ORDER
U.L. Bhat, J. (President)
1. The assessee being aggrieved by Order-in-Appeal No. 116-CE/MRT/93 passed by Collector (Appeals), Ghaziabad, confirming the Order-in-Original No. 111/90 dated 25-4-1990 passed by Assistant Collector of Central Excise, Ghaziabad approving the price list in Part I filed by the appellant in respect of storage batteries manufactured by the appellant in the brand name ‘Nicco Crompton Greaves’ has filed the present appeal.
2. Appellant commenced manufacture of storage batteries in the composite brand name of the appellant and M/s. Crompton Greaves Ltd. (for short CGL) and also entered into an agreement dated 22-2-1986 with CGL whereunder CGL agreed to purchase a quantity of batteries equal in number to the quantity of batteries sold by the appellant in the market and to receive trade discount of 35% as against trade discount of 17% allowed to wholesale dealers. Show cause notice dated 2-8-1988 was issued to the appellant stating that 35% trade discount allowed to CGL was not the normal trade discount, that transactions between the two parties were not at arm’s length, that the parties had mutual interest in the business of each other and the compensation for use of the name of CGL in the brand name was also reflected in the trade discount and proposing to allow deduction of only 17% trade discount uniformly. Though the notice was resisted by appellant, the Assistant Collector confirmed the proposal and his order has been confirmed by Collector (Appeals). Hence, the present appeal.
3. The significant terms of the marketing agreement entered into between the appellant and CGL are as follows :-
(i) The brand name ‘Nicco Crompton Greaves’ shall be the joint property of the two parties.
(ii) CGL shall purchase and appellant shall sell to CGL branded products in aggregate quantities equal to the branded products sold by the appellant during the corresponding period for general trade excluding products manufactured to be sold to OEMs, State Road Transport Undertakings, Government bodies, Public Sector Undertakings etc.
(iii) Sales to CGL of branded products shall be at 35% trade discount over list price which can be varied by the appellant from time to time by prior consultation with CGL.
(iv) For sale to OEMs etc., special maximum prices, special discounts and other terms shall be mutually agreed.
(v) If the appellant reduces list price of the branded products, 30 days’ notice shall be given to CGL and if by reason of such reduction the net price to CGL is reduced, appellant shall reimburse CGL with the differential value resulting thereby on all stocks of corresponding branded products remaining unsold with CGL or in transit and CGL shall pass on the benefit of such reduction to dealers etc.
(vi) On sales by CGL to fleet owners and OEMs, appellant shall give a gross margin of 8% and 3% respectively on the net billing price which shall be equivalent to net billing price of the appellant to such customers.
Along with above should be taken into consideration the circumstance that the appellant was manufacturing batteries with the brand name indicating identity of the appellant as well that of CGL. Appellant stated in the reply to the show cause notice that by and large, appellant was effecting sales to dealers in Eastern region and Northern region (inclusive of U.P. State) and CGL was effecting such sales in Southern and Western regions. The uniform trade discount allowed to all dealers (other than CGL) was 17% on list price.
4. Of the various circumstances referred to above, only two appear to have some significance. The first is that the name of CGL, an established manufacturer of electrical and engineering goods was allowed to be used in the brand name of a product manufactured by appellant, without apparently receiving any consideration. The second is that CGL was expected to lift around half of the total production of the appellant. The lower authorities relied on the circumstance that CGL has 8.73% equity shares in the appellant. However, the department has no case that appellant is the owner of any share in CGL. Apart from the use of the name of CGL in the brand name and the market agreement providing for 35% trade discount to CGL and purchases by CGL of around 50% of the product, there are no other circumstances indicative of any mutual interest in the business of each other. So far as use of CGL’s name is the brand name without receipt of consideration is concerned, it can be stated that the consideration is reflected in the higher discount allowed to CGL. Subject to this, it may not be possible to hold that the transactions are not at arm’s length.
5. Learned Counsel for the appellant indicated that the appellant had around 130 wholesale dealers in the Northern and Eastern regions to whom obviously, appellant was selling around 50% of the product, less Whatever was sold to institutions. This would mean that each wholesale dealer receiving 17% trade discount from the appellant was buying only an insignificant part of the production, compared to 50% of production purchased by CGL. Going by the high percentage of goods purchased by CGL, it would be legitimate for CGL to expect a substantially higher trade discount. Such a bulk buyer releases the manufacturer of the pressure of marketing effort and the like to a substantial degree. It is a legitimate trade practice for the manufacturer to give higher discount to bulk buyer as recognised in Metal Box Ltd. 1995 (75) E.L.T. 449 (S.C.). Certainly, a substantial part of the difference between 35% and 17% would be referable to the bulk purchases made by CGL and a part may be referable to the use of name of CGL in the brand name since no separate payment has been made on that count. The question is how to demarcate the two elements since such demarcation has become inevitable as the trade discount referable to the use of name of the brand name has to be added to assessable value of the goods sold to CGL.
6. It should have been possible for the department to enquire with the other manufacturers of batteries and find out the extent of trade discount given by them to distributors or bulk buyers. It would also have been possible to verify if any other manufacturer of batteries or similar goods was using the name of any other individual or company in their products and if so, on what terms. Such an exercise can be done even at this sage in order to quantify the legitimate trade discount which a bulk buyer like CGL would be entitled to. The purpose of this exercise is to fix what portion of 35% trade discount extended to CGL can be referred to as compensation for the appellant’s use of name of CGL in the brand name of batteries manufactured by appellant. Inevitably, the case has to go back to the Adjudicating Authority for fresh decision.
7. For the reasons indicated above, we set aside the impugned order and remand the case to the jurisdictional Adjudicating Authority who shall conduct verification as suggested in the order, inform the appellant about the result of the verification and decide the case after granting the appellant opportunity of personal hearing. It is open to the appellant also to collect such data as may be available and place it before the Adjudicating Authority. The appeal is allowed.