2016 (8) TMI 578 - AT - Central Excise

Valuation - Job-work for loan licenses - Demand - Differential duty on the deferential value between net price of the loan licensee and the declared net price - evasion of duty - declaration of net price in the prescribed attachments without production of invoice detailing the quantum of discount given to wholesalers/retailers - Held that - there is no indication in the show cause notice to suggest that wholesaler/retailer was required to make payment to the job-worker. We also note that there is no reference to the manner in which the duty liability was compensated by the loan-licensee. The job-work charges are only one element of the total cost/price of cleared goods with the major portion being expended by the loan-licensee. Apparently, the price at which the wholesaler/retailer is to be supplied is determined by the loan-licensee who also assumes the responsibility for complying with the procedure laid down in the Central Excise Rules. It is difficult to conclude that the job-worker is in receipt of any amount, other than job-work charges paid by the loan licensee, from the wholesaler/retailer. Consequently, there is no basis for alleging that such trade discount has been retained by the respondent. There is no scope to attribute any motives or an opportunity to the respondent for retaining a portion of the consideration when there is no allegation that the consideration paid by the wholesaler/retailer passes through the respondent. The original authority has, correctly held that the show cause notice has not been able to establish any infringement of the valuation provision under Central Excise Act, 1944 and that no evidence has been led to show that discount claimed to have been deducted has been retained by respondents. - Decided against the Revenue

Summary

Issues:
Appeal against dropping of proceedings in show cause notice regarding duty evasion on trade discount not passed on to wholesalers/retailers.

Analysis:
The appeal was filed by Revenue against dropping proceedings in a show cause notice issued to a manufacturer of medicaments as a job-worker for loan-licenses, alleging duty evasion on trade discounts not passed on to wholesalers/retailers. The show cause notice claimed duty liability on the discount amount for a specific period. The agreement between the job-worker and the licensees involved supply of raw materials and technical know-how, with the job-worker responsible for discharging duty liability upon goods clearance.

Revenue contended that the manufacturer failed to provide evidence of discount passing to wholesalers/retailers, shifting the burden of proof to the manufacturer. The appellate authority examined the grounds of appeal in detail, noting the duty liability computation based on net price declarations without detailed discount information in invoices. The impugned order found the allegation untenable due to lack of evidence showing the discount was not passed on.

In the scheme of clearance by job-workers, where the duty liability is discharged by them, it was observed that the job charges paid by the licensees cover only a portion of the total cost, with the major portion borne by the licensees. The appellate authority highlighted the absence of evidence indicating the job-worker retained the trade discount, emphasizing that the price determination and compliance with excise rules were the responsibility of the licensees.

The case revolved around the reluctance of the manufacturer to produce invoices detailing the discounts passed on. The appellate authority referenced a circular permitting deduction of discounts from assessable value if passed on to buyers, distinguishing between cash and trade discounts. The authority concluded that the show cause notice failed to establish any valuation provision infringement and lacked evidence of the manufacturer retaining the claimed discount.

Ultimately, the appellate authority found no merit in the appeal, upholding the original authority's decision that no infringement of valuation provisions occurred and no evidence supported the claim of the manufacturer retaining the discount. The appeal was dismissed, and the judgment was pronounced in open court.