2011 (1) TMI 229 - AT - Central Excise

Sale through depot - Valuation - deduction of discount offered to customers - Demand - Only basis on which the demand show cause notices have been issued is that the appellants while paying duty at the time of clearance of the goods from the factory, had claimed certain discounts, which had not been passed on to the customers - The goods after their clearance from the factory, had been sold from the depots and the depot sale invoices issued from the depots did not reflect any trade discounts - When the assessee claimed deduction on account of trade discount, there must be clear cut evidence showing that the same had actually been passed on to the buyers - In this case, as observed by the Commissioner (Appeals), the sale invoices issued from the depot did not reflect any such discounts whose deduction has been claimed at the time of paying duty - Demand sustained.

Summary

Issues:
- Disallowance of trade discounts claimed by the manufacturer on pneumatic rubber tyres and tubes.
- Imposition of Central Excise Duty along with interest and penalty for alleged wilful suppression of facts.
- Interpretation of provisions related to duty payment at the time of removal of goods from the factory.

Analysis:

Issue 1: Disallowance of Trade Discounts
The manufacturer of pneumatic rubber tyres and tubes claimed trade discounts while paying duty at the time of clearance from the factory. However, it was alleged that these discounts were not actually passed on to the customers as the depot sale invoices did not reflect such discounts. The Assistant Commissioner confirmed the duty demands, interest, and imposed a penalty under Rule 173Q of Central Excise Rules, 1944. The Commissioner (Appeals) upheld these orders, disallowing the deduction of trade discounts as they were not reflected in the invoices. The appellate tribunal concurred with this decision, emphasizing the necessity for clear evidence that claimed discounts were indeed passed on to buyers. Therefore, the disallowance of trade discounts was upheld.

Issue 2: Imposition of Central Excise Duty and Penalty
The show cause notices alleged wilful suppression of facts by the manufacturer and charging extra amounts from customers under the guise of trade discounts without passing them on. The duty demands, interest, and penalty were confirmed by the Assistant Commissioner and upheld by the Commissioner (Appeals). The tribunal, after considering submissions from both sides, found the basis of issuing the demand show cause notices was the failure to pass on claimed discounts to customers. As there was no clear evidence that the discounts were actually passed on, the imposition of duty and penalty was deemed appropriate.

Issue 3: Interpretation of Duty Payment Provisions
The duty payment issue arose from the manufacturer clearing goods to the depot for sale. The duty was required to be paid at the time of removal of goods from the factory based on the prevailing depot price. The manufacturer paid duty after claiming deductions on account of trade discounts. However, since the discounts were not reflected in the depot sale invoices, the tribunal upheld the decision to disallow these deductions. The tribunal also set aside an observation by the Commissioner (Appeals) regarding adopting the highest price as the normal price for goods sold at the depot, as it was not raised during the show cause notices.