop and staff to be maintained, the storage capacity to be provided, deposits to be made, Sales Promotion Activities to be undertaken and target of sale to be achieved by the so-called dealers. The two wheelers were sold to the dealers by delivery at the factory gate to the Transporter under cover of invoices showing the dealers name and address and the Lorry Receipt issued by the transporter showing the dealer as consignee and MAL as consignor. The transit risk was covered through an Open General Insurance Policy taken by Mal. In case of any mishap, payment under the claim is made by Insurance Company to the dealers. For sale from the Depots, invoices and lorry receipt show similar details as in the case of sale at the factory gate. The two wheelers were sold at varying prices announced/revised through the Price Lists circulated to the dealers from time to time.
2. A Special Audit of MAL conducted by the Central Excise Department for 1996-97 revealed that MAL had sold models of the scooters/mopeds at the prices, which were far below the cost. The fact that the sales had not been effected at the factory gate and all the consignments had been delivered at the dealers premises and the fact of below cost selling led the Department to critically examine the transactions between MAL and the dealers.
3. Scrutiny of the LOI dated 14.11.1995 led the Department to conclude that it could not be treated as contract or agreement with the dealers for the reason, inter alia, that the terms and conditions between MAL and dealers were conspicuously absent in the said document. Further investigation was carried out and statements of Officers of MAL recorded. The statements of some of the Officers and dealers of MAL were also recorded. On examination of the information/documents and the statements following details were found:
"(1) Not only the scooters, but some of the mopeds have also been suffered duty at the assessable value below the cost. No attempt had even been made to sell these vehicles at a price inclusive of cost plus manufacturing profit.
(2) They have been selling their goods through the dealers appointed by them and sub-dealers/ASC appointed through the dealers and also the government department against the contract. The goods had never been delivered at the factory gate. Hence no factory gate prices existed.
(3) They had different prices for the dealers of the different regions. These prices had been fixed keeping in view the fortuitous consideration, such as the facilities and the services provided by the dealers and cost of sales promotion. Advertisement and publicity thrust upon them by MAL.
(4) They had been transporting the goods to the dealers premises through the vehicles hired under transport contract and also through two vehicles of their own.
(5) They had been claiming deduction of equalized freight from the assessable value. Since, however, freight was known in respect of each consignment and the prices were not uniform, there was no need for claiming average deduction.
(6) The equalized freight had not been arrived at separately for the consignments transported through their own vehicle and those through the hired ones.
(7) The equalized freight was not different for different regions through the basic prices were different for different regions.
(8) At the time of appointment, they received from the dealers contribution towards Central Publicity Fund against the so-called supply of the publicity materials, the consideration against the so-called supply of the essential spare parts, the handsome amount of security, and the advance against the initial supply 20 Nos of Hero Puch and 15 Nos of Hero Winners.
(9) They had received Rs.50.00 lacs as advance in connection with the BMW Motor cycles during 1995-96. No interest had been paid on the said amount.
(10) The amount received against the so-called supply of the publicity materials and the special spare parts and tool kits have not been accounted for in the balance sheets. These amounts related to the sales promotion and after sales service.
(11) They have been paying interest @ 12% on the security deposits before 1996-97. From 1996-97, however, they stopped payment and credited the interest accrued to the security deposit amount.
(12) No interest had been paid on the advances.
(13) They have received handsome amount of interest from the buyers against the so-called credit policy.
(14) The amount of interest paid on the working capital has been reduced in the balance sheet to the extent of the interest received against the so-called credit policy. Admittedly, however, there was no link between the rate of interest paid on the working capital and the interest charged.
(15) The sales promotion activities were undertaken by the dealers on the direction of MAL under the company policy. The dealer had no such policy of their own.
(16) Cash discount had been given to the dealers where the consideration against consignment is realized before its dispatch. The statement in the Annexure to the declaration 2C filed under Rule 173C, the statement of Shri Tyagi and others show that the cash discount had been given only in the case of advance payment.
(16)(a) No sale transaction, took place between, MAL and the dealers, the dealers and the sub-dealers/ASC, or MAL and sub-dealers/ASC, as the interest of MAL extended up to the point of retailing.
(17) The whole activities right from the time of removal of the goods from the factory to the point of retailing and to the servicing, repairing etc. were effected, monitored, supervised, and controlled by MAL through their marketing and service network.
(18) In Fact, the dealers/Sub-dealers/ASC, had no role of their own. They played the roles assigned to them, and directed by the company management.
(19) The dealer's real benefit was the incentives, provided by the company from time to time, the amount credited to their account in the name of expenditure incurred by them on sales promotion, amount recovered by the dealers over and above the maximum retail price etc. (20) As per the LOI, the minimum amount of security deposit was Rs.1.00 lakh for scooter and Rs.50,000/- for mopeds before 2000-2001 which was compulsory. It has been stated that all the dealers had fulfilled the conditions of LOI. The details of security deposits, however, show that there were balances in several cases as on 31.3.97 to 31.3.99, which do not conform to the said limit.
(21) The facts and figures furnished by MAL are incomplete, inadequate, and some contradictory and several material facts have been suppressed from and mis-declared to the Department"
4. The above details led the Department to deduced that the dealers were nothing but mere cheap stockists and the sub-dealers, sub-distributors. Based on the above, show cause notice dated 30.1.2001 covering the period 29.09.96 to 31.12.2000 was issued alleging under-valuation, proposing recovery of duty of Rs.59,04,45,896/- invoking the extended period of limitation. The notice also proposed recovery of interest and imposition of penalty on MAL and its Director, Shri Pankaj Munjal. The notice was adjudicated by the Commissioner of Central Excise, who held inter alia that there is no buyer-seller relationship between MAL and dealers and that LOI was in the nature of agency agreement and that the two wheelers in question were delivered to the agents only for further sale from their premises.
5. The Commissioner determined the assessable value of the two wheelers by including running show room expenses, sales/promotion/advertisement and publicity expenses, Pre-delivery and Inspection (PDI) expenses, Security Deposit etc to the transfer price at the factory gate to arrive at the assessable value at the Agent's end. He also held that the value of the clearance of finished goods to the Agents below cost was not the normal price under Section 4 for the purposes of levy of duty. He confirmed the Central Excise duty demand of Rs.48,68,54,579/- and Cess of Rs.39,65,249/- (Total Rs.49,08,19,828/-) together with Interest under Section 11AB, imposed penalty of amount equal to duty plus cess under Section 11AC of the Central Excise Act on MAL and penalty of Rupees One Crore on the Managing Director of MAL under Rule 209A of the Central Excise Rules, 1944. Hence these appeals.
6. We have heard Shri M.Chandrasekharan, ld. Sr. Counsel appearing along with Shri S.V. Arya, advocate for the appellants for the appellants and Shri Rajiv Tandon, SDR for the Revenue. The duty demand has been confirmed on the ground that seller-buyer relationship between MAL and its dealers does not exist. As is evident from paragraph 5.2 (i) of the impugned order, this is one of the core issues for decision in this case. It is, therefore, absolutely essential to examine whether there was sale between MAL and its dealers and whether sale took place at the factory gate or not. This examination is also necessary for the reason that valuation of excisable goods is required to be done at the place of their removal/sale according to Sec.4 of the Central Excise Act which provides for normal price. There will be a price only if there is a sale. If it is established that the goods were sold by MAL to their dealers and that the place of removal was the factory gate, then the demand cannot be sustained.
7. The other core issue as mentioned in paragraph 5.2(ii) of the impugned order is in respect of sale of some models of two wheeled motor vehicles at prices less than their cost of manufacture. We shall deal with this issue after dealing with the core issue mentioned in paragraph 5.2 (i) of the order.
8. In paragraph 5.3.8 of the impugned order, reference has been made to Sec.(2) (h) of the Central Excise Act which defines the term "sale". Transfer of possession of goods by one person to another by cash or deferred payment is sale. Reference has also been made to the provisions of the Sale of Goods Act. In paragraph 5.3.17 of the impugned order, it is found that the essence of 'sale' is the transfer of title to goods from one person to another for price paid or to be paid. No finding has, however, been recorded as to whether, by applying the aforesaid provisions of the Central Excise Act and Sale of Goods Act, the transfer of title to goods took place between MAL and its dealers, although it is admitted that goods wee delivered to the dealers. In paragraph 5.3.19 of the order, the Commissioner finds that the essence of a contract of sale is the transfer of title to goods for a price paid or promised to be paid. In paragraph 5.7.1.3, it is found that the prices between MAL and its dealers were not independent and genuine prices, that those were influenced prices depending upon several extra commercial consideration and that these prices are artificially created, suiting the needs of the company, which necessarily acknowledges that MAL sold that goods to dealers for a price. The word "transfer" has been pre-fixed with these prices. There is no term like "transfer price" in Sec.4 of the Central Excise Act, nor does any such term appear in any of the documents of MAL. It is, therefore, established that the title to goods was passed on by MAL through its dealers for a price. At best, the issue of genuineness of these prices would require to be examined.
9. The expression "sale" has been considered by the Tribunal in several cases on different aspects of valuation under Section 4 of the Central Excise Act. In the case of Commissioner of Central Excise, Meerut v. Prabhat Zarda Factory Ltd. 2000(119) ELT 191, the larger Bench of the Tribunal has held, on applying the definition of sale as contained in Sec. 2(h) of the Central Excise Act, that the transfer of possession of goods is the essence of sale. In the case of Associated Strips Ltd. v. CCE, New Delhi 2002 (143) ELT 131, the Tribunal analysed the decision cited supra. The invoices issued by the manufacturer M/s. Associated Strips Ltd. showed ex-works price, excise duty and sales tax. The amount of freight and insurance etc. was also reflected separately in the invoice and no excise duty or sales tax was paid on such amount. In the invoices and in the lorry receipt issued by the transporter, the buyer was shown as consignee and the manufacturer was the consignor, goods were delivered to the transporter and insurance policy was taken out by the manufacturer. In paragraph 17 of its order, the Tribunal considered the facts so as to ascertain when the transfer of possession of goods to the buyer occurred, and when property in the goods passed from the seller to the buyer. Various provisions of Sale of Goods Act were examined. In paragraph 19, it was held that the delivery of the goods to the carrier/transporter is delivery to the buyer and in paragraph 20 it was held that even if the risk in transit is governed by the insurance policy taken by the manufacturer/seller, it would not make any difference in the legal position regarding transfer of title to goods to the buyer. this decision has been upheld by the Apex Court as reported in 2002 (146) ELT 31 (SC), paragraph 12 of which is reproduced below:-
"The assessee also referred to a decision reported in 2002(49) RLT 506-Associated Strips Ltd. and Anr. v. CCE, New Delhi. It is a decision of the CEGAT. Considering several decision of different Courts and the terms of the contract between the parties, it was held that sale of goods had taken place at the factory gate and therefore the place of removal was not the premises of the buyer. In view of the provisions of Section 23 and Section 39 of the Sale of Goods Act, 1930, it was found that goods are to be treated as delivered to buyer and property and possession of the goods passed on to buyer when the goods were handed over to transporter. In such a case element of freight and transit insurance wee not to be included in the normal value of the goods. We approve of the view taken by the CEGAT".
10. The facts in the present case are similar to the above. MAL had circulated price lists to the dealers of different regions showing therein ex-factory price, excise duty, sales tax and dealer's margin etc. (page 628 Vol.2.PartII of the paper book-relied upon document No.60). The goods were removed under cover of prescribed invoice as seen from page 358 Vol.2 Part.II, showing dealer's name and address. The amount of excise duty, sales tax, freight etc. was reflected separately in the invoice; the goods were delivered by MAL to the transporters; lorry receipt issued by the transporter showed MAL as the consignor and the dealer as the consignee (page 322 to 334 of Vol.3 Part.II). These documents form Annexure II to the reply to the show cause notice. The price of goods shown in the invoice was debited to the dealer's account. Applying the ratio of the Association Strips' decision supra, we hold that the goods were sold by MAL at their factory gate to the dealers.
11. The seller-buyer relationship between MAL and its dealers is also established from other relied upon documents such as the Credit Policy, according to which dealer-buyer is allowed cash discount if the payment is received in advance. In case the payment is delayed beyond the prescribed credit free period, interest is payable by the dealer-buyer to MAL. These credit policies have been referred to by the Commissioner in the impugned order and he has also raised objections to the realization of high rate of interest in case of delayed payment. From the above, there is a clear admission of the seller-buyer relationship between MAL and its dealers. On the other hand, in the case of principal agent relationship, there is no scope for allowing cash discount on advance payment and/or for recovery of interest on delayed payment as there will be no payment of the goods by the agent because the goods are not purchased by the agent. In other words, the question of extending cash discount and/or recovering interest on delayed payment does not arise because there is no sale and purchase between principal and agent.
12. In paragraph 17.1.27 on page 60 of the reply to the show cause notice (see page 69 of Vol.3 Part I) MAL had cited the Tribunal decision in Associated Strips and also the decision of Frexton Cables (India) v. CCE, Delhi (2002(142) ELT 694) to support their contention that the goods were sold by them to dealers at the factory gate, the transfer of possession of goods was effected at the factory gate, that the place of removal as per Sec.4 as amended from 28.9.1996 was the factory gate and therefore, the price at the factory gate was the normal price under Sec.4(1)(a) of the Act. We note that the Commissioner has not recorded any finding on this submission. He has also not recorded any reasoning for not following the law laid down in the above cases which decisions have been followed in Himalayan Pipe Ind. v. CCE, Chandigarh (2003(151)ELT 574) and Punjab Tractor Ltd. v. CCE, Ludhiana (2004(61)RLT 854).
13. We note that the terms of Letter of Intent (LOI) and Marketing Pattern including that of regional prices have remained the same since 1992. The issue of varying regional prices to dealers in different parts of India was raised in assessee's own case and was finally settled by the Hon'ble Supreme Court which held that different prices for dealers of different regions are in conformity with Sec.4 of the Act (Supreme Court rejected Revenue's appeal against Tribunal's order No, 392/95 dated 91.7.95 holding that there could be separate price for dealers in different regions (see 1998(97)ELT A.223). Since sale at factory gate and seller buyer relationship between MAL and its dealers has been established, different regional prices and assessable value determined on that basis by MAL is, therefore, in conformity with the settled law in this issue as held by the Tribunal in Gora Mal Hari Ram v. CCE Delhi (1994(69)ELT 269), Shriram Foods & Fertilizers Ltd. v. CCE, Delhi (1996(85) ELT34) (approved by apex court as seen from (91) ELT A.179) and Sri Sarvaraya Sugars Ltd. v. CCE, Hyderabad (2004(64)RLT 594).
14. We also note that for the entire period covered by the impugned order, issues on valuation were raised from time to time when the department categorically contended that MAL had been selling two wheelers at their factory gate to dealers and at the depots-see Order Nos.860/99-A dated 11.6.99, order No.961/2000-A dated 1.12.2000, Order No.262/03-NB(A) dated 3.6.2003, Order No.748-50/03-NB(A) dated 30.12.2003, Order No.34/04 NB(A) dated 27.01.2004 and 306-307/04 NB(A) dated 12.4.2004. It is admitted that MAL had been declaring to the department their complete marketing pattern in their separate declaration including submitting a copy of the LOI from time to time. In paragraph 5.10.5 of the impugned order, it is stated that the invoices issued by MAL indicate that they have declared a price, cash discount and equalized freight etc. and it is also admitted in the same paragraph that MAL had declared that there was factory gate sale as well as depot sale and that the sale was being effected to wholesale dealers. It is also stated that "from the aforesaid declarations it can only be inferred that the goods were being delivered to the independent wholesale dealers either at the factory gate or depots" and that "similarly, submission of a copy of the document under which the dealers had been appointed is not sufficient to make the department aware of the actual dealing between the manufacturer and the dealers....". Despite the clear admission of the Revenue of complete disclosure of the marketing pattern and the conduct of business between MAL and its dealers, the Commissioner has found that relationship with dealers wa never disclosed by MAL to the Department or the judicial forums and that actual buyer seller relationship did not exist between MAL and its dealers and in this factual background, the ratio of the decisions relied upon by MAL may not be applicable, which is a clearly erroneous finding. In view of our finding that sale took place between MAL and its dealers at the factory gate which position stands settled according to the law laid down by the Apex Court, the finding arrived at by the Commissioner in paragraph 5.6 of the impugned order that there was no normal price at the factory gate is not tenable. The finding in paragraph 5.3.21 that the transaction between MAL and its dealers were not transactions of sale but agency transactions, and relationship between MAL and its dealers was that of principal and agent, is patently incorrect as this finding has been arrived at on a wrong application of the decisions cited in paragraphs prior to paragraph 5.3.21. In those case, the facts were entirely different from the facts of the present case in as much as the prices were to be fixed by the marketing company which was at liberty to enter into contract with the parties and fix the selling prices at its discretions, while no such situation exists in the present case.
15. The Commissioner has heavily relied upon the decision of the Supreme Court in the case of Snow White Industrial Corporation v. CCE (1989(41) ELT360 (SC) to arrive at the conclusion that relationship between MAL and its dealers was that of principal and agent. He has held that the facts of the present case are more akin to the facts in the Snow White Industrial Corporation case (hereinafter referred to as SWIL), and that the decision in the SWIL case was not brought to the notice of the Hon'ble Supreme Court while deciding the earlier case of MAL. However, on a comparison of the facts of the two cases, we are clearly of the view that the facts in the case of MAL are totally different from those in SWIL. Some of the differences in facts are as under:-
(i) In the SWIL case, agreement itself contemplated the manufacturer and the selling agent. The manufacturer was a small manufacturing unit having no branches and/or sales office in any part of the country and in those circumstances an agreement for sale was entered into with Gillanders. In the present case MAL is a manufacturer having full pledged marketing division headed by Vice President (Marketing) and having four depots at various parts of the country, besides effecting sales at factory gate to 250-300 dealers all over India.
(ii) In SWIL case, there is no mention of any invoice issued in favour of Gillanders while in MAL case, an invoice as prescribed under Rule 52A of the Central Excise Rules showing name and address of the dealer, assessable value, excise duty, sales tax, freight and insurance from factory to dealer was issued for each removal. Such invoice is the prescribed document for determination of assessable value with effect from 1.4.94. Therefore, sale of the vehicles under the cover of invoice to the dealer establishes buyer seller relationship. the dealer sold the vehicle to the ultimate customers under cover of his invoice. In case of sale by UP dealers, sales tax is paid by MAL at the point of first sale to its dealers from the factory and not where the dealer sells the goods in retail. If the dealer was only an agent of MAL, sales tax would become payable only at the point of sale by the agent to the customer. The SWIL case did not involve the above facts.
(iii) In the case SWIL, there was a clear stipulation that advertisement and publicity were the responsibility of the manufacturer at its own cost and not of the sole selling agent, whereas, in the case of MAL, advertisement and publicity were undertaken solely by MAL on some aspects, and jointly by MAL and its dealers on sharing basis under some joint publicity schemes.
(iv) In the case of MAL, there was no agreement for supply of the product as sample free of charge while such a provision existed in the agreement in the case of SWIL.
(v) In the SWIL case, the most important factor suggesting the existence of agency was the clause in the agreement which enjoined that stocks left over beyond two years would be returned to SWIL who were bound to replace them. There was no such provision in the LOI of MAL. Even after the dealership agreement is terminated, there is no provision permitting the dealers to return the goods in question to MAL.
(vi) In the case of MAL, insurance claim was to be settled and paid by the Insurance company to the dealers in case of mishap whereas SWIL was to prefer all claims for recovery of damages from the carriers.
(vii) In the SWIL case selling agent was to be allowed overriding commission for booking orders and follow up action. There is no such provision in the MAL case.
16. Even in the case of SWIL, it is noted by the Apex Court that SWIL is passing the title to goods from seller to purchaser. This test stands satisfied in the present case. Therefore, the finding of non existence of seller buyer relationship between MAL and its dealers on the basis of incorrect interpretation of LOI is patently wrong.
17. The Commissioner has compared return of stocks lying unsold in SWIL case with the rebate/discount in price shared between MAL and its dealers to conclude that facts in MAL are similar to those in SWIL. In MAL case, goods stood sold to its dealers against a price and payment of duty on the assessable value determined on that price. In some cases, due to market conditions, the prices were announced to be reduced for the goods to be removed after the notified date; with a view to assist the dealer in ordinary course of business for enabling sales of his stocks, and the effect of reduction in price was given by sharing the differential. Had the dealer been the agent of MAL, the entire deduction would have to be borne by MAL because an agent does not sell his goods at any price, but sells the goods on behalf of principal on the price decided by the principal and the agent does not bear any loss of sales. In the case of Bhopal Sugar Industries v. Sales Tax Officer (1997 (3) SCC 147) the Supreme Court has recognized that a transaction can be one of sale even when a seller by virtue of an agreement imposed certain restrictions on the buyer, e.g. fixation of price, submission of particulars etc. The court has held that these restrictions per se do not convert a contract of sale into one of agency, because in spite of these restrictions, the transaction would still answer the test of sale. In the present case, there is no finding that the dealers suffered losses in their business of buying from MAL and selling to the customer and that the losses, if any, were indemnified by MAL which is a pointer towards a buyer/seller relationship between MAL and its dealers. Further in an agency agreement, an agent has to periodically submit return/report of receipts and sale of goods etc., and no such document has been bought on record in the present case. The allegation of selling a fraction of the goods to specific customers at special discount price is a normal practice in trade and this does not amount to exercise of control by MAL over its dealers. The ratio of the decision in the case of Rohtas Industries Ltd. v. State of Bihar (AIR 1958 Patna 414) relied upon in paragraph 5.3.18 of the impugned order is distinguishable on facts.
18. The difference between the facts in the SWIL case relied upon by the Commissioner and the present case and cases of other assessees where the terms and conditions were similar to those in MAL's case can be better brought out by following comparative table:
S. SWIL MAL Philips Mahindra & Telco No. Mahindra 1 2 3 4 5 6 The selling No such No such Stocks to be Stocks to agents had condition in clause maintained as be agreed to stock LOI mutually maintained adequate agreed by dealers. quantities. From the above its brought out that (a) the relationship of seller/buyer between MAL and its dealers is an independent relationship. (b) The statements of dealers such as MD Enterprises, ghaziabad, Mahadev Agencies. Noida and Shyam Lal & Co. Delhi recorded in this case prove that the orders are generally placed through the company's sales representatives personally on phone/fax and that the goods are supplied as required by the dealer, which belies the stand of the revenue that dealers were not free to place orders. (c) the principal to principal relationship between MAL and its dealers is clearly brought out with greater force than in Mahindra & Mahindra and Telco case, wherein there is a requirement of maintenance of adequate stocks as mutually agreed and yet it was held that the dealings between the above mentioned 2 companies and its dealers where on a principal to principal basis. 2. SWIL agreed to No such No Such No such No such accept return of condition in condition condition condition all stock held by LOI but the buyer for a reduced the period of more pricing of the than 2 years and stock lying replaced such with the stock free of dealers and charge. partially compensated the losses. From the above it is seen that there was no reduction in price of the goods already sold by MAL, as a consequence of subsequent reduction in prices of a particular model for fresh removals, the vehicle purchased by the dealers at the old higher price could not have been sold by them in retail at the higher price, since fresh purchase by the dealers would necessarily have to be at the subsequent reduced price and these were to be sold at the reduced price in retail. To meet this situation, as a matter of sales promotion, MAL gave rebate to its dealers in which the difference in old higher price and new reduced price was shared, in respect of vehicles already purchased by the dealer at a higher price and remaining unsold. This measure of sales promotion is not comparable with the condition of return and replacement of stocks not sold by the selling agents for two years as in the SWIL case. S. No. SWIL MAL Philips Mahindra & Mahindra Telco 1 2 3 4 5 6 3. All consignments No such No such No such No such would be condition in Clause clause. clause. dispatched by LOI. Goods SWIL at railway were risk. dispatched as per transportation agreement by MAL The dealer has no say in the transport of the goods. The insurance was arranged by MAL against open general policy. The conduct between MAL and dealers and the goods receipt issued by the transporters clearly establishes the delivery of the goods to the dealers at factory gate. Cross examination of the dealers also establishes this. The insurance claims were paid by the insurance company directly to the dealers. According to the Tribunal's decision in the case of Associated strips cited supra, taking out of the insurance policy by the manufacturer seller does not militate against the transfer of title of goods to the buyer/dealer. There is nothing in the agreement in the case of Philips India, Mahindra and Mahindra and Telco which is contrary to the contents of the LOI in MAL's case on the aspect of delivery of goods. 4. In case of No such No such No such No such damage/shortage condition in clause. clause clause in transit LOI Gillanders will lodge a claim on railway. This condition present in the case of SWIL is entirely different from the facts in MAL's case as it is MAL's dealer who had to lodge the claim with the Insurance company and the payment of the claim is made by insurance company to the dealer. 5. SWIL should take No. Such No such No Such No such all suitable condition in clause clause clause action for LOI. damages. Damages or short receipt of vehicles were to be reported to MAL by its dealers as transportation was arranged by MAL. The reporting of damage or short receipt by the dealers to MAL was only to ensure efficient transportation and there is nothing on record to show that MAL was liable for damages. The loss was made good by the insurance company by payment of claim to the dealers. 6. All losses and No such No such No such No such damages were to condition in clause clause clause be reimbursed to LOI Gillanders The department relies upon the statement of Shri Hari Om Tyagi to conclude that since transportation was arranged by MAL, such damages were borne by them and moreover, open general insurance policy "were house to were house" for covering the transit risk was taken by MAL. Shri Tyagi had also stated that it was the responsibility of MAL to deliver the goods up to dealers' end. We agree with the contention of the appellants that reliance on the statement of Shri Tyagi who is AGM (Accounts) of MAL is not relevant because the goods receipt issued by the transporter shows MAL as consignor and the dealer as the consignee and the goods stood delivered to the dealer at the factory gate of MAL from where they were transported to the dealers by the transporters. None of the dealers whose statements have been recorded state that the responsibility for delivery of goods to dealers was that of MAL. The payment of the claim by insurance company to the dealers also establishes that MAL was not responsible for the delivery upto the dealers's end. We also note that during cross examination, one dealer viz. MD Enterprises Ghaziabad had stated that delivery is given on their behalf (dealers' behalf) to the transporter at the factory gate. Similar is the statement in cross examination of Mahadev Agency, Noida. The third dealer Shyam Lal & Co. could not answer the question on this aspect as he was workshop in charge. 7. SWIL was to pay No. such No such No such No such Gillanders a condition in clause clause clause discount in LOI consideration of the premises. This brings out the similarity of facts between MAL, Mahindra & Mahindra, Philips India and Telco and the facts in the SWIL's case are not comparable with MAL 8. Gillanders was to Supplies were No such Dealers were Booking of place orders for made as per clause to place orders and supply of the the discretion orders for procedure goods. of MAL and supply of for booking dealers. goods. dealers price was provided in dealer's agreement. The stand of the Revenue that dealers were not free to place orders and therefore, they were not dealers but agents of MAL is not factually correct as dealers were independently placing orders as seen from our findings in respect of sr. I of the table above. 9. Additional cash No. such No such No such Price discount on the condition in clause clause fixation next transfer LOI was as per price was the available if agreement. Gillanders paid price within 30 days. The contention of the department is that cash discount was available to dealers of MAL against their outstanding balances and therefore, the discount represented payment of interest against outstanding balance of dealers. We, however, note that as per credit policy adopted by MAL, a discount was to be given on the amount received in advance from the dealers. Where any sum was lying on the credit of a dealer at the time of making the sale, it was adjusted against the price of goods sold and a cash discount was allowed on that account. Therefore, this is clearly cash discount and it was also well known to all dealers of MAL and does not represent interest on outstanding balance of dealers 10. Additional No such No such No such No such turnover discount condition in clause clause clause. was also LOI provided subject to certain to certain conditions. On this point, the facts of SWIL cannot be compared with that of MAL. 11. SWIL agreed to Sales Dealers will The The dealers supply to promotions carry out, at advertisement had to Gillanders all activities their own was to be incur the necessary were to be expenses, the conducted by expenses publicity material intimated by advertisement dealers in of publicity MAL to campaign. their territory in its dealers. as per the direction of Mahindra Territory 12. It was to be No. such No such No such No such mentioned in all condition in clause clause. clause. the LOI advertisement that Gillanders was the sole selling agents. On this point, the facts in MAL are comparable with Philips India, Mahindra & mahindra and TELCO and not comparable with SWIL. In the case of SWIL, there is only one sole selling agent whereas MAL has about 300 to 350 dealers. Only in SWIL case, Gillanders was shown as sole selling agent. 13. All expenses No such No such No such No such such as godown condition in clause clause clause. rent, transport LOI. Such charges, and charges were bank commission incurred by etc. connected dealers out of with the sale their margin. were to be incurred by Gillanders. It is seen that the provision in MAL's case is similar to the agreement in Philips India, Mahindra & Mahindra and TELCO 14. Selling price and The price for The price Dealers There was transfer price sale to would be cannot sell a price were to be dealers was circulated by the goods at fixation mutually agreed fixed by MAL. the company a price higher clause in and there was but dealers than the MRP the substantial could reduce published by agreement difference the price. the company. which also between the two provided prices. that the relationship was at arms length and on principal to principal basis The price for sale to the dealers were fixed by MAL as in the case of Philips india, Mahindra & Mahindra & TELCO and this was a normal practice. As far as sales by dealers in retail are concerned. MAL had only suggested the MRP and this MRP was not binding on the dealers. 15. Gillanders may No such No such No such No such allow any condition in clause clause clause. discount to any LOI dealer at its discretion The discretion to allow discount lay with MAL; discounts wee made known to dealers prior to their removal through the price lists circulated from time to time. In certain cases, special discount was recommended which benefited the seller company and the buyer dealer for sales promotion. 16. SWIL agreed to No such No such No such No such execute and condition in clause clause clause. dispatch order to LOI all dealers outside Madras provided firm instructions were received to that effect from Gillanders and in such circumstances SWIL had to credit Gillanders with commissions. 17. SWIL could No such No such No such No such deduct from the Condition in clause clause clause commission any LOI discount on the specific instructions of Gillanders 18. SWIL agreed to No such No such No such No such execute such condition in clause clause clause orders against LOI the guarantee of Gillanders 19. If the goods No such No such No such No such found to be sub condition in clause clause clause standard, SWIL LOI but the was required to prices were take the goods at reduced by its own cost and MAL in replace the respect of old same. stock lying with the dealers. Sr. No. 16,17,18 & 19. The issue of reduction in prices has already been explained by us while dealing with Sr. no.2 herein above. 20. The agreement No period No such No such No such was in force for was provided clause clause clause one year but the in LOI but parties had right termination to terminate it by could be giving 3 months made giving notice. 2 months notice. 21. On termination No such No such No such No such of agreement, condition in clause clause clause. SWIL was to LOI accept return of goods lying with the buyer and reimburse Gillanders with the net value. There is no comparison between the cases of MAL and SWIL but there is a similarity between MAL and other 3 manufacturers on this point. The Hon'ble Supreme Court relied heavily on this clause in SWIL case to hold that the relationship in that case was that of principal and agent. Since no such condition exists in LOI of MAL, and therefore, on this aspect there is no similarity between MAL and SWIL, the principal to principal relationship between MAL and its dealers is established.
19. The finding in paragraph 5.3.32 of the impugned order that the price at which the vehicles had been sold to ultimate customers is relevant for arriving at the assessable value, is wrong in law, in the light of the test laid down by the Tribunal/Supreme Court in the assessee's own case where vehicles were sold by MAL at its factory gate to its dealers and the varying regional prices to different regions were normal prices under Sec.4(1)(a)(i). Therefore, the finding that there is no normal price because there is no factory gate sale, is erroneous and misconceived. Invocation of Sec.4(1)(b) read with Central Excise Valuation Rules 1975 is also therefore, incorrect. The computation of differential value in the Table appended to paragraph 5.7.127 of the impugned is contrary to the provisions of Sec.4 of the Central Excise Act for the reason that such computation has been done on the principle of price at which the goods were capable of being sold. This principle of valuation was provided for in Sec.4 as it stood prior to 1.10.1975. Statements for the entire period showing the prices for UP dealers and price lists for dealers of all other regions containing MRP for the period July - September, 2000 were available to the investigating officers.
20. Now we shall take up duty demands item wise:-
A. Demand of Rs. 6,55,55,227 on mopeds. (see para 5.7.1.1).
The determination of assessable value and consequent demand of the above mentioned amount is wrong in law as it is based upon the presumption that the dealers were the agents of MAL and hence dealers' premises was "place of removal" under Sec.4 of the Central Excise Act as amended from 28.9.1996, while the factual position is that the title to goods stood transferred from MAL to dealers at the factory gate and therefore, the dealers premises is not the place of removal, and the place of removal is factory gate of MAL.
B. Duty demand of Rs. 1,82,10,526 on spare parts.
Out of 700 items of spare parts sold from the spare division of MAL, 680 items were purchased from other manufacturers on payment of duty and only 20 items of spare parts were manufactured by MAL. Therefore, the above demand is not sustainable. Another reason why this demand is not sustainable is, because the duty has been demanded by re-determination of value by treating the dealers as agents of MAL.
C. Certain expenses have been held to be includible in the assessable value of vehicles cleared by MAL:-
(i) The demand of Rs.12,17,97,572 (see paragraph 5.7.2.1 to 5.7.2.4 of the order) has been confirmed by including expenses of running show room and workshop for spare parts and mopeds of 49cc. This demand has been confirmed as a result of holding that the relationship between MAL and its dealers was that the principal and agent. The demand is clearly unsustainable as we have already held that the relationship and place of removal was factory gate of MAL, in the light of the Supreme Court judgment in the case of Moped India Ltd. v. ACC (1986(23)ELT 8 (S.C) holding that maintenance of spare parts and workshop of dealers is a normal trade practice and this cannot make the dealers as the agent of the manufacturer. The decision of the Tribunal in CCE Bangalore v. R.GAC electrodes Pvt. Ltd 1988 (33) ELT 485 is also relevant in this regard.
(ii) Demand of Rs.33,46,395 (see para 5.7.2.5 read with para 5.7.2.9) on sales promotion, advertisement and publicity also cannot be sustained as the expenses incurred on the above activities has been held to be includible again for reason that the relationship between MAL and its dealers was that of principal and agent, which we have not accepted, and in the light of Apex Court decision in Philips India Ltd v. CCE Pune (1997 (91) ELT 540 (S.C.).
(iii) The demand of Rs.6,42,548 (see paragraph 5.7.2.16 read with paragraph 5.7.2.18) has been confirmed by including expenses incurred on pre delivery inspection, central publicity fund, receipt against notional interest on security deposit etc. The above demand is not sustainable as we have held that the relationship between MAL and its dealers is that of seller-buyer and the ratio of the decisions in Philips India Ltd. and Mahindra & Mahindra cited supra would apply as the facts in those case are identical to the present one.
(iv) For the same reason, the demand of Rs.1,57,25,484 including interest on receivables (see paragraph 5.7.5.1 read with paragraph 5.7.5.14) is also not sustainable as the relationship between MAL and its dealers is held to be that of seller/buyer.
(v) The demand of Rs.2,61,56,131 (see paragraph 5.7.6(a) read with paragaph 5.7.6.7) has been confirmed on equalized freight on the ground that the amount of freight from factory to the dealers place is includible in the assessable value of vehicles cleared by MAL in the light of the Commissioner's finding that place of removal was dealers premises and not the factory of MAL. We have already held that the place of removal is the factory of MAL from where the goods were sold in wholesale of the dealers. Therefore, this demand is set aside.
(vi) Demand of Rs. 15,09,291 on cash discount (see paragraph 5.7.7.6) is also required to be set aside as unsustainable as we have held that price at the factory gate of MAL was the normal price under Sec.4(1)(a)(i) of the Act and cash discount was a permissible deduction like any other discount, in accordance with the Supreme Court decision in Bombay Tyre International. We, therefore, set aside the finding in paragraph 5.7.7.6 of the impugned order that the ultimate price was the price at the dealer's end and therefore, the cash discount was not deductible.
(vii) The demand of Rs.1,46,044 on advance against sale of BMW Motorcycle also cannot be sustained because the advance was taken by MAL from each customer and has no nexus with the price of the goods, in the light of Board's circular No.215/49/46 dated 27.5.96 and the Tribunal's decision in Hero Honda Motors Ltd. (2000(124)ELT552).
(viii) The demand of Rs. 6,09,419 on inclusion of collection charges against cheque payment:- The finding in para 5.7.9.1 read with 5.7.9.3 and 5.7.9.4 of the order that dealers were acting at the behest of MAL and therefore the above amount of expenditure was incurred before sale and hence includible in the assessable value is set aside because the dealers had the option of making payment through the nominated bank or any other bank of their choice and also because this expenditure was incurred after sale of vehicles by MAL to its dealers.
21. Now we take up the issue of sale of scooterettes and small quantity of models of mopeds at prices less than cost of manufacture. the finding in paragraph 5.8.1.1. of the impugned order that the price was deliberately kept low is misconceived for the reason that the high cost of the goods was due to reasons detailed by the appellants in paragraph 2.1.7 to 2.1.10 of the reply to the show cause notice, i.e. mainly high project cost, heavy interest burden and high fixed cost, lower capacity utilization and poor off take. Further, even though the price was lower than the cost of manufacture, it was comparable or even higher than the price of similar products of competitive manufacturers. Sale of these vehicles was a distress sale because they could not fetch higher price in spite of various sales promotion/incentive measures, and therefore, the price at which these goods were sold by MAL to its dealers was a normal price under Sec.4 of the Central Excise Act, following the ratio of Guru Nanak Refrigeration Corpn.'s judgment (2003(153)ELT49(SC), which was following by the Tribunal in Fiat India Pvt. Ltd. (2004(61) RLT 947). The finding in paragraph 5.8.1.22 that these goods were not sold by MAL to its dealers, is set aside in view of our finding in previous paragraphs, that the relationship between the MAL and its dealers was that of seller/buyer and therefore, the goods wee sold by MAL to its dealers at the factory gate. The vehicles were sold in retail by the dealer at the maximum recommended price shown in the price list. According to Rule 6(a) of the Central Excise Valuation Rules, the dealer's margin is required to be deducted from this price in order to arrive at the wholesale price. The retail price (maximum recommended price) included the dealer's margin. Once the dealer's margin is reduced from the retail price, no duty demand would survive.
22. In the light of the above discussion, we hold that duty demand and penalties are not sustainable and accordingly set aside the same. As the appeals succeed on merits, we are not recording any finding on the argument that the demand is barred by limitation.
23. In the result, the impugned order is set aside and the appeals.