ORDER
K.K. Usha, J. (President)
1. This is an appeal at the
instance of the assessee against the order passed by the Commissioner of
Central Excise (Appeals), Chandigarh dated 22-3-2002. The issue raised in
this appeal is whether the appellant is entitled to avail abatement to arrive at
the assessable value on account of (1) Turnover Discount, (2) interest reim
bursed in respect of unutilized FOI period (cash discount), and (3) Commis
sion paid to sales representatives. After aggregating the discounts actually
granted and averaged against the total clearances the assessee claimed 10%
abatement as PRE. The claim of the assessee under the above three heads was
rejected by the assessing authority and affirmed by the Commissioner (Appeals).
3. The appellant is manufacturing and selling woollen as well as man-made fabrics. The fabrics manufactured by the appellant were cleared for home consumption as well as for export. The goods cleared for home consumption are sold to wholesale dealers/buyers. The orders are placed directly on the appellant. In respect of those orders which are accepted by the appellant, the sales representative will be responsible for payments and acts as a del-credere agent. He is entitled to commission in respect of sales made by the appellant on orders received through their efforts.
4. The appellant as per its declared sales policy, was granting turnover discount and credit sales with provision for reimbursement of interest in respect of the unutilized period to all dealers. The turnover discount is granted at specified rates. The discount is obtained on the basis of the turnover during the preceding year and is paid by way of credit notes in the succeeding year.
5. The appellant allowed a specified number of days to the dealer to make payment. This period is referred to as FOI (free of interest). The interest for any delayed payment beyond the FOI is also indicated in the sales policy. Wherever a wholesale dealer makes immediate payment within the FOI period he is entitled to reimbursement of interest @ 24% for the period for which FOI has not been availed. In effect it is a cash discount as the terms of sale are credit and the price including a component towards interest which interest is to be reimbursed if the buyer does not avail the FOI period. Such discount is available to all the wholesale buyers.
6. The appellant contended that it computed the actual value of discount granted under the three heads in the previous period i.e. up to June and claimed as a abatement from the assessable value. The 10% abatement claim as PRE was on the basis of actual amount paid as turnover discount, commission to sales representative and reimbursement of interest.
7. The Commissioner (Appeals) rejected the claim for turnover discount for two reasons. It was held that any discount which is allowed in accordance with the normal practice of wholesale trade at the time of removal in respect of the goods sold or contracted for sale is admissible for exclusion from the whole of assessable value provided discount is not refundable on any account whatsoever it may be. It was also held that the method of allowing discount for the purpose of payment of duty at 10% of the assessable value would amount to allowing deduction on equalized or average basis to all types of buyers irrespective of their individual turnover. Such discount was not permitted in view of the decision of the Tribunal In Re : Sandu Pharmaceuticals Works Ltd. – 1982 (10) E.L.T. 723 (GOI). Claim for deduction on the ground of interest on the head of “receivables” was disallowed on the ground that no evidence was placed on record by the assessee regarding quantum of interest claimed to be included by it in the assessable value at the time of making clearances from the factory. If such interest and interest cost are inbuilt in the price then it cannot be deducted from the wholesale price as that their cost would thus form part of the price known prior to sale. The claim for deduction of the commission paid to the selling agents was rejected
on the basis of the dictum laid down in Coromandel Fertilizers Ltd. v. UOI & Others -1984 (17) E.L.T. 607 (S.C.). The assessing authority took the view that under all the three heads the assessee had not claimed discount on actual basis. Claim @ 10% is an average of the three deductions which cannot be permitted under law.
8. We heard the learned Counsel for the appellant and the learned DR, the claim made by the appellant in respect of turnover discount is prima facie covered in its favour by the decision of the Supreme Court in Addison & Co. ltd, v. Collector of Central Excise, Madras – 1997 (91) E.L.T. 532 (S.C.). A reading of the above judgment would show that in granting ad hoc discount on the basis of the previous years performance and adjusting it at the end of the year is permissible under law. This is the procedure followed by the present appellant. But the learned DR contended that even if the above principle is accepted, the claim for deduction must be on the basis of the actual amount of turnover discount paid to the dealer and not on equalized or average basis.
9. The claim put forward by the assessee for deduction in respect of interest on receivables is supported by a decision of this Tribunal in CCE, Hyderabad v. Novapan Industries Ltd, – 2001 (137) E.L.T. 662 following an earlier order, namely, Final Order No. 2823/99, dated 4-11-99 in ICl India Ltd. v. CCE, Hyderabad. But here also the contention raised by the learned DR is that deduction cannot be claimed on an equalized basis.
10. The learned Counsel for the appellant took us through the documents produced by the appellant to show that what has been claimed as deduction is on the basis of the actual amount of turnover discount granted to each dealer and interest reimbursed in respect of each sale. For the purpose of calculating the amount the assessee aggregated the turnover discounts actually granted and the interest actually reimbursed and averaged the same against the total clearances. It cannot be, therefore, said that in respect of each dealer the amount of discount granted was on an equalized basis. So is the case of interest reimbursed also. We, therefore, find that the assessee is entitled to claim deduction in respect of the above two items.
11. Now we come to the third item, namely, commission paid to two sales representatives. The authorities below rejected the above claim of the assessee on the basis of the decision of the Supreme Court in Coromandel fertilizers Ltd. The learned Counsel for the appellant would contend that a later decision of the Bombay High Court in Raymond Woollen Mills Ltd. v. Union of India – 1992 (57) E.L.T. 396 (Bom.) took the view that assessee will be entitled to abatement in respect of commission payable to the commission agents. It is urged before us by the learned Counsel that the above view was taken by the Bombay High Court after referring to the decision of the Supreme Court in Coromandel Fertilizers Ltd., and that an appeal filed by the Revenue before the Supreme Court was dismissed. Therefore, it is not open for this Tribunal to give a different interpretation to the decision in Coromandel Fertilizers Ltd.
12. In Coromandel Fertilizers Ltd., the Supreme Court has taken the view that the commission which is paid by the assessee to the selling agent is for service rendered by them as agents. Therefore, such commission cannot be considered in the nature of trade discount which may qualify for deduction in determining the assessable value of the goods. In Raymond Woollen Mills’ case while considering the claim for deduction on account of bonus paid to the dealers reference is made to Coromandel Fertilizers Ltd, and it was observed that the ratio of the decisions of Supreme Court that the commission paid to the selling agents is not in the nature of trade discount, will not be applicable to the case of bonus paid to the dealers. Later when the Bench considered the issue relating to abatement of commission paid to the agents it was observed that for the same ground on which bonus to dealers can be claimed as a deduction commission paid to the agents can also be allowed. We have gone through the order passed by the Supreme Court in dismissing the appeal filed by the Revenue against the decision of the Bombay High Court. The order is not one deciding the issue on merits. It is recorded that the learned Counsel for Union of India conceded that the judgment of the Apex Court in Govt. of India v. MRF – 1995 (77) E.L.T. 433 would squarely cover the case and therefore, the appeal is not pressed. The appeal was dismissed as not pressed.
13. The learned DR submits before us that the MRF decision does not hold that commission paid to the agent is deductible as a trade discount. He brought to our notice yet another decision of the Apex Court, namely, Sehasayee Paper & Boards Ltd. v. Collector of Central Excise – 1990 (47) E.L.T. 202 (S.C.) where the dictum of Coromandel Fertilizers Ltd. has been understood by the Apex Court in a manner different from the interpretation given by the Bombay High Court in Raymond Woollen Mills Ltd. The relevant portion reads as under :-
“He relied upon the decision of this Court in Union of India v. Bombay Tyre International Pvt. Ltd. – 1984 (17) E.L.T. 329 (S.C.) and submitted that the nomenclature given to the discount could not be regarded as decision of the real nature of the discount. There can be no quarrel with this proposition. But it is equally well settled that in the determination of the normal price for the purposes of levy of excise duty, it is only a normal trade discount which is paid to the purchaser which can be allowed as a deduction and commission paid to selling agents for services rendered by them as agents cannot be regarded as a trade discount qualifying for deduction (Coromandel Fertilizers Limited v. Union of India and Ors. – 1984 (17) E.L.T. 607.”
14. The above observation would clearly show that the Supreme Court had understood the decision in Coromandel Fertilizers Ltd. as holding that commission paid to selling agents is not equivalent to trade discount qualifying for deduction. The understanding of Coromandel Fertilizers Ltd. by the Apex Court has more binding value than the interpretation given by the Bombay High Court. We, therefore, hold that the appellant-assessee is not entitled to claim deduction on the commission paid to the commission agents. To that extent, the demand is upheld.
15. In the result, we set aside the order impugned partly in respect of the finding on trade turnover discount and interest reimbursement. The finding on commission paid to the commission agents is upheld. The quantum of duty will be recomputed on the above basis. In doing so the pre-deposit already made by the assessee will also be taken into consideration. The appeal stands partly allowed.