2010 (6) TMI 695 - AT - Central Excise

Summary

Issues Involved:
1. Classification and Excise Duty on Free Bicycles
2. Applicability of Quantity Discount
3. Promotional Scheme and Marketability
4. Legal Precedents and Their Applicability

Detailed Analysis:

1. Classification and Excise Duty on Free Bicycles:
The appellants, manufacturers of bicycles, were found to have supplied free bicycles to dealers without paying excise duty. The Assistant Commissioner confirmed a demand of Rs. 3,61,975/- plus interest and imposed a penalty of Rs. 40,000/-. The bicycles supplied free were of a different model than those sold to customers, leading to the issuance of a show cause notice demanding duty on these free bicycles, viewing them as part of a promotional scheme rather than a regular quantity discount.

2. Applicability of Quantity Discount:
The appellants argued that the free bicycles should be considered under quantity discount, referencing an invoice and a Supreme Court decision in CCE, Chennai v. Hindustan Lever Ltd. The appellants contended that the value of free bicycles should not be included in the value of goods sold. However, the Departmental Representative countered that the free bicycles were different from those sold and were part of a promotional scheme, not a regular quantity discount. The show cause notice and the appellant's reply indicated that the free bicycles were indeed different models, and this was not disputed by the appellants.

3. Promotional Scheme and Marketability:
The scheme was introduced to enhance marketability and compete with other brands, as admitted by the appellants. The promotional scheme was not uniformly applicable across all regions and dealers, further supporting the Department's stance that it was a sales promotion rather than a regular discount. The Tribunal referenced the decision in Pearl Drinks Ltd. v. CCE, Delhi, where supplying free items as part of advertising or sales promotion was not considered a trade discount.

4. Legal Precedents and Their Applicability:
The Tribunal noted that the decision in Pearl Drinks Ltd. was upheld by the Supreme Court, establishing that promotional expenses that enhance marketability are not admissible as trade discounts. The appellants' reliance on Hindustan Lever Ltd. was found inapplicable as it dealt with a different context of quantity discount and required factual ascertainment of free units given as replacements for damaged stock. The Tribunal concluded that the appellants' case was covered by the Pearl Drinks decision, confirming that the free bicycles supplied for promotional purposes were subject to excise duty.

Conclusion:
The appeal was dismissed, with the Tribunal finding no grounds for interference in the impugned order. The decision reinforced that promotional schemes enhancing marketability do not qualify for trade discount exemptions and are liable for excise duty.