ORDER
C.N.B. Nair, Member (J)
1. M/s. Pepsico India Holdings Pvt. Ltd. manufacture a syrup which is a mixture of soft drink concentrate and sugar. This syrup is liable to central excise duty under hearing 2108 of the Central Excise Tariff. The syrup in question is packed in Bag in Box (BIB) containing 20 liters per BIB and is dispensed to consumers after dilution and carbonation by retailers through dispensing machines. The appellants sell the syrup to their marketing subsidiary M/s. Pepsi Cola India Marketing Company and the marketing subsidiary sells to retailers. Part (2-3%) of the syrup produced is also sold ex-factory to two independent distributors M/s. Sheena Agencies, Kalyan (West) and Thirst Quenchers Karjat.
2. The issue raised in this appeal is the valuation of the syrup to central excise duty. The dispute turns on two elements. The central excise authorities have held that the assessable value should be fixed at the sale price of the marketing subsidiary of the manufacturing company, that too without allowing the deduction of discounts allowed by the marketing subsidiary to their buyers. The second element is that Rs. 30/- received by the marketing subsidiary from the retailers towards rental on the dispensing machines leased out by the subsidiary should also form part of the assessable value of the syrup.
3. Assessment based on the sale price of the subsidiary is made by relying on the special provision contained in Section 4 of the Central Excise Act relating to the valuation of goods sold to or through related persons. The denial of discount is made on the ground that the discounts are not uniform. Inclusion of lease charge of the dispensing machine is made on the ground that the dispensing machine is essential for the sale of the goods and, therefore, its rental also is in connection with the sale of the goods.
4. The appellants challenge the valuation order as entirely unsustainable. The period of dispute is from July 1999 onwards. Therefore, the dispute covers both the periods prior to the substitution of Section 4 and Central Excise Valuation Rules with effect from 1.7.2000 and thereafter. It is the appellants submission that under the either Section, once sale exists to independent buyers, and those sale prices are found to be commercial prices, there is no requirement to assessee the goods sold the related persons at a different price. The appellants submit that since there were sales to independent buyers, those prices should constitute the assessable value of all the goods. During the hearing of the case it was emphasized that the Revenue authorities have not disputed the sale prices to two distributors as in any way being non-commercial prices. Therefore, these prices would from the assessable value for the goods sold to the related party also.
5. It has also been submitted that, in any event, discounts extended by the appellant’s subsidiary to the buyers should have been deducted while assessing the goods to Central Excise duty. It is the appellant’s submission that, for discount to become eligible for deduction, there was no requirement that the discounts be uniform. The only requirement is that the discount be known at the time of sale of the goods. During the hearing of the case learned Counsel for the appellants also submitted that the discounts were offered in the sale invoices themselves, i.e. at the time of sale of the goods. Therefore, there could be no doubting that discounts were known at the time of sale. The appellants have also submitted that non-uniformity is not ground for disallowing deduction of discount while determining assessable value. What is relevant is only whether it is a commercial discount and whether it is returnable. It has been emphasized on behalf of the appellant that the genuineness of the discount or the fact that they are not returnable is not in question.
6. With regard to the valuation of goods sold to or through related persons the assessee’s contention is that the special provisions in the Valuation Law applied only to cases where goods were sold exclusively to or though related persons and not to cases where goods were partly sold to related persons and partly to independent wholesale dealers. It has been contended that this legal position has not been altered under the amended section introduced with effect from 1.7.2000 also. It has been pointed out that Rule 7’s application is “when the assessee so arranges that excisable goods are not sold by an assessee except to or though a person who is related”. In the present case there is clearly sales to two dealers. Therefore, this is not a case where the excisable goods are “not sold except to or through a related person”. It is the appellant’s contention that Central Excise Valuation Rules 2000 has no application to the present case and all the goods were required to be assessed at the price at which they were sold to unrelated buyers.
7. With regard to the inclusion of lease charged for the dispensing machine in the assessable value of the syrup, it is the appellant’s contention that leasing of dispensing machine by the subsidiary company is an entirely different transaction from the appellant assessee’s transaction in the manufacture and sale of syrup. It is their submission that consideration received for such a separate activity cannot have any relevance in the valuation of the syrup. Appellants have relied, in this connection on the decision of the Apex Court in the case of CCE v. India Oxygen Ltd. 2002-Taxindiaonline-88-SC-CX.
8. We have perused the records and have heard the learned SDR also. It is the submission on behalf of the Revenue that, in the present case about 97% of the goods were being sold only through its subsidiary. Therefore, the rejection of the sale price of a negligible quantity (2-3%) sold to wholesale dealers cannot be faulted. With regard to discounts it has been submitted that, absence of uniformity makes it difficult to know whether a discount is genuine or not. The learned SDR has supported the inclusion of the lease charge in the assessable value based on the definition of ‘transaction value’ under the new Section. It has been submitted that, the definition states that any amount charged “by reason of or in connection with the sale” is required to form part of the assessable value of the goods. With regard to the product in question, it has been pointed out that the leasing out of the vending machine is in connection with the sale of the syrup inasmuch as the syrups can be dispensed only through the vending machine.
9. In the present case, the assessee is selling part of the goods to unrelated dealers and part of the goods through a related person. Central Excise Law contains special provisions in relation to the valuation of goods sold to or through related persons prior to the introduction of new provisions in 1.7.2000 and thereafter. However, the special provision is applicable only in cases where the goods were exclusively sold to or through related persons and not otherwise. This is clear from the wording of the provisions themselves. Proviso 3 to Section 4 (1) (a) (prior to amendment) read as under :
“(iii) Where the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or through a related person, the normal price of the goods sold by the assessee to or through such related person shall be deemed to be the price at which they are ordinarily sold by the related person in the course of wholesale trade at the time of removal, to dealers (not being related persons) or where such goods are not sold to such dealers to dealers (being related persons), who sell such goods in retail;”
The new valuation rule 9 reads as under :-
“RULE 9. When the assessee so arranges that the excisable goods are not sold by an assessee except to or through a person who is related in the manner specified in either of sub-clauses (ii), (iii) or (iv) of clause (b) of sub-section (3) of section 4 of the Act, the value of the goods shall be the normal transaction value at which these are sold by the related person at the time of removal, to buyers (not being related person); or where such goods are not sold to such buyers, to buyers (being related person), who sells such goods in retail :
Provided that in a case where the related person does not sell the goods but uses or consumes such goods in the production or manufacture of articles, the value shall be determined in the manner specified in rule 8.”
10. It is clear from the above legal provisions that the special provision is to be invoked only in cases where goods are sold exclusively to our through related persons. It is not in dispute that such a case does not exist here. Therefore, taking resort to that provision was not justified. In any event, even if the valuation was sought to be made based on the sale price of the related person, there was not warrant to refuse deduction of discount. Assessable value under the law is the net price received by the assessee or its related person and not the gross price. It is well settled that all discounts by whatever name they are called are eligible for deduction from the gross price for the purpose of assessment of the goods, provided the discounts are known in advance and are not returnable. Uniformity is not a criterion at all. In the present case no contention has been raised that these discounts were not actually given or that they were returnable. In-fact, the discounts were given in the invoices at the time of sales themselves. Therefore, the denial of the discounts was clearly against settled law.
11. We find not authority for the inclusion of the lease charges on the dispensing machine in the assessable value of syrup. Sale of syrup and leasing of dispensing machine are two separate activities. Considerations for them are also separate. There is no warrant in law for the inclusion of the consideration for deferent activity in the assessable value of excisable goods, definition of ‘transaction value’ in the new section notwithstanding. It is clear from a perusal of that definition that what is included is any additional amount charged as price, by reason of or in connection with the sale of the goods under assessment, and not amounts charged in connection with or by reason of sale of other goods or provision of other services. Therefore, there was not justification for inclusion of lease charge also.
12. In view of what has been stated above, the impugned order is not sustainable. It is set aside and the appeal is allowed with consequential relief, if any, to the appellant.