2016 (7) TMI 770 - AT - Central Excise

Valuation - cash discount - short payment of duty - it was observed that the assessable value shown in the Central Excise invoice was 4% less than the assessable value shown in the commercial invoices for the same goods - Held that - Though the appellants have taken a categorical stand before the authorities below that the complete reconciliation was being made by them at the end of manufacturer, during the period involved in the present appeal, and wherever the cash discounts offers were not availed by the customers, they were paying duty, we, at this point of time, are of the view that reconciliation has become the secondary issue in view of the legal issue having been settled in favour of the assessee. If the cash discounts offered by the appellant, are required to be considered and the assessable value has to be recalculated based upon such offers of discounts, in terms of the Supreme Court decision, the present demand of duty on the ground that such cash discounts do not stand availed by the appellants customers in most of the cases, falls to the ground. - Demand set aside.

Summary

Issues:
1. Discrepancy in assessable value between commercial invoices and ER-1 return for Unit No.1.
2. Allowance of rebate by Unit No.2 through invalid debit notes and service tax implications.
3. Legal implications of cash discounts offered by the manufacturer on assessable value.
4. Availment of Cenvat credit of service tax based on invalid documents.

Issue 1: Discrepancy in assessable value for Unit No.1
The judgment addresses the discrepancy in assessable value shown in commercial invoices and ER-1 return for Unit No.1 of the appellant. It was found that the appellant had short-paid duty due to differences in values shown. The reconciliation submitted was not accepted, and the legal issue was clarified based on the Supreme Court's decision in Purolator India Ltd. vs. CCE. The Court emphasized that post-amendment, transaction value is crucial for determining assessable value, and cash discounts offered must be considered in arriving at the price for duty payment.

Issue 2: Allowance of rebate through invalid debit notes by Unit No.2
Unit No.2 allowed rebates to dealers through invalid debit notes, leading to service tax implications. The Court highlighted that these debit notes were not valid documents as per Cenvat Credit Rules. Additionally, the service tax paid on sales commission to dealers was deemed inadmissible as it was considered a post-manufacturing activity, impacting the clearance of excisable goods without duty payment. Previous decisions in the appellant's case supported the dismissal of the demand based on this ground.

Issue 3: Legal implications of cash discounts on assessable value
The judgment elaborates on the legal implications of cash discounts offered by the manufacturer on the assessable value. Referring to the Supreme Court's decision, it was established that cash discounts must be considered in determining the price for duty payment, even post-amendment in Section 4. The reconciliation provided by the appellant became secondary as the legal issue was settled in favor of considering cash discounts in arriving at the assessable value. Consequently, the demand for duty based on unavailed cash discounts by customers was deemed unsustainable.

Issue 4: Availment of Cenvat credit based on invalid documents
The judgment notes that the issue of availment of Cenvat credit of service tax based on invalid debit notes had been previously decided in the appellant's case. Citing earlier final orders, the Court concluded that the confirmation of demand on this ground was not sustainable. Consequently, the impugned order was set aside, and all four appeals were allowed by overturning the confirmation of demand and penalty imposition on the appellants.