ORDER
S.S. Sekhon, Member (T)
1. The appellants (hereinafter referred to as HP) are engaged in the manufacture of personal computers falling under Chapter Heading 8471 of the Schedule to the Central Excise Tariff Act, 1985. The goods are sold by the appellants to their wholesalers/resellers both at the factory and at their depots. The first tier purchasers are termed in agreements entered, as ‘wholesalers’, ‘distributors’/resellers’. While ‘wholesalers’/’distributors’ can sell only to registered ‘resellers’, a ‘reseller’ was bound to sell only to end user customer. There was no retail sale by the manufacturer and there is no demand for the period prior to December, 1997 when the first tier buyers were termed ‘distributors’, during the period under dispute such buyers were termed ‘wholesalers’/’resellers’.
(a) The agreements entered into by the buyers with HP (sample for 1-3-2000) consists of 'Wholesale Programme Terms' defining Wholesaler's Relationship with HP as follows : "WHOLESALER RELATIONSHIP: (A) The Wholesaler's relationship between its parties will be that of Wholesaler buying as an independent contractor from HP and reselling to a network of resellers (B) Wholesaler will not sell HP Products to end-user customers. Wholesaler will sell HP Products only through registered HP Resellers. A Registered Reseller is a company who purchases Products from Wholesaler which Registered Reseller to endusers other than Registered Reseller's corporate parent, division, or any subsidiary of corporate parent in the regular course of business (C) Wholesaler is responsible for understanding, monitoring and enforcing the above terms and conditions for the Wholesaler's Registered Resellers. HP may withdraw its permission for sales to a given Registered Reseller, or to all Registered Resellers at an approved location, with or without cause at any time, by notifying Wholesaler in writing." This also stipulates, Wholesaler requirements, Prices, Delivery, Estimated Net Volume Commitment, Wholesaler Order Milestone, Assignment of Benefits, Warranty, Reports, Audit, Procedure for Amendments and Exhibits to govern the programme terms. (b) There is also an Agreement entered into called Segment Operational Policy, defining Annual Business Plan, Defective-on-Arrival (DOA) Policy, Stock Protection, Price Protection, Order and Shipment Points, Delivery Cancellation, Reseller Sell-through and Inventory Reports, Minimum Order Quantities, Invoice Adjustment, Year 2000 Compliance, Year 2000 Warranty. Clauses of THE RESELLER SELL-THROUGH AND INVENTORY REPORTS are relevant and require to be detailed and are as follows :- "A. POLICY 1. As a Wholesaler/Supplies Reseller, Reseller agrees to provide HP with the following regular Reseller sell through and inventory reports; details of HP's requirements for which will be provided by HP to Reseller from time to time. (i) Monthly up to weekly inventory report. Including all HP Products in Reseller's inventory. This report will also serve to determine the number of products eligible for stock protection. (ii) Monthly up to week sell-through report. See-Through data should be at least 90% of all Reseller shipments. The reporting format and transfer procedure is as defined and detailed in the HP Reseller Sell-through and Inventory Program Guide. 2. Reports must be received no later than the fifth working day of each month for the previous month. For weekly reports, reports must be received no later than third working day of each week for the previous week. 3. It is imperative that the information transmitted to HP be, accurate. The Reseller must respond to and resolve any data integrity issues within three days of HP's request for verification. 4. Reseller must identify a specific contact for data integrity and reporting issues. 5. Reseller is responsible for the accuracy of data provided to HP for benefits under any HP program which links the provision of benefits to sell-through or sell-to-information." B. MEASUREMENT HP will measure compliance based on (i) Adherence to format specifications as detailed in the HP Sell through and Inventory Guide (ii) Adherence to reporting deadlines (iii) Quality of reported Inventory and Sell-through data (iv) Responsiveness to issues regarding the quality of data reported C. "REMUNERATION HP will remunerate Reseller for this service with an additional discount of 1% already included upfront in Reseller's discounts. Failure to comply to any of the requirements will entitle HP to remove the additional discount on future orders." (b) The buyers place purchase orders on the appellants for the purchase of various models of computers. The said purchase orders, are made on the basis of the list price published on the web site of the appellants, reduced by a minimum of 30% from the list price, to indicate the net price, as the price, at which the goods are to be supplied by the appellants. (c) The appellants have been extending discount ranging from 30% to 45% on the list price published on the website and has been paying duty on the value as arrived at from the prices reduced by the discount extended from time to time to the buyers.
2. (a) A show cause notice dated 26-3-2001 was issued alleging that in terms of the agreement entered into, by the appellants with their buyers, out of the total discount claimed as deduction, 1%, which was ‘remuneration’ for the services rendered by the buyers, appeared to be in the form of a ‘commission’ and not a ‘discount’. Thereby, meriting its inclusion in the assessable value for the purpose of payment of duty.
(b) The Commissioner after considering the submissions found and concluded: - (i) The issue involved in the case for decision is whether the 1% discount given by the assessee to their wholesaler/ reseller is in the nature of the trade discount or a remuneration in lieu of the services rendered by the wholesaler/reseller in terms of the agreement between the assessee and the said wholesaler/reseller or in the nature of a commission. The assessee have not disputed the clause in the agreement between them and the wholesaler, reseller, reasons of the discount and the quantum of such discount. The only defence of the assessee is that the 1% discount given by the assessee is in the nature of trade discount extended to the reseller in the course of the wholesale trade and not refunded to them. But the issue is not to decide whether the trade discount of 1% is refunded to the assessee or not but to decide whether the 1% trade discount given by the assessee is an admissible or eligible trade discount in terms of Sec. 4 of the Central Excise Act, 1944 or a remuneration or commission given to the reseller on account of the services rendered by them. If this discount of 1% is not in the nature of the trade discount being not eligible for a deduction from the price to arrive at the assessable value for the purpose of payment of duty, the question of refund or flow back of money to the extent of that discount is not relevant to the case.
(ii) After considering the provisions of Section 4 of the Central Excise Act, 1944 and the provisions of Section 4(4)(d)(ii) ibid, found that discount should be in accordance with the normal practice of the wholesale trade and its deductions would be permissible if it is established from the term of sale agreements to be so and would include to cover ‘commissions’ if given to wholesale buyers on principal to principal basis as a normal practice. After drawing a distinction between ‘Commission’ and ‘trade discount’ he held that ‘discounts’ given for the purpose of any service rendered by an agent will not be eligible for deductions.
(iii) Thereafter finding from the admitted nature of the 1% discount being given and taking into consideration the definition of wholesale trade in Section 4(4)(e) ‘wholesale dealer’ in Section 2(4) of the Central Excise Act, 1944 he found : –
“……. In this case also the reseller/wholesaler have acted as the wholesale dealer and also as an agent of the assessee in as much as being responsible to the extent of the services/feed back to be provided by them to the assessee in terms of the agreement and received the remuneration for such activities which was claimed as a discount by the assessee. But the same is not the actual discount but a commission or remuneration to the wholesale dealer in terms of their services as an agent of the assessee.”
and thereafter concluded the 1% payment to be a commission or remuneration to the dealer as an agent in terms of the agreement and the same was not eligible deduction and duty was liable to be paid on the said component, claimed as deduction from the price.
(c) The appellants have challenged this finding about the ineligibility of the deductions as claimed from the price on the grounds :- (A) Agreement does not lead to any adverse inference (1) The agreement entered into with the dealers contains commercial clauses, which are contained in any normal commercial agreement entered into between two business organisations. Apart from these clauses, the agreement also contains a clause which provides that at the request of the appellants the resellers would provide the appellants with the following information. (i) Levels of sales and inventory for HP products (ii) Names and addresses of customers to whom HP products have been supplied (iii) Service records for HP products (iv) Details of sales promotion and advertising activities (2) Significantly, the agreement specifically indicates that HP would remunerate the wholesaler with an additional discount of 1% already included upfront in the Resellers' discount and that failure to do so would entitle HP to remove the additional discount on future orders. (3) The appellants submit that the impugned order fails to note that even in terms of the above agreement that in the month when the abatement of 30% was claimed, the dealer has been extended the discount of 30% and that only in the succeeding month when the trade discount of 29% is extended, trade discount to the extent of 29% alone is taken as abatement and duty is paid on the assessable value reduced to the extent of 29% only. (4) Without prejudice to the above, the appellants also submit that the practice of sending the weekly report regarding market conditions has not been consistent with the purchaser. Some of the purchasers have sent the reports regularly while some of the purchasers have not. There are situations where the very same purchaser has chosen to send the details in a particular month, not to send the same in the next month, but sent the details in the third month. Notwithstanding this divergent practice that discount extended to such purchaser also has been to a minimum extent of 30%. (5) It would be pertinent to note here that the buyer or customer of Hewlett Packard India Ltd., is a wholesaler, and that his objective is finally to resell the product to the retail customer. It is a common business practice whether the sale is of computers to a wholesaler or tooth paste or refrigerators; the manufacturer will demand performance reports like sales promotions done, their impact, win loss reports etc., to manage the business and market share etc, in an appropriate manner. This practice of HPI is therefore in the normal course of business when products are sold to a wholesaler. (6) It is the submission of the appellants that in view of the position indicated above, it would have been impractical for the appellants to treat the same purchaser as a dealer for certain month and as a commission agent for certain other months. (7) In the sales model that has been adopted at the factory by HPI, the goods are sold in wholesale to the dealer i.e., there is transfer of ownership of the goods and the goods are carried as assets by the dealer until sold. These goods when finally sold to the retail customer result in a revenue of the total sales value of the unit to the seller. The question of commission would arise only if between the buyer and seller there is an intermediary person or body corporate, which has assisted the manufacturer in selling the product to the end customer and for providing these services he is compensated by way of a commission. In such cases, the sale is made by the manufacturer directly to the end customer and agent is compensated for the services by way of a commission. The agent in such cases reflects only the commission as his income or revenue. In the current case, there is no third party between the dealer and HP and as such, the question of commission does not arise nor is there any allegation by the Department of any flow back from the dealer to HP. (8) This issue has been settled by the Tribunal in the case of CC, Chennai v. Hewlett Packard India Ltd. reported in 1999 (108) E.L.T. 221 (T) = 1998 (78) ECR 536 (Tribunal). (B) One per cent discount cannot be considered as commission: (1) The Apex Court in the case of Coromandel Fertilizers Ltd. v. Union of India, reported in 1984 (17) E.L.T. 607 had the occasion to examine what exactly a commission paid to an agent was. The Supreme Court examined in the facts of that case, the agreement, and held that the amount paid by the manufacturer to the selling agent was in the nature of a commission rendered for the services rendered by such agent and, therefore, the same did not qualify for deduction as a trade discount in determining the assessable value. It would be evident that none of the conditions set out by the Apex Court, are satisfied in this case. A mere perusal of the agreement would indicate that the resellers are not acting as agents of the appellants nor have they been so appointed in terms of any agency agreement. They are also not extended any amount as a commission for the services rendered by them. Consequently, the resellers cannot be considered as commission agents of the appellants. Thus, the amount of 1% contained in the 30% trade discount offered by the appellants cannot be considered as a commission warranting its inclusion in the assessable value. (2) The appellants submit that the impugned order misses the core point that in the case of commission, the property in the goods never gets transferred from the manufacturer to the transferee of the goods. In this case, as is clear from the agreement when the reseller purchases the goods from the appellants, the property in the goods gets transferred to the resellers. Once this happens, then the reseller can no longer be considered as a commission agent for a particular transaction.
(3) The appellants further submit that what ultimately is to be seen is whether in the absence of an agreement, appointing the resellers as agents of the manufacturer and the providing of an amount, specifically as a commission to the resellers for the services rendered by them, whether there has been any flow-back of any amount representing 1% of the total sale price of the product. To put it differently, if the appellants had sold the computer at the price, which is the list price of Rs. 100/- minus 30% i.e., Rs. 70/-, the point that would arise for consideration is whether apart from the amount of Rs. 70/- given by the purchaser to the appellants, is there any additional amount of Rs. 1/- flowing as an additional consideration to the appellants. The answer is a clear ‘no’. In such a situation, the question of addition of 1% in the assessable value of the goods cleared is not permissible. There is no allegation of flow back either or any evidence to that extent provided by the department against the appellants.
(4) Assuming without admitting that the appellants have been mplementing this clause in its true spirit and therefore have been granting only 29% discount to those resellers who have not provided feedback, it would only mean that during the month when 29% was extended as trade discount, the price of the product would not be Rs. 100/- minus Rs. 30/- i.e. Rs. 70/-, but would be Rs. 100/- minus Rs. 29/- i.e. Rs. 71/-. Even in such a situation there could be no demand of duty since the appellants have paid duty on Rs. 71/- and not on Rs. 70/- claiming a deduction of the extra 1% also.
(5) The Commissioner has referred to the definition of “wholesale trade” in Section 4(4)(e) and to the definition of “wholesale dealer” in Section 2(k) of the Central Excise Act, 1944 to come to the conclusion that a wholesale dealer can act as a person who buys or sells the goods in wholesale and also as a Commission Agent for the intended purpose. The Commissioner, therefore, holds that in this case also the wholesalers have acted as wholesaler and as an agent of the as-sessee and therefore the discount of one per cent is in the nature of commission or remuneration given to the reseller.
(6) It is submitted that the above observation of the Commissioner represents a total mis-reading of the provisions of the Section. The definition of the ‘wholesale dealer’ in Section 2(k) when it refers to the expression ‘agent’ seeks to cover a wholesale dealer who, apart from acting as a wholesale dealer by purchasing and selling excisable goods, also acts as an agent for the purpose of stocking such goods belonging to others for the purpose of sale. What the provisions seek to recognize is the fact that a wholesaler can act not only as a dealer but also as an agent. This does not, however, mean that for the same consignment he can play a dual role. If for a particular consignment a wholesaler has acted as a purchaser of the goods to whom the property in the goods has been transferred, he cannot in the same vein be acting as an agent for the consignment. All that the definition recognizes is the fact that a wholesale dealer, apart from purchasing and selling goods, can also either for the same seller or for some other seller stock the goods and transfer it to others as per the directions of the principal.
(7) The wholesalers are not under any obligation to the appellants after the goods have been purchased by them. It is their right to decide the person to whom they sell the goods as also the price at which they would sell the goods. It is also right of the wholesaler to decide the discount which he would extend to his purchasers. The appellants would have no right to decide the quantum of discount either. In such a situation, it can hardly be said that the wholesaler is acting as an agent of the appellants for the goods purchased by him.
(C) Price with the minimum discount of 30% is the price at which the goods are ordinarily sold by the appellants
(1) The assessable value arrived at on the basis of the discount extended to majority of the purchasers has to be the basis for assessment of all clearances made by the assessee. The statement giving the factual details would indicate that in the majority of the transactions, the appellants have extended discount of minimum of 30%. This practice has been accepted by the Department in two refund orders passed by the Assistant Commissioner dated 20-4-2000/29-6-2000 and 28-3-2000. In these orders, the Assistant Commissioner has held that even though discount in excess of 30% has been extended, since the normal selling price of the appellants is list price minus 30%, excess discount has to be ignored. These orders reinforce the contention of the appellants that their general practice has been to extend discount of 30%. Once it is accepted that the discount that is generally extended by the appellants is to the extent of 30% such an abatement is permissible.
And on limitation on the ground :-
Longer period of limitation not invocable.
(1) The Commissioner has observed that the appellants had not disclosed specifically the nature and the purpose of 1% discount embedded in the 30% discount and that they had not done so in spite of being aware that it is a remuneration to the reseller for the services to be provided to the appellants. As the show cause notice is built on the clauses in the agreement which states that the resellers have to provide certain information to the appellants and that in the event of their failure to do so/1% discount would not be extended to them in the future orders and once this agreement has been provided to the Department vide letter dated 7th May, 1998 alongwith the Price Declaration, which contains the ‘incriminating clause’, it cannot be said that the appellants had suppressed any information from the Department. The nature and the purpose of the 1% discount is sought to be inferred from the agreement, which the appellants had supplied to the Department. The inference that the 1% discount is remuneration for the services provided by the resellers, also flows from the same agreement that is provided by the appellants to the Department. In such a situation, it is the submission of the appellants that the longer period of limitation cannot be invoked in this case at all.
And submitted that :-
Penalty not imposable (1) In view of the fact that the demand itself is not sustainable both on merits and on limitation, the provisions of Section 11 AC cannot be invoked and imposition of penalty is, therefore, not sustainable. (2) For the same reason, the order requiring the payment of interest under Section 11AB is not sustainable. (3) For the reasons indicated above, the impugned order of the Commissioner deserves to be set aside. 3. The ld. DR for the Revenue submits and relies upon: - (a) The definition of remuneration in 'Black's Law Dictionary', which is as follows :-
“Remuneration : Recompense, Salary, Compensation” and submits that from the above it would be clear that the amounts of 1% paid by HP to the resellers are for services rendered which cannot be treated as discount and thus be not eligible for deduction from the assessable value.
(b) The Commissioner held that the amount of 1% reduced from invoice price, as remuneration for services rendered by the dealers, is not in the nature of a discount and cannot be reduced from the assessable value. He described as a “remuneration or commission”. The issue is whether the said 1%, admittedly described in the agreement as remuneration, is reducible from the value of the goods for the purpose of assessment. The case of Philips India in which the Apex Court gave the judgment relied upon by the appellant, was about very different facts. In that case, the dispute related to sharing of advertisement expenses by the dealer, where advertisement directly benefited the dealer. In the present case, the dispute relates to the remuneration paid to the dealer for a service rendered by him, to the results of which he is commercially indifferent.
(c) In this case, the reports sent by the dealers are in the nature of market intelligence about the products of competitors. The reports provide information about movement of different products of different manufacturers in the market. The dealers are in a position to provide this information as they themselves stock these different products. They (the dealers) are not sole stockists of HP products; they stock products of various manufacturers, and have nothing to gain or lose with the market share in the product going to HP or to the other manufacturers whose brands they stock and about whom they provide information to HP for a consideration. These reports do not benefit the dealers but benefit HP only. The dealers are commercially indifferent to the results of their reports.
(d) The plea regarding purported facts of the scheme were not
taken at any stage, not even at the time of pleadings in the
court, and cannot be entertained at this stage. The various
sales promotion programmes undertaken by the appellant
have nothing to do with the issue in this case, as they are not
– covered by the 1% remuneration given to the dealers for
generating market intelligence reports. They are covered under the last sentence under ‘supplies’ in the reseller agreement at page 105 of the paper book. They are unsubstantiated claims made by the appellant. They are also new pleas relating to facts, which cannot be entertained at this stage.
(e) The ratio of the case of Bombay Tyres International reported in 1983 (14) E.L.T. 1896 (S.C), which is summarized in the paragraphs of the Apex Court’s judgments in MRF approved in Para 6, is squarely applicable in this case. A specious reinterpretation of the judgment is being made by the appellant. In this case, the amount paid to the dealer as a remuneration is an expense incurred by the manufacturer. The information given by the dealers is an ongoing service. It is an input to determine the production pattern of the manufacturer. The amount is not a discount but remuneration.
(f) The order of the Commissioner does not hold the dealers to be sole selling agents, towards which the arguments were addressed. (g) In the facts of this case, the decisions cited and relied upon by the appellants are not relevant.
4. This matter was heard, thereafter it was placed for re-hearing to know how besides the appellants, the wholesalers/resellers were benefited from the process of sending the weekly reports to the appellants as was the position in the case before the Apex Court in Philips India Ltd. v. CCE reported in 1997 (91) E.L.T. 540 (S.C.). The appellant on this aspect submitted :-
(a) One of the key reports provided by the dealers on a weekly basis to the appellants is a stock statement of the products lying with them and compilations of the same were required on record and from the details available from these reports sent by the dealers, a summary report prepared, would indicate inventory positions of various models which on perusal, the appellants would realize the quantities of that particular model and their availability, accumulation at various points with the dealers and the appellants thereafter came up with various schemes of providing gifts such as Web camera etc., for increasing the sale of such accumulated stocks of a particular model which resulted in reduction of stocks. The appellant’s Advocate also took us through various such schemes announced and performed from time to time.
(b) If the stocks, held by a dealer as shown in the inventory levels as in these reports, indicated that a particular brand has accumulated, and by locating another dealer who required in another region, the appellants advised the other dealer to approach dealers having the stocks, thus resulting in sales of accumulated stocks.
(c) They also submitted that the reliance placed on Para 20 of the decision of the Apex Court in the case of Govt. of India v. Madras Rubber Factory reported in 1995 (77) E.L.T. 433 (S.C.) has to be read with Paras 19 and 21 of the said decision. In Para 19 of the said decision, the Apex Court referred to the observations in the case of Bombay Tyre International wherein the Apex Court had held that all expenses incurred on account of several factors which contributed to its value up to the date of sale are liable to be included in the assessable value and the Apex Court in the case of Madras Rubber Factory, after referring to these observations in these two paragraphs came to a conclusion that after sale services and marketing and selling organisation expenses could not be deducted from the prices and those observations have to be understood in the context in which they had been made and would not apply in this case, wherein assessee did not incur any expense after removal of the goods and does not collect any amount from the dealers after the removal of the goods. It was submitted that if the appellants had collected 1% from the dealers, resulting in effectively passing of 29% of discount but claimed deduction of 30%, then 1% could not be allowed as deduction. However, the appellants submitted that no part of the discount extended by the dealers was given back by the dealers to them. It was specifically submitted that in a manufacture where 30% discount was claimed, the entire 30% was extended and in the subsequent periods where 29% discount was claimed, the entire 29% was passed on and duty was calculated accordingly. It was submitted that in view of this position, since the activity taken benefited both the manufacturer and the dealer, this 1% could no be considered as an expense incurred on behalf of the manufacturer alone and should be granted since the decision of Philips India case had been rendered after the decision in the case of Madras Rubber Factory.
(d) It was also submitted that this was not a case of an additional discount, if it was to be considered a cost incurred on behalf of the appellants, then it is a cost incurred for an activity undertaken after the removal of the goods and should not be included. (e) The Commissioner has considered this, to be a commission provided to the dealer, acting as an agent on behalf of the appellants. Since the relationship is that of a principal to principal and the decision cited i.e., (i) Coromandel Fertilisers Ltd. v. Union of India and Ors. [1984 (17) E.L.T. 607 (S.C.)]. (ii) Moped India Ltd. v. Asst. CCE, Nellore and Ors., [1986 (23) E.L.T. 8 (S.C.)]. (iii) Snow White Indl. Corporation. v. CCE [1989 (41) E.L.T. 360 (S.C.)]. (iv) Philips India Ltd. v. CCE, Pune [1997 (91) E.L.T. 540]. (v) DCM Textiles v. CCE, New Delhi [2000 (120) E.L.T. 424 (T)].
lead to the conclusion that the relationship of a principal and an alleged agent has to be looked into, taking into account the complete nature of the agreement and not by considering the single factor alone, the finding on commission is not correct. It has been laid down that specifically it should be seen whether the seller retained control over the goods and had the authority to manipulate the same after the goods were sold by him to an agent. It was submitted that in this case the agreements very clearly stated that relationship between the appellants and the buyers was on a principal to principal basis and not as a principal and an agent and the property in the goods get transferred to them immediately on the sale of such goods. The buyer could not be considered as an agent of HP in this case and the said 1% is not commission.
5. After considering the material on record and the submissions made and the citations relied upon by both sides, it is found : –
(a) The "Wholesaler Programme Terms" at Para 10 thereof reads as under: -
"10. REPORTS
HP may require Wholesaler to provide HP or HP's designate with Reseller Sell-Through, and Inventory Reports ("RSI") in a format specified by HP. Detailed RSI process in the SOP shall apply."
These reports, therefore, would be the reports, which would encompass an activity of the wholesale dealer, they should not, therefore, cause the disturbance of the wholesale dealer’s discount, as held by the Apex Court in the case of Philips India Ltd. [1997 (91) E.L.T. 540 (S.C)].
(b) However, there are other reports, emanating, consequent to para 7 of another “agreement”, termed as “Segment Operational Policy”, which provides the clause for the said ‘Remuneration’ and the consequences thereof are impugned in this case; this Para 7(C) reads as under: –
“7(C) REMUNERATION
HP will remunerate Reseller for this service with an additional discount of 1% already included upfront in Reseller’s discounts. Failure to comply to any of the requirements will entitle HP to remove the additional discount on future orders.”
This aspect of the Reports, consequent to this Para 7 of agreement are in addition to the reports and services, which are required vide Para 10 of the Wholesaler agreement. No demonstration, of them being not so, was made before us. A reading of Para 7, of this Reseller Sell-Through and Inventory Report, extracted herein above in para 1(b) of this order, indicates, not only what kind of services were required vide this Para 7(A), but also provide for an elaborate control and evaluation criteria of the same under Para 7B thereof and consequential remuneration and penalties under Para 7C of the agreement.
(c) A reading of entire para 7, of the “Reseller Sell-through and Inventory reports”, indicates, that ‘services’ envisaged thereby, are not a ‘service’ which would be normally provided for by a ‘buyer’, to a ‘seller’, on a principal to principal basis. If that was so, then this agreement was not called for as para 10 of the ‘Wholesaler Programme Terms’ did provide for Reports. The ‘compensation’ for this ‘service’ is termed as ‘remuneration’ in the concerned agreement. Remuneration as per Black’s Law Dictionary is a reward, a recompense, a salary or a compensation for services rendered. They cannot be ‘discounts’ which could be offered on price of goods sold; these services are not being rendered gratis, for mutual benefit of HP and the wholesaler/reseller by the later. Therefore, Remuneration of this 1%, would be in the nature of an ‘expense’ incurred by HP, for marketing, not the goods being sold, but also for goods sold earlier or later to the same buyer or another buyer of HP. It is only being calculated or determined and paid or effected, as per the Remuneration terms, with reference to an additional discount of 1% already included upfront in resellers discount. Merely because it is reckoned at 1% of the discount, as eligible and is not a fixed sum, the same will not take it out from the non-deductible amounts from assessable value under Section 4 of the Central Excise Act, 1944. There is force in the arguments being placed by the ld. DR, in as much as, that these reports sent by the dealers, are in the nature of market intelligence, about the products of HP and their competitors. The reports, therefore, did not benefit the dealers as made out by the ld. Advocate for the appellants, but are benefiting the manufacturer exclusively in effectively moving his products in the marketing chain vis-a-vis the competitors. We find that the case law relied upon by the ld. Advocate does not come to the rescue of HP, in the facts of this case.
(d) Considering the arguments that the amount of 1% is not in the
nature of a commission, it is found, ‘Commissions’ are different
from ‘remuneration’ in as much as ‘commissions’ are amounts
payable, as ‘compensations’ to an ‘agent’ for services rendered,
while ‘remunerations’ are amounts payable by master for ‘ser
vices’ rendered by a ‘servant to a master’. The relationship, between principal to principal or/and principal and an agent, and
master and servant, cannot be equated. There is doubt that the
agreement termed as ‘Wholesale Programme Terms’ is on principal to principal basis, the same vide para 10 provides for certain reports when it is read with para 7. That agreement does not
create a relationship of principal and an agent to constitute
payments consequent thereto to be commissions. Trade discounts offered therein would be eligible abatements. However,
we have found that it has not been demonstrated before us that
these reports, consequent to para 10 are the same and serve the
same purpose as the reports consequent to para 7 of ‘Segment
Operational Policy’, which is a separate agreement entered into.
Therefore, while property may be getting transferred from HP to
the ‘wholesale buyer’ vide ‘Wholesale Programme Terms’ the
need to enter into a detailed agreement termed ‘Segment Operational Policy’ detailing ‘Reseller Sell-Through and Inventory Re
ports’ and evaluation by HP of such functions and consequential
‘remuneration’ for the same, alongwith penal consequences for non-performance would indicate that another relationship is being created by ‘Segment Operation Policy Agreement’ between HP and the wholesale buyer; besides the ‘Wholesale Programme Terms’ of sale. The issue would be, whether the ‘buyer’ is an ‘Agent’ of HP. The Commissioner has observed the same and concluded that the same person has acted as an ‘Agent’ and ‘Wholesale Dealer’ of HP. The appellants have contested this finding on the ground :-
“The definition of the “wholesale dealer” in Section 2(k) when it refers to the expression “agent” seeks to cover a wholesale dealer who, apart from acting as a wholesale dealer by purchasing and selling excisable goods, also acts as an agent for the purpose of stocking such goods belonging to others for the purpose of sale. What the provisions seek to recognize is the fact that a wholesaler can act not only as a dealer but also as an agent. This does not, however, mean that for the same consignment he can play a dual role. If for a particular consignment a wholesaler has acted as a purchaser of the goods to whom the property in the goods has been transferred, he cannot in the same vein be acting as an agent for the consignment. All that the definition recognizes is the fact that a wholesale dealer, apart from purchasing and selling goods, can also either for the same seller or for some other seller stock the goods and transfer it to others as per the directions of the principal.
In this case, the wholesalers have purchased the goods from the appellants. The property in the goods has been transferred as soon as the goods were sold to them. The appellants do not have the right to recall the goods from the dealers. The wholesalers are not under any obligation to the appellants after the goods have been purchased by them. It is their right to decide the person to whom they sell the goods as also the price at which they would sell the goods. It is also the right of the wholesaler to decide the discount which he would extend to his purchasers. The appellants would have no right to decide the quantum of discount either. In such a situation, it can hardly be said that the wholesaler is acting as an agent of the appellants for the goods purchased by him.”
However, it is an admitted position, that Remunerations made, are for performance in future; not necessarily for the same goods. The Remuneration is, effected and service as per Para 7 of ‘Segment Operational Policy’ agreement is expected. It is only in future a penalty is imposed, if service was not provided. The ld. Advocate in his submissions was emphatic in his statements that penal clause have never or rarely been enforced. If that be so, then no nexus exists between the goods sold, pursuant to “Wholesale Programme Terms’ and services rendered or required/anticipated, consequent to para 7 of the ‘Segment Operational Policy’. It would not be creating the wholesale dealer for the very same goods to be an agent or a servant. No bar under the Central Excise Law or any law was shown, that same ‘Wholesale buyer’ cannot enter into another agreement to perform “additional services” for HP. In this view of the matter, the plea that ‘wholesale buyer’ could not be an ‘agent’ or ‘servant’ cannot survive. This Remuneration is for ‘services’ flowing from a different contract. Therefore, we cannot uphold the abatement of this 1% since we cannot find ‘remuneration’, ‘rewards’, ‘recompense’, ‘salary’ and ‘compensations’ to be equivalent to discount eligible for abatement under Section 4 as the same cannot be equated to discount. Therefore, we uphold the finding that this 1% should be disallowed since it is a commission.
(e) In the facts of this case, the ‘Wholesale buyer’ is purchasing on principal to principal basis and thereafter consequent to another agreement accepting ‘amounts’ termed as ‘Remuneration’ to perform certain additional services on behalf of HP. By merely terming 1% compensation as the ‘Remuneration’ the nature of ‘compensation’ effected will not cease to be a ‘commission’ paid, if it is in nature of a compensation for service. Mere change of the nomenclature of the package of compensation to remuneration will not take it out of the purview of being a ‘commission’ in the facts of this case. It is well-settled law, that nature of the abatement is to be examined from the totality of the material. Merely because it is termed as ‘additional discount’ would not make it an eligible discount in the same fashion and for the same reasons, that, by merely calling a payment as commission, it does not become an ineligible discount. Similarly, by calling a ‘commission’ as a ‘remuneration’ will not make it eligible. The nature of an abatement claim under Section 4 of the Central Excise Act, 1944, are required to be looked into and determined, to arrive at whether the abatements claimed, is in the nature of a ‘discount’ as understood from the agreement/or and in the trade or not. No material has been placed before us to bring on record and prove that in this commodity’s trade, such ‘remunerations’ are considered known and accepted as ‘discounts’. As regards the facts herein, it is found that the same is not a ‘discount’. In view of this fact, we find this claim of abatement to be not in the nature of a discount. It is in the nature of a compensation caused by an additional liability of functions undertaken, for the benefit of HP, by the reseller. Such abatements are not permissible deductions under Section 4.
(g) As regards the plea of limitation being raised, it is the appellant’s own case that these agreements had been provided to the Department vide letter dated 7-5-98 alongwith price declarations. The show cause notice is for the period April, 1999 to September, 2000. The issue has emerged during the course of internal audit. The Show Cause Notice has been issued on 26th March, 2001. In this connection, it is relevant to observe that the appellant’s claim of filing the said agreement with the price declaration will not absolve them and shield them from the visit of a duty demand since the question of approval of a declaration does not arise under the substituted Rule 173C. It was for the assessee to declare truly and correctly all the particulars and clear the goods after assessing the correct duty due thereon under Rule 173F. Unlike in the past, the Department was under no obligation to visit inspect, issue notice in case of disagreement and approve the lists under Rule 173C or and the assessments made under Rule 173F. If the declaration is erroneous and assessments are not made as per law, the extended period of limitation could be invoked for short levy as per the proviso clauses to Section 11A, as no duty or responsibility is on the Department officials to conclude and scrutinize the declarations. Therefore, the plea that the agreement was filed with the Department is not found to move us to conclude that there is no case or cause for determining the short levy as arrived at by the lower authorities. This plea could be considered only to consider the liabilities and the quantum of penalties arrived at.
(h) Proceeding to examine the plea that 1% penalty for non-performance has not been enforced and whatever discounts were offered, were passed on, it is found that the Show Cause Notice in the statement of facts alleges; - "Hence 1% trade discount included in the Trade discount of 30% in nature of commission and hence is liable to be included in the assessable value"
and the duty calculation charts worked out on the assumption that 1% has been granted on the entire value of sales, no finding of that have been arrived. The clause on remuneration, no doubt on plain reading indicate that 1% was included in the discount offered at a given time and when a statement is being made before us, that the deductions were not enforced; for nonperformance, no other conclusion could be arrived but that remunerations were paid. That a supposed service was not rendered, will not cause a view to be arrived at that the said remuneration was a discount. The duty calculations as arrived at of Rs. 83,00,304/- are required to be confirmed.
(i) From the Order, it is found that a penalty of 100% of the duty determined under Section 11AC has been arrived at without coming to or giving any reasons why the penalty should be at that level. We find that Section 11AC provides for a mandatory penalty equivalent to 100% of the duty determined. However, in each case, it need not be automatically 100% and there should be good reasons arrived at to sustain it at that level. The Apex Court has laid down the law on this aspect in the case of State of Madhya Pradesh v. Bharat Heavy Electricais [1998 (99) E.L.T. 33 (S.G)], which has been followed by the Tribunal in the case of Kalyani Traders v. CC, Chennai [2002 (150) E.L.T. 1305 (Tribunal)], being bound by the same, we cannot uphold the 100% penalty as imposed, we would consider that a penalty of Rs. 10 lakhs would suffice the ends of this case.
(j) The interest under Section 11AB, ordered and arrived at by the lower authority, is confirmed.
6. In view of our findings, the appeal is disposed off in above terms.