2015 (4) TMI 1031 - AT - Central Excise

Duty demand - Valuation - appellant were issuing debit notes to their distributors/consignment agents for the said 2% margin of replacement - Revenue contented that since 2% margin was not claimed by the appellant in price declaration and since the debit note was raised towards the said margin the deduction is not admissible - Held that - Appellant in the marketing policy explicitly declared to their wholesale buyer in all over India regarding the margin of 2% towards damage and replacement. It is also found that this 2% margin was allowed to each and every wholesale buyer. Therefore contention of the Revenue that this margin is not uniform is apparently not correct. As regard the variation of the price from one state to another state we find that the retail sale price remain same in all over India however the wholesale price/assessable value varied from one state to another state only for the reason that in different state Sales Tax and Octroi rates are different. Therefore the rate of margin indeed the same and uniform the variation is only on account of Sales Tax/Octroi. As regard the debit notes we find that this practice is not followed in each and every case as against the total sales. Only few debit notes were issued for an amount of 2, 41, 337/- therefore in our view merely because the debit note of 1, 46, 706/- was issued entire sale cannot be weighed in the same manner. 2% margin which is margin of wholesale buyer towards sale of their goods to the retailer cannot from the part of whole sale price and accordingly the same cannot be included in the assessable value. Even in terms of Rule 6(a) of erstwhile Central Excise Valuation Rules 1975 if the goods are sold in retail and wholesale price is not known reasonable margin has to be deducted to arrive at the wholesale price for charging of excise duty. In the present case the wholesale price is clearly known i.e. the price after deduction of Sales Tax Octroi 7.5% margin 2% margin and excise duty from the retail sale price therefore the wholesale price clearly known. Hence excise duty is chargeable on the wholesale price and not on retail price. - Partial amount is recoverable - Decided partly in favour of assessee.

Summary

Issues:
- Appeal against Order-in-Appeal upholding Order-in-Original regarding excise duty on margin deduction for consignment agents
- Dispute over inclusion of 2% margin deduction in assessable value
- Argument on uniformity of margin deduction across wholesale buyers
- Revenue's contention on non-declaration of 2% margin in price declaration
- Interpretation of Section 4 of the Central Excise Act, 1944 for wholesale price determination

Analysis:
The appeal challenged the Order-in-Appeal affirming the Order-in-Original that imposed excise duty on a 2% margin deduction for consignment agents. The appellant, a seller to wholesale dealers, had not declared this deduction in the price declaration, leading to a show-cause notice for excise duty. The appellant contended that the margin was uniform for all distributors, forming part of their wholesale price and not affecting the assessable value. They argued that the margin was not deducted from the sale price to distributors, hence not includible in the assessable value. Citing pricing policies and judicial precedents, they emphasized the uniformity of the margin across regions and the distinction between wholesale and retail prices under Section 4 of the Central Excise Act, 1944.

The Revenue, however, maintained that the 2% margin was integral to the wholesale price, as per the erstwhile Central Excise Rules. They argued that since debit notes were issued for this margin, it became a conditional element, disallowing its deduction. Relying on legal precedents, they emphasized the non-declaration of the 2% margin in the price declaration as a basis for disallowance. The Tribunal carefully considered both arguments and judgments cited by both sides.

The Tribunal found that the appellant explicitly communicated the 2% margin for damage and replacement to all wholesale buyers uniformly across India. They noted that the variation in wholesale price across states was due to differing Sales Tax and Octroi rates, not the margin itself. While acknowledging the issuance of few debit notes, the Tribunal disagreed with the appellant's contention that these were symbolic and not recoverable. They held that once debit notes were issued, the amount became legally recoverable, attracting excise duty. The Tribunal emphasized that excise duty is chargeable on the wholesale price, not the retail price, as per the Central Excise Valuation Rules. Consequently, they upheld the duty on the amount of debit notes but dropped the remaining demand, concluding that the appeal was partially allowed.

In conclusion, the Tribunal's decision clarified the treatment of the 2% margin deduction in the assessable value, emphasizing the importance of uniformity, pricing policies, and the distinction between wholesale and retail prices under the Central Excise Act, 1944.