ORDER
T.K. Jayaraman, Member (T)
1. M/s. Sri Bhavani Castings Ltd., Kakinada, (“SBP”) (hereinafter referred to as the appellants) are manufacturers of Motor Vehicle Parts which are excisable goods. These parts are sold under the brand name “SBP”. The appellants had sold their products to the dealers at a discount ranging from 20% to 25%. As regards of dealers in the Metropolitan City of Mumbai and the State of Kerala, the goods were sold at a discount of 16.88% or 19.38%. As per the agreement entered into by the appellants with M/s. Mehta Trading Company, Mumbai (hereinafter referred to as M/s. MTC), the appellants allowed the discount of 33.5% to M/s. MTC which is much more than normal trade discount allowed to the other dealers. M/s. MTC were also appointed as Authorized Stockists. The Department took a view that the additional discount allowed to M/s. MTC is only a commission for services rendered by M/s. MTC for promotion of sales of their products and therefore, the same is liable to be included in the assessable value for payment of Central Excise duty. The adjudicating authority confirmed the demand of Rs. 10,92,053/- for the period 12/97 to 10/02 under proviso to Section 11A(1) of the Central Excise Act, 1944. Penalty equal to the duty demand was levied under Section 11AC of the Act. Interest under Section 11AB was also demanded. The order No. 7/03-04 RP dated 18-6-03 passed by the Commissioner of Central Excise, Visakhapatnam, demanding the above mentioned amounts is being strongly challenged by the appellants before this Tribunal.
2. Shri K.S. Ravi Shankar, learned Advocate appeared on behalf of the appellants and Shri L. Narasimha Murthy, learned SDR appeared on behalf of the Revenue.
3. Ld. Advocate submitted that the duty has been paid based on the invoice price received by the appellants. The buyer, M/s. MTC is not a related person. The appellants have not received any extra commercial consideration from the buyer. It is well established that the trade discount by whatever name is called is allowable as a deduction for arriving at the assessable value, so long as it is given and is known in advance. It was also brought to the notice of the Bench that the same issue of allowing additional discount was earlier a subject matter of adjudication by the Department and the Assistant Commissioner of Central Excise, Kakinada in his Adjudication Order No. 7/95, dated 26-10-1995 allowed the trade discount claimed by the appellants. Under these circumstances, suppression of facts cannot be alleged and proviso to Section 11A cannot be invoked.
4. Ld. SDR pointed out that M/s. MTC contended that the transaction between the appellants and M/s. MTC is not at arms length and extra discount allowed to them is only a commission for the service rendered by M/s. MTC for promotion of the sale of their products. Hence it was urged that the additional discount should be added to the assessable value claimed by the appellants for determining the correct duty liability.
5. We have heard the rival contentions. From the records, it is seen that the appellants have appointed M/s. MTC, Mumbai as their Authorized Stockists. In respect of the orders booked by M/s. MTC, the supplies were made directly from the appellants to the buyers and in respect of these transactions the abatement of 20% (normal trade discount) was only claimed and duty was also paid after deducting 20% from the list price. However, in respect of these sales, M/s. MTC was allowed a discount of 16.88% and the difference in discount liable to M/s. MTC and the discount allowed to the buyers will be credited to the account of the Authorised Stockists (MTC) on realization of the due amounts. As regards the sales which are directly made to M/s. MTC, the appellants allow higher discount of 33.5%. The adjudicating authority holds that there is no justification for allowing the high discount of 33.5% to M/s. MTC. The adjudicating authority holds that the excess over the basic discount allowed to M/s. MTC is nothing but overriding commission and the same is in consideration of the various sale promotion activities with M/s. MTC and on behalf of the manufactures relying on Clause 6 of the agreement dated 1-4-1991 and Clause 5 of agreement dated 1-1-2000. The demand covers the period from December 1997 to October 2002. Till 1-7-2000, the old Section 4 was in operation. Under the old Section, the concept of normal price was applicable and as per Section 4(4)(d)(ii) of Central Excise Act, 1944, value in relation to excisable goods, among other things., did not include the trade discount allowed in accordance with the normal practice of the wholesale trade at the time of removal in respect of the goods sold or contracted for sale. In this case, as per their agreement between the appellants and M/s. MTC, the latter had certain obligations to promote the sales of the products of the appellants. In view of this, under the agreement, they were allowed higher discount than allowable for other dealers. On this account one cannot come to a conclusion that a transaction between the appellants and M/s. MTC is not on principal to principal basis. Moreover, under the new Section 4 effective from 1-7-2000, the value for assessable purpose is the transaction value. There is no specific provision in the new law in respect of trade discount. The transaction value is arrived at after deducting the discount allowed from the lists of price. In this case, the Department has not shown that the appellants are claiming higher discount but not allowing the same to the buyer. They have also not established any flow back of funds from the buyer to the manufacturer. Even if the appellants allow higher discount to M/s. MTC on commercial consideration, there is no legal basis for the Department to deny the same in arriving at the transaction value. As long as the discount is allowed and shown in the invoice, the Department is not justified in adding the same to the assessable value. In these circumstances, the impugned Order-in-Original is not sustainable. Moreover, earlier the Department had already gone into the admissibility of higher discounts and the Assistant Commissioner had decided the issue in favour of the appellants. Therefore, there is no justification for invoking the proviso to Section 11A of Central Excise Act, 1944, alleging suppression of facts. Hence, the appeal is allowed with consequential relief.