2003 (12) TMI 98 - AT - Central Excise

Summary

Issues:
1. Duty demand raised in respect of defective chairs
2. Additional Trade discount given to distributors
3. Eligibility for exemption under Notification No. 5/98
4. Destruction of chairs during testing
5. Inclusion of cost of freight in the assessable value of chairs

Analysis:

1. Duty demand raised in respect of defective chairs:
The appellant provided a guarantee for their chairs, offering credit equivalent to the value of goods if damaged due to manufacturing defects. The impugned order raised duty demand based on an alleged additional realization on all chairs sold. The circular in question indicated a replacement policy and reimbursement of damaged goods. The Tribunal found that the amount in question was related to freight costs and not the value of goods. The demand was set aside as there was no additional realization beyond the invoice price.

2. Additional Trade discount given to distributors:
The second demand was for an Additional Trade discount given to distributors, alleged to be reimbursement for damaged goods. The circular provided for adjustment of the discount based on actual damages, indicating a reimbursement nature. The Tribunal held that the discount, although uniformly given, was liable to be adjusted for damages post-sale. As per precedent, damage discounts were not eligible for deduction, leading to the confirmation of this demand.

3. Eligibility for exemption under Notification No. 5/98:
The demand under this issue related to the denial of exemption based on the aggregation of production from all factories. Condition No. 10 of the notification did not require aggregation, as it referred to products manufactured in the same factory. The Tribunal concluded that there was no need to aggregate production from all factories for exemption eligibility, setting aside this demand.

4. Destruction of chairs during testing:
The demand for chairs destroyed during testing was challenged, citing precedent that destroyed goods during testing were not liable for excise duty. The Tribunal referred to relevant decisions confirming the non-liability of duty for goods destroyed during testing. As the appellant failed to provide accounts of destroyed goods, the demand was set aside.

5. Inclusion of cost of freight in the assessable value of chairs:
The final demand was based on the inclusion of freight cost in the assessable value of chairs dispatched to buyers. The appellant argued that the sales were on an ex-factory basis, as evidenced by invoices and documents. Citing a Supreme Court decision, the Tribunal held that since the sales were ex-factory, there was no justification for including freight costs in the assessable value. The demand on this count was deemed unsustainable.

In conclusion, the Tribunal confirmed the duty demand related to the Additional Trade discount, while setting aside the rest of the duty demands and penalties, ruling in favor of the appellant on multiple issues.