ORDER
T.K. Jayaraman, Member (T)
1. This is an appeal against the Order-in-Original No. 7/2002-BNG-II dated 25.2.2002, passed by the Commissioner of Central Excise, Bangalore-II Commissionerate, Bangalore.
2. The appellants are engaged in the manufacture of different grades of Tungsten Carbide Tips (TC Tips). The Adjudicating authority held that the discount given by the appellants to M/s. Rasta (India) Ltd. (hereinafter referred to as M/s. RIL) is very high and also conditional and hence the same would not be allowed. Invoking proviso to Section 11A of the Central Excise Act, 1944, he confirmed a demand of duty amounting to Rs. 27,45,835/- on the appellants. He imposed equal penalty under Section 11AC of the Central Excise Act, 1944. Interest under Section 11AB was also demanded. Penalty of Rs. 1,00,000/- was imposed on the appellants under Rule 173Q of the Central Excise Rules, 1944. The appellant strongly challenge the impugned order.
3. Shri G. Shivadass, learned Advocate appeared for the appellants and Smt. Shobha L. Chary, learned JCDR appeared for the Revenue.
4. The learned Advocate adduced the following points:
(1) The appellant sold the Tungsten Carbide Tips (Tips for short) to stockists, tool markers, consumers and the Government Undertakings. Each category of customers represents a class in itself. These stockists insisted discount ranging from 35% to 40%. Sometimes the discounts extended were as high as 55%. As regards the tool makers depending on market conditions, they insist on a higher discount and such higher discount is invariably extended.
(2) One of the tool makers to whom tips were sold was M/s. RIL. The appellants had been selling Tips to them since 1986. M/s. RIL, are an industrial consumer who had been a loyal customer of the appellants. They had been purchasing tips only from the appellants. M/s. RIL consumed these tips for making tools. Since M/s. RIL is a bulk buyer within the class of tool makers as their off-take is almost 50% of the total off-take by tool makers. The appellants also purchased brazed goods manufactured by M/s. RIL at a discount of 55%.
(3) The Revenue proceeded to deny a deduction of 58% extended by the appellants to M/s. RIL on the tips on the ground that the discount was conditional on the re-purchase of the brazed tools from M/s. RIL.
(4) Since M/s. RIL is a bulk buyer, they are entitled for the higher discount. The following case laws were relied on:
(a) Metal Box Ltd. v. CCE, Madras ;
(b) Addison and Co. v. CCE, Chennai 2002 (149) ELT 1388;
(c) CCE Meerut v. Shri Ram Piston and Rings Ltd. ;
(d) Ind-Sphinx Precision Put. Ltd. v. CCE, Chandigarh .
(5) The price no which the tips had been sold by the appellants to M/s RIL is in line with the price prevailing in the market. The appellants have submitted evidence to indicate that the other manufacturers also offer the tips at similar prices. Once the price is in line with the market price, the genuineness of the price cannot be doubted. The following case laws were relied on:
(a) A.K.G. Acoustics (India) Ltd. and Anr. v. CCE, Allahabad 1999 (34) RLT 717 : 2000 (88) ECR 589 (T).
(b) Oscar Pharmaceuticals Pvt. Ltd. and Ors. v. CCE, New Delhi 1999 (35) RLT 215.
(6) The appellants have demonstrated with sufficient evidence that the discount of 58% given to M/s. RIL who is a wholesale buyer and user the tips as original equipment in the manufacture of tools is normal in the light of the fact that small customers are also given up to 45% discount and in some cases discount as high as 55% has been given. Hence the Commissioner’s rejection of the evidence proposed by the appellants is without any basis.
(7) About 95% of the goods were sold by the appellants to the other customers and discount of 40% to 45% was allowed to all of them. Under these circumstances, the Commissioner should have at least allowed a discount of 45% as originally 45% discount was allowed. The expression ‘originally’ has been interpreted to mean ‘in the majority of the cases’. Reliance is placed on the decision of the Delhi High Court in the case of Somany-Pilkington’s Ltd. v. B.P. Verma .
(8) The appellants have been filing from 1994, Gate Passes indicating the price at which the goods were sold to M/s. RIL and other customers. After 1994, they have been filing invoices along with RT-12 returns. Thus the Department was aware of the price at which the goods have been sold by the appellants to different customers. There is no suppression of the fact with an intent to evade payment of duty. Since the duty paid by the appellants, in any case, would be taken as Modvat Credit by M/s. RIL, the entire exercise appears to be revenue neutral. Moreover the appellants would not have had any intention to evade payment of duty of a small amount of Section 5 lakhs per year when compared to their annual duty payment of Rs. 20-40 crores per year. In view of the above, the learned Advocate submitted that there is no suppression, fraud, collusion, etc. and therefore, the longer period cannot be invoked. The following case laws were relied on:
(a) Cosmic Dye Chemical v. CCE, Bombay ;
(b) Pushpam Pharmaceuticals Co. Ltd. v. CCE .
In view of the above, penalties under Section 11AC of the Central Excise Act, 1944 and under Rule 173Q of the Central Excise Rules, 1944 and demand of interest under Section 11AB of the Act are not sustainable.
5. The learned JCDR urged that the discount of 58% is only on the basis of 1995 price. If the prevailing price is taken, the discount comes to more than 70%. Since the discount is conditional, the entire transaction does not appears to be at arms length. After reiterating the points in the adjudication order, she urged the bench to dismiss the appeal.
6. We have gone through the rival contentions. The issue to be decided is whether a discount of 58% allowed to M/s. RIL is admissible in terms of Section 4 of the Central Excise Act, 1944. The appellants have made out a strong case to show that M/s. RIL are a special class of buyers in the sense that they purchased 50% of their tips sold to tool makers. They are also manufacturers of original equipment namely tools. Under these circumstances, the appellants offered huge discount to M/s. RIL. They have also produced evidence to show that the discount offered by them is in line with the discount offered by the other manufacturers. They have also shown evidence to show that as far as other customers are concerned, they are given at least a minimum discount of 45%. The Revenue seeks to deny the discount on the ground that the discount given is conditional. There is no basis to deny the discount on the above grounds. The appellants have given justification for giving higher discount to M/s. RIL. From the facts of the case, we find that the higher discount given is purely on commercial grounds. It has also been demonstrated that the other manufacturers also give similar discount to tool makers. In other words, the price at which the tips were offered to M/s. RIL was favourable with the price charged by the other manufactures of the tips. There is no finding by the Revenue that there is some flow back from M/s. RIL to the appellants. Even if the higher discount is disallowed, the duty paid by the appellants would be taken as CENVAT by M/s. RIL. Thus the entire exercise appears to be revenue neutral. There is no justification for invoking the longer period as there is no suppression of facts. The appellants have not suppressed the price at which the goods have been sold to their customers. The case laws relied on by the appellants are very relevant. Summing up, in view of the fact that the price at which the tips were sold to M/s. RIL compares favourably with that charged by the other manufacturers of tips, we hold that the discount of 58% allowed to M/s. RIL is admissible as per Section 4 of the Central Excise Act. There is no evidence to show that the transactions are not at arms length. For the reasons stated above, longer period is not applicable. Hence we allow the appeal with consequential relief.
(Pronounced in the court on 9.5.2005).