2007 (12) TMI 158 - AT - Central Excise

Quantity discount - once the discounts were additional, the eligibility to the same could have been checked only at the end of F.Y., when only the turnover of customers could have been known - mere filing of price declaration and RT 12 returns for a limited period do not help their case - appellants were not passing on the discounts came to dept. notice, only in investigations, not earlier- hence demand is justified both on merits s well as the limitation matter remanded for recomputation

Issues Involved:
1. Claim of quantity discount and its actual passing to customers.
2. Demand of duty on undiscounted amount.
3. Limitation and suppression of facts.
4. Computation of demand and applicability of Board Circulars.

Issue-wise Detailed Analysis:

1. Claim of Quantity Discount and Its Actual Passing to Customers:
The appellant, engaged in the manufacture of plastic moulded furniture and luggage, claimed a uniform 12% quantity discount on goods cleared from the factory. However, investigations revealed that the entire discount was not passed on to customers, with the actual discounts often being less than 12%. The appellant's Chartered Accountant certified that Rs. 3,06,03,619/- was not passed on as claimed, leading to a duty demand of Rs. 55,08,651/-. The appellant admitted that the discount passed on varied depending on the dealer's annual off-take, often resulting in less than 12% being passed on, with 35.6% of sales pocketing the discount. They argued that the total discount given was Rs. 19.45 crores, with Rs. 19.21 crores related to quantity discount, thus no duty should be demanded on the undiscounted amount.

2. Demand of Duty on Undiscounted Amount:
The Tribunal held that the appellant's practice of claiming 12% discount initially but not passing it on fully to customers warranted the demand of duty on the undiscounted amount. The case was supported by precedents such as Electrolux Kelvinator Ltd. and Anant Raj Industries Ltd., which held that quantity discounts are permissible only to the extent actually given. The appellant's claim of passing on excess discounts under a product scheme was unsubstantiated, with no clear details provided.

3. Limitation and Suppression of Facts:
The appellant argued that the demand was time-barred as they had filed RT-12 returns and price declarations, which were scrutinized and finalized by the department. They contended that the department had knowledge of the discounts not being passed on through audits and previous show cause notices, which were dropped after satisfactory explanations. However, the Tribunal found that the eligibility for discounts could only be verified at the end of the financial year, and the appellant's failure to reconcile accounts and inform the department of undiscounted amounts indicated an intention to evade duty. The Tribunal upheld the extended period for demand, citing that the department only became aware of the undiscounted amounts during DGCEI investigations.

4. Computation of Demand and Applicability of Board Circulars:
The Commissioner relied on Board Circular No. 749/65/03-CX, which was later withdrawn by Circular No. 803/36/2004-CS. The Tribunal directed that the amount not passed on should be added to the sale price, and the assessable value reworked as per the Supreme Court's decision in Maruti Udyog. The matter was remanded to the Commissioner for recalculating the duty accordingly.

Conclusion:
The Tribunal upheld the demand of duty on the undiscounted amount, finding that the appellant did not pass on the claimed discounts fully to customers. The extended period for demand was justified due to the appellant's failure to inform the department of the undiscounted amounts. The computation of demand was to be recalculated as per the Supreme Court's guidelines, and the matter was remanded for this limited purpose.

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