Customs, Excise and Gold Tribunal - Delhi
Sandoz India Ltd. vs Collector Of Central Excise on 31 March, 1992
Equivalent citations: 1992(60)ELT624(TRI-DEL)
ORDER S.V. Maruthi, Member (J)
1. The dispute relates to the recovery of duty short levied.
2. The appellants manufacture among other products different types of agro-chemicals classifiable under T.I. 68 of the CET. For the period commencing from 19-10-1977 to 3-4-1978, four demand notices were issued proposing to recover duty on the ground that trade discounts granted were not uniform and varying from 2.5% onwards and the balance of discount passed on to the distributors as overriding commission are not permissible under Section 4 of the Central Excises & Salt Act, 1944. The four show cause notices are as follows:
(1) Date of show cause notice 31-12-1977, for the period from 22-8-1975 to 31-3-1976.
(2) Date of show cause notice 19-10-1977, for the period 1-4-1976 to 31-3-1977.
(3) Date of the show cause notice 3-4-1978, for the period 1-4-1977 to 30-9-1977.
(4) Date of the show cause notice 1-10-1977 to 28-2-1978.
On receipt of the reply, the demands are confirmed by the Assistant Collector. On appeal, the Collector confirmed the order of the Asstt. Collector. Hence, the appeal before us.
3. The Asstt. Collector held that the demand prior to 1-1-1976 was barred by time and the rest of the demands are confirmed. The Collector held that the accounting year followed by the appellants is the calendar year i.e. Jan. to Dec. Therefore, if it is after the amendment of Rule 10 under Notification No. 167/77 dated 6-8-1977, the show cause notices could be issued within one year from the date of closing of the accounting year and therefore, the demands are within the period of limitation except the demand prior to 1-1-1976.
3A. As regards the commission paid to the stockists, the Collector relying upon the reply given by the appellants held that the stockists are related persons. As regards the overriding commission, he held that since the commission is not given either to the customer or the buyer but to the stockists and secondly, that it is not given at the time of removal of goods sold to the customers, it cannot be given as it cannot be treated as trade discount.
4. The main contention of Shri Habbu is that the show cause notices are barred by limitation. The distributors are not the related persons of the appellants. The overriding commission is nothing but discount which should be allowed in view of the language used under Section 4. He also explained that the total discount declared in the price list is 10% and 7.5% out of which 7.5% minimum is given to the customer and the differential discount is given to the stockists. Similarly in a case where the discount declared in the price list is 7.5%, 2.5% is given to the customer and 5% differential discount is given to the stockists. This is on account of the fact that the manufactured products are distributed throughout the country through a network of stockists/distributors which are located in different regions. The commission given to these stockists was 10% to 7.5% depending upon whether the pesticides were non-superficial or superficial. If the goods were sold directly to the customers in the region and a small discount was given to the customer, a balance of the discount was passed on to the stockists in the region as his overriding commission. It was also submitted that the appellants received 87.5% or 85% of the price in view of the over-riding commission given to the customers. Further he pointed out that the appellant is getting for sale of its goods the invoice price minus the discount declared in the price list and therefore, the assessable value should be the invoice price minus the discount. In support of his contention, he relied upon the order of this Tribunal in Electrical Products Corpn. v. C.C.E. - 1989 (43) E.L.T. 70 and he also submitted that the above order was confirmed by the Supreme Court in 1991 (54) E.L.T. A92.
5. Shri Satish Kumar submitted that the so-called discount is not discount but is in the nature of service charges, therefore, they are not liable as deductions. He relied upon the order of this Tribunal in Seshasayee Paper Board Ltd. v. C.C.E. - 1988 (36) E.L.T. 611; Prakash Zarda Factory Ltd. v. C.C.E. -1988 (34) E.L.T. 239; and Commondel Fertilisers Ltd. v. U.O.I. -1984 (17) E.L.T 607.
6. Taking up the contention of the appellant that the stockists are not related persons, we may refer to the definition of related person under Section 4(4) (c) of the Central Excises & Salt Act.
"Section 4(4)(c) :
"Related person" means a person who is so associated with the assessee that they have interest, directly or indirectly, in the business of each other and includes a holding company, a subsidiary company, a relative and a distributor of the asses-see and any sub-distributor of such distributor".
According to Section 4(4)(c) a person is a related person provided he is a distributor and a relative of the assessee [Bombay Tyre International, 1983 (14) E.L.T. 1896]. We may extract the observations made in the said judgment by the Supreme Court which are as follows:
"On a proper interpretation of the definition of 'related person' in Section 4(4)(c) of Section 4, the words 'a relative and a distributor of the assessee' do not refer to any distributor but they are limited only to a distributor which is a relative of the assessee within the meaning of the Companies Act, 1956."
7. It is not the case of the department that the distributors are related persons of the appellants within the meaning of the Companies Act. Therefore, the finding by the Collector that the distributors are related persons of the appellants is opposed to the judgment of the Supreme Court in Bombay Tyre International. The Collector also says that there is a mutuality of interest between the appellants and the stockists and therefore, they are related persons within the meaning of section. However, he does not elaborate or discuss what is the mutuality of interest between the appellants and the stockists. Therefore, the finding of the Collector on this count is based on no evidence and therefore, is set aside.
7A. As regards the discount given to the stockists, it is now fairly well-settled by the Supreme Court, "that the 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 the discount being known at or prior to the removal of the goods. Such trade discount shall not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice price." [U.O.I, v. Bombay Tyre International -1984 (17) E.L.T. 329 (SC)]. Therefore, as long as the discounts are made known prior to the removal of the goods, they are admissible deductions and, the facts of this case disclose that the discounts were declared in the price lists. Therefore, the discounts are known prior to the removal of goods and in fact they are given at the time of removal of goods. Therefore, in view of the observations of the Supreme Court in Bombay Tyre International (supra), the discount should be allowed. We may also point out that the department has not disputed the fact that the appellants were only collecting the sale price of 87.5 or 85% of the price after allowing the discounts to the stockists and the customers. The fact that a part of the discount was given to the customer and the balance to the stockists as an overriding commission, does not, in any way, affect the nature of the discount given to the stockists. The appellants have pointed out in cases where the goods were sold directly to the customers, a percentage of the discount was given to the customers and the balance out of the total discount declared in the price list is given to the stockists, therefore, the total discount is not either less or more than the discount declared in the price lists. Therefore, the reasons given by the Collector are opposed to the ratio of the judgment in Bombay Tyre, as laid down by the Supreme Court. A similar issue was considered by this Tribunal in Electrical Products Corpn. (supra) and it was held that, "the question whether the discount as declared in price list should be allowed in respect of the sales or the lower discount 15% which was uniformly given to all buyers should be allowed. The appellants' case is that the direct despatches to sub-dealers and consumers etc. were at the behest of the wholesale dealers appointed by them and for the convenience and transport and also for getting the benefit of paying lower rate of sales tax. The Collector has held that the differential discount passed on to the wholesale dealers is in the nature of concession given to them for trade promotion and is, therefore not eligible for abatement in terms of Section 4 of the Central Excises & Salt Act, 1944. The Collector's finding regarding the concession given for sales promotion expenses cannot be accepted in the absence of any evidence or base laid down in this regard in this matter. It is seen that the total discount in respect of sales made by the appellants was known at the time of sale although a part of the discount had been passed on to the wholesale dealers afterwards. It has not been shown that the wholesale dealers were acting as commission agents. It is not unknown in the trade that in some cases the wholesale dealers direct certain sales to be made directly to ultimate consumers and to sub-dealers for commercial reasons. There is no direction from the Revenue that the net realisation by the appellants in all cases were as per the price list filed and approved. In this context, it is held that in respect of transactions the appellants have passed on the full discount as shown in the approved price lists. Therefore, the appellants are eligible for the full discount as approved by the departmental authorities in respect of whole range of transaction."
8. The facts of the present case are on all four with the above order of this Tribunal.
9. The argument of Shri Satish Kumar is that the commission is given for the services rendered by the stockists or distributors. Neither the show cause notice discloses the services rendered by the stockists to the appellants nor the Asstt. Collector discusses about the services rendered. The Collector also does not refer to any services rendered by the stockists to the appellants. Therefore, in the absence of evidence that the commission is given for the services rendered by the stockists to the appellants, the contention of the Department cannot be accepted. It is also not the case of the Department that the stockists are the agents of the appellants. Therefore, the argument advanced by Shri Satish Kumar cannot be accepted.
10. As regards the limitation, the Rule 10 was amended in August, 1977, provided for the issue of show cause notice within six months from the closing of the accounting year. The appellants have the accounting year from January to December. Therefore, the closing of accounting year is December and according to the rule, the show cause notice is to be issued within six months from 31st December of the relevant year. In the instant case, for the period from 23-8-1975 to 31-3-1976, the show cause notice was issued on 31-12-1977. The show cause notice was issued after the amendment of Rule 10. Show cause notice admittedly was given after six months from the closing of the accounting year. Therefore, the whole demand is barred by limitation.
11. As regards the demand for the period from 1-4-1976 to 31-3-1977, the show cause notice is barred by limitation from 1-4-1976 to 31-12-1976. As regards the demand from the 1st Jan. to 31st March, 1977, it is within the period of limitation. Similarly, the show cause notice dated 3-4-1978 for the period from 1-4-1977 to 30-9-1977 is within the period of limitation as it is within a period of six months from the closing of the accounting year. For the period from 1-10-1977 to 28-2-1978, the show cause notice dated 3-4-1978 is also within the period of limitation.
12. Though some of the show cause notices are within the period of limitation, since the demands are set aside on merits namely, that the appellants are entitled to the deduction of the discounts given to their stockists, the appeal is allowed and the demands are set aside.