Custom, Excise & Service Tax Tribunal
M/S.Ravi Fans Pvt.Ltd vs Commissioner Of Central Excise, ... on 21 August, 2009
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL,
WEST BLOCK NO.II, R.K. PURAM, NEW DELHI-110066.
BENCH-,,,,,DB
Excise Appeal No.4279 of 2004
Excise Appeal No.4280 of 2004
Excise Appeal No.4281 of 2004
Excise Appeal No.5014 of 2004
(Arsing out of Order-in-Appeal No.507-08/CE/ALLD/2004 dated 28.05.2004, No.582/CE/ALLD/2003 dated 18.06.2004 and No.509/CE/ALLD/2003 dated 6.7.2004 passed by the Commissioner of Central Excise, Allahabad
Date of Hearing: 18.08.2009
Date of Decision: 21.08.2009
For approval and signature:
Honble Mr. Justice R.M.S.Khandeparkar, President
Honble Mr.B.S.V.Murthy, Member (Technical)
1 Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2 Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3 Whether Their Lordships wish to see the fair copy of the Order?
4 Whether Order is to be circulated to the Departmental authorities?
1.M/s.Ravi Fans Pvt.Ltd. Appellant
2.M/s.Ravi Aircools Ltd.
3.M/s.Varanashi Domestic Appliances Pvt.Ltd.
4.M/s.Ravi Fans Pvt. Ltd.
Vs.
Commissioner of Central Excise, Allahabad Respondent
Present for the Appellant: Shri A.R.Madhav Rao, Advocate with
Shri R.K.Hasija, Advocate
Present for the Respondent: Shri K.P.Singh, DR
Coram:Honble Mr. Justice R.M.S.Khandeparkar, President
Honble Mr.B.S.V.Murthy, Member (Technical)
ORAL ORDER NO._______________
PER: B.S.V. MURTHY The appellants are manufacturers of fans which are cleared to their related persons, namely, Parul Commercial Agencies, Bajrang Enterprises, ML Enterprises, Baskinath Commercial Co (Intermediaries for short). The fans are thereafter sold by these parties to Ravi Marketing Ltd.(RML for short) which is also a related person. The fans are sold at all stages. There is no dispute that the price of RML is to be adopted for the purposes of determining the value under Section 4 of Central Excise Act, 1944 (Act for short). The appellants had claimed several deductions towards various elements in the price list in part-IV filed by RML. After two rounds of litigation, in the impugned order, the Commissioner (Appeals) has disallowed the deductions claimed by the appellants on account of incentive scheme discount, average cash/prompt payment discount, advance payment discount and freight. The impugned order has been passed after matter had been remanded by the Tribunal to the original adjudicating authority on the plea made by the appellant that even though they have been asked to get chartered accountants certificate before they could get the same and produce before the Deputy Commissioner /Assistant Commissioner, he had adjudicated the case and passed the order. The Tribunal had directed the Assistant Commissioner to examine the issue afresh after taking into consideration the certificate of cost accountant and to pass an order accordingly on providing an opportunity to the appellants.
2. We have heard both sides at length and have considered the records available.
3.1 As regards cash discount, it was submitted on behalf of the appellants that the cash discount is allowed when documents are negotiated through banks and payment is made within stipulated period. They had issued circular in this regard extending cash discount. The ground taken by the lower authorities for denying the benefit of discount is that is not separately verifiable as to the quantum. Our attention was drawn to the chartered accountants report wherein details of cash discount actually allowed has been worked out by the chartered accountant. As regards advance payment discount/prompt payment discount, the same has been denied on the ground that there is no uniformity in the quantum of discounts. Further in the show cause notice, it was also indicated that no such discount has been passed on. As regards uniformity in the rate of discount, the appellants relied on the decision of the Honble Supreme Court in the case of Metal Box reported at 1995 (75) ELT 449 (SC). Similarly, for prompt payment discount, the appellants relied on the decision of the Honble Supreme Court in the case of Government of India vs.MRF reported at 1995 (77) ELT 433 (SC). The Honble Supreme Court had held that prompt payment discount allowed is admissible for deduction since it was known prior to the removal of goods. Learned Advocate also relied upon the decision of this Tribunal in CCE, Meerut vs.Pashupati Acrylon Ltd. reported at 2000 (120) ELT 768 (Tribunal) in support of his contention that the department is required to show that the price was not the sole consideration for the sale and the department has not discharged its burden as regards these discounts. As regards incentive scheme, he submits that this is reflected in the circular issued by the appellant and therefore it is known prior to removal. Further target discount and quantum is also specified in the circular. While the department has allowed the target discount but has rejected the claim for basic incentive discount and also special discount which is allowed on negotiation prior to removal of the goods and these are as per normal commercial practice and such incentive discount as per circular and further discounts extended have been denied on the ground that the discounts have to be uniform.
3.2. Learned DR on the other hand submits that such discounts are not being offered to the wholesale buyers but only to some buyers. Therefore these are extended on extra commercial consideration and therefore not admissible. As regards advance payment discount, the Commissioner(Appeals) has relied on the certificate of the chartered accountant who stated that as regards the year 1992, they could not issue a certificate about advance payment since books of accounts and invoices for the year were not provided to them. On this ground, he has denied the discount claimed for all the years involved. He has also taken a view that advance payment discount cannot be allowed since when advance is made, the prices are reduced and such reduction will form part of the assessable value. Coming to incentive/special discounts claimed for deduction has been rejected on the ground that there is no uniform criteria and these discounts are allowed on the basis of negotiation and negotiation pushed the entire scheme under cloud. Advance payment discount has also been disallowed that the entire amount of advance received by them was directly deducted from the invoices and actually no discount was passed on to their customers.
3.3 We find from the show cause notice that the claim for several deductions was proposed to be disallowed mainly on the ground that other discounts were not passed on to the customers and expenditure shown as incurred by the related parties were never incurred and were not passed on actual customers and purchases were only manipulated and fabricated. Whereas the Commissioner (Appeals) in the impugned order has disallowed the claim for these deductions totally on different grounds altogether. Further by the very nature, advance payment discount and prompt payment discount and several incentives would not be available to all the purchasers in view of the fact that they are linked to the date of payment or achievements of certain targets or depending on quantum of purchase etc. The department would be required to show that such incentives were passed on for extra commercial consideration on the basis of evidence either in the form of statements or in the form of records. We find that the department has no evidence to show that there was extra commercial consideration. There also here is no evidence that discounts were not passed on as indicated in the SCN. It is also not the departments case that the appellants did not follow the proper procedure of filing price list as per Rules. As regards advance payment discount, we find that such discounts have been passed on and the chartered accountant has not certified only for one year i.e. for 1991-1992. On this basis, the claim cannot be disallowed for other years for which chartered accountant has given the details. Therefore, except for 1992 for which the data is not available as per chartered accountant certificate, the appellants are eligible for these discounts. Once the department could not show that such discounts/ abatements had not been passed on to the buyers alternative was available to show the price effected by the extra commercial consideration which the Revenue has failed to do. As regards case law cited, we have to observe that facts are not comparable. Therefore we consider that all the discounts under dispute are required to be allowed for the periods for which certificate is available.
4.1 Now we come to the disallowance of deduction of element of freight from the price. The appellants claimed that the freight whatsoever is incurred in the fans is involved in its transport to a number of intermediary related persons and therefore has to be excluded from the selling price of RML. The Commissioner in his order has relied upon the report of the Assistant Director (Cost) department. The Assistant Director (Cost) had given the report giving two figures in respect of freight in each financial year. In one figure the expenses incurred towards freight by four intermediary related persons who were the first buyers from the manufacturers and who had sold the same thereafter to RML was not included. In second set of figures, he had included the freight expenses incurred by these related intermediaries also. There is no dispute that these intermediaries between RML and the manufacturers were dummy. There are two issues. The data for allowing deduction relating to freight should be as furnished by the Assistant Director (Cost) or as furnished by the chartered accountant in respect of the appellants and whether the freight expenses incurred by the intermediaries should be included.
4.2 The Assistant Director (Cost) had given a report initially in 1995 and after that the appellants took objection to certain points, he withdrew that report and submitted another report on 17.12.1995 and it is this report which has been relied upon by the Commissioner (Appeals) in the impugned order. However, the appellants were asked to submit chartered accountant report in respect of deductions claimed by them and also cost of production by the Assistant Director (Cost) before adjudication. But by the time, chartered accountant report was submitted the AC had adjudicated and passed Order-in-Original. Hence as mentioned earlier, the matter was remanded to the original adjudicating authority since he did not consider the report of the chartered accountant submitted by the appellants before passing adjudication order. However, in the present order also the report of the chartered accountant has not been taken into account by both the lower authorities.
4.3 The appellants submitted that the Assistant Director (Cost) has taken the freight expenses incurred by intermediaries on sampling basis which is unknown to the law. It is their submission that the amount of freight has to be quantified on actual basis. However, they also submitted that remand order of the Tribunal had specifically directed the original adjudicating authority to consider the report of the chartered accountant. The appellants submitted that there is no dispute that the entire freight has to be allowed as deduction. However, the department has extended lowest freight that is incurred only by RML as reflected in the report of the Assistant Director (Cost). They also submitted that Assistant Director had directed that the entire freight of all intermediaries also should be taken into account. They also submitted that the reasoning of the lower authorities that the benefit cannot be extended to their intermediary companies of which the department had no knowledge is incorrect in view of the fact that the Assistant Director (Cost) himself had taken cognizance of the intermediaries and the show cause notice also notes that the name of the intermediaries. They also relied upon the decisions of the Tribunal in the case of Textile Bearing Ltd. vs. CCE, Rajkot reported at 1997 (93) ELT 695 and in the case of CCE vs. A.P. Industrial Components reported at 2002 (148) ELT 246 in support of their argument that the total freight has to be abated once it is incurred from factory gate and sold to any number of persons before being sold to last related person to unrelated buyer, the decision on which the reliance was placed.
4.4 After considering the issue, we find that the Commissioner (Appeals) refused to consider the freight element relating to intermediaries on the ground that as per scheme of section 4 of Central Excise Act, 1944, the appellants shall be entitled to deduction on account of freight only on sale made on valid invoices through RML in respect of which the appellants had filed price list in part-IV. The benefit cannot be extended to other intermediary companies of which the department had no knowledge. The Commissioner (Appeals) has not discussed the issue elaborately. As submitted by the appellants before us in the report that fans are first sold to the related intermediary persons and these related intermediary persons have sold the fans to RML thereafter. Selling price declared by the RML has to necessarily include expenses incurred by the related intermediary persons also. However, section 4 as it existed during the relevant time required value to be arrived at the factory gate in the normal course of wholesale trade. Therefore all expenses incurred towards freight after the goods are cleared from the factory gate have to be deducted if we have to arrive at the factory gate price. Therefore, we are unable to agree with the Commissioner (Appeals) that expenses towards freight incurred by the related intermediary persons cannot be included in the assessable value unless it is shown that expenses were not incurred or not genuine or there was a flow back. We also take note of the fact that even the Assistant Director (Cost) has given two set of figures for the purpose of deduction of freight. No doubt the actual freight incurred by the intermediaries has been based on sampling and not on actual details but the Assistant Director (Cost) has also explained the reason for doing the same. In view of the fact the professional cost accountant has certified the cost incurred by the intermediaries and these expenses have been incurred after clearance of the goods and before the same are sold to the related persons whose selling price has been adopted for the purpose of determination of value under Section 4, we consider it appropriate that the expenses on freight incurred by the intermediaries firms even though they dummy has to be allowed to be deducted.
4.5 The appellants have also taken objection to the adoption of freight expenses arrived at by the Assistant Director (Cost) instead of chartered accountants certificate submitted by them. We take note of the fact that the Assistant Director (Cost) had given a report initially which he withdrew subsequently on objection raised by the appellants and submitted a revised detailed report. The revised report has been prepared after verification of the records and documents with the help of four inspectors. The report also gives methodology adopted for the purpose of working out the expenses and makes it clear that the sampling taken into accountant have been applied. The report has enclosed the details of invoices and documents considered for the purpose of sampling and has given invoice wise and document wise details. We note that the Assistant Director (Cost) on the basis of these sample invoices has found that in many cases TA expenses, octroi expenses and different other expenses have been shown as freight expenses and taken into account for deduction for freight. Neither chartered accountant who has submitted the report at the request of the assessee nor the assessee themselves have made any effort to show invoice wise and document wise details of freight incurred and proved that the figures arrived at by the Assistant Director (Cost) are not correct. Leaving alone given details of all the documents, the appellants have not even shown that the invoices selected for sampling by the Assistant Director (Cost) and findings of the Assistant Director (Cost) as regards the documents selected for sample are wrong. To do this, they had also 13 years and even in these 13 years they have not made any effort in this regard other than making a bald statement that the method adopted by the Assistant Director (Cost) by sampling is unknown to the law. Nothing prevented the appellants from showing document wise details since the Assistant Director (Cost) has already proved that the ledger wise details and figures worked out by the appellants are wrong for giving details of sample invoices. Therefore, we find no justification for adopting the chartered accountants certificate for the purpose of arriving at the deduction of freight element and we uphold the Commissioner (Appeals) order as far as considering the report of the Assistant Director (Cost) for the purpose of deduction of freight element. However, we also hold that the Commissioner (Appeals) was wrong in taking lowest figures of freight and we allow the deduction as per second set of figures by the Assistant Director (Cost) which include expenses incurred upto the stage of sale of RML i.e. including freight expenses incurred by the intermediaries. Summing up all the deductions claimed by the appellants in dispute are allowed. The figures of deduction of other freight shall be based on chartered accountants report submitted by the appellants. It is also made clear that the deductions would be allowed mainly on actual figures submitted by the chartered accountants report. The department would be free to verify the correctness of the chartered accountants report if they so desire. As regards the freight, the deduction shall be allowed on the basis of report of the Assistant Director (Cost) and the figures given by the Assistant Director (Cost) the freight incurred by the intermediaries shall be taken into account. The matter is remanded to the original adjudicating authority for the purpose of working out the actual amount of duty payable.
(JUSTICE R.M.S.KHANDEPARKAR) PRESIDENT (B.S.V.MURTHY) MEMBER (TECHNICAL) mk