ORDER
Gowri Shankar, Member (T)
1. Hoganas India Ltd., the appellant was, prior to 1992 engaged in the manufacture of annealing of the atomised iron powder which was manufactured by Mahindra Sintered Products Ltd. In 1992, it purchased the plant used by MSPL to atomise iron powder. It thereafter sold to MSPL the annealed atomised powder that it manufactured on the basis of cost of production including sales and administrative cost and interest on bank outstanding and 13% of the amount as profit. This arrangement was entered into by an oral agreement with MSPL which was reduced to waiting in September 1995. The agreement contained the following provisions. The appellant agreed to supply annealed powder to MSPL for 10 years at a commercially competitive price. The preamble to the agreement provided that MSPL would not undertake the manufacture of anneal powder during the subsistence of the agreement. Clause 4 of the agreement provided that the price would be based on the formula referred to earlier (cost of production plus 13% profit). Clause 9 provided that the price charged to MSPL would at any time be lower by at least 5% than the lowest price charged to any other Indian customer. Clause 3 provided for MSPL to purchase minimum quantity of annealed powder from 1000 tons to 1550 tons. The agreement recognised that the arrangement had commenced from 1st November 1992.
2. The appellant continued to sell the annealed powder to MSPL at the price indicated. Notice dated 2.5.2002 issued to it proposed to enhance the price for the goods cleared by it to MSPL from April 1997 to March 2002 by 5% and demanded duty consequently payable. The basis was that the contents of Clause 4 of the agreement, providing for sale to MSPL for this at price 5% lower than charged to anyone else was in fact consideration for the condition contained in the preamble to the agreement that MSPL would not manufacture such anneal atomised iron powder for 10 years in India. The notice invoked the extended period of limitation on the ground that the assessee had suppressed the fact of the agreement from the department.
3. The assessee replied contending that reduced price to MSPL was on account of the fact that it was the largest single buyer. It also questioned the availability of the extended period of limitation. The Commissioner did not accept these contentions and confirmed the proposal in the notice and imposed penalty on the appellant equal to the duty. Hence this appeal.
4. The contention of the counsel for the appellant is that MSPL has been its largest buyer. It had, during the period from 1997 to 2002 purchased every year an average of 62% of the annealed powder manufactured by it. The purchase by it has not fallen below 57% in any year. Its next largest customer purchased about 10%. The quantity specified in Clause (3) of the agreement had also been purchased each year by MSPL. The departmental representative contends that the undertaking by MSPL not to produce any annealed powder in 10 years gives a clear advantage to the appellant assuring it of a large segment of the market and the reduction in price clearly compensation for MSPL for this consideration.
5. It could be argued that the acceptable by MSPL not to undertake for ten years manufacture of the product in question gave a clear commercial advantage to the appellant for which the reduction in the price charged to MSPL was monetary compensation. It appears to us however on closer examination that this view cannot be justified. It is not in dispute that MSPL was the appellant’s single largest customer, buying from it quantities ranging from 57% to 69% (during the five years under consideration) of its production. When considering this fact in conjunction with the fact that MSPL had in compliance with the undertaking of the agreement assured purchase of minimum quantities of the appellant’s production, it is reasonable to expect that it would be entitled to a lower price than other buyers whose purchase in the future would be uncertain and all of which in any case put together purchased far less than the single buyer. If the reduction in price to MSPL is considered without looking at the clause in the agreement providing for MSPL for not to produce the anneal powder, there would be no doubt that the reduction in price to MSPL would be justified. The judgment of the Supreme Court in Metal Box India Ltd. v. CCE 1995 (75) ELT 449 holding a substantial discount given to a single buyer is in its favour. Considering the quantum of reduction and the quantities purchased by MSPL, we are satisfied on an overall consideration that it is on this account mat the price was reduced notwithstanding the commitment of MSPL not to produce the goods. The fact that the appellant continued to sell to MSPL the goods at the lower price in after 2002, when the agreement elapsed, also is a significant pointer in this regard.
6. It was contended before the Commissioner that the appellant had enclosed a copy of the agreement with MSPL as an enclosure to its letter dated 20.2.1996 and indicated in that letter that since MSPL buys about 50% of the quantity, 5% of the discount was provided to it and therefore the extended period of limitation would not be available. The Commissioner has not dealt with the submission that the agreement was enclosed to the letter and noted that what was described in the letter was a quantity discount. He has further said that declaration filed by the appellant under Rule 173C did not indicate any reduced price of 5% and it had not at any time brought to the notice of the department the commitment by MSPL not to manufacture the goods for 10 years. The letter dated 20.2.1996 of the appellant says that a copy of the agreement to the MSPL is annexed to it. This is not denied by the Commissioner. The agreement sets out the terms with the undertaking by MSPL not to produce the goods for 10 year. Where the terms of the agreement has been made available to the departmental officers, it cannot be said that there is any suppression of the pricing pattern. The extended period of limitation would not be available to the department.
7. The appeals are allowed and the impugned order set aside. Consequential relief.