2024 (12) TMI 465 - AT - Central Excise

Valuation u/s 4 of the Central Excise Act, 1944 - related party transaction - additional discount of 8-10% given by the appellant to JEPL was a genuine discount or was Commission being given the colour of discount in the invoices to suppress the value to this extent of 8-10% - whole demand confirmed on the basis of list price whereas the discounts of 45% which have been passed on by the JEPL to their customers were never in dispute and these facts are on record in the show cause notice - HELD THAT - The real nature of dispute as raised by the Revenue is limited to the contents as given in para 1.1 of the Revenue s appeal filed with the Tribunal. Whether the extra discount passed on to JEPL in their invoices is a part of trade discount or is a Commission . It is clear from the judgment in SESHASAYEE PAPER AND BOARDS LTD. Versus COLLECTOR OF C. EX. 1990 (2) TMI 52 - SUPREME COURT that wherever the invoice is issued by the assessee showing two separate discounts in the invoice in whatever name they may be called one payable to the Indentor/ Distributor/ Dealer and other payable to the purchaser whose name is mentioned in the invoice itself, the discount payable to the Indentor/ Distributor/ Dealer is to be considered as a Commission and will not be entitled for an admissible deduction. But when the Indentor/ Distributor/ Dealer purchases in his own account, such a discount mentioned on the invoice will be considered as a normal discount and there can be no objection to the discount given to him and such discount need not be the same as passed on to the other purchasers. The law does not require the same to be as the Indentor/ Distributor/ Dealer constitutes a separate class of buyers and there can be different prices for the separate class of buyers - it is further observed that the impugned order has misapplied the ratio of the Board s Circular 354/81/2000-TRU dated 20.06.2000 in as much as the scope of the Circular is between the seller and the buyer i.e. it must be established that the discount of a given transaction has actually been passed on to the buyer of the goods. Here in the facts of the case the buyer is JEPL and not their subsequent buyers as has been held in the impugned order. As no flow-back of money has been alleged in the impugned order between the appellant and the JEPL, the trade discount mentioned in the invoices is considered to be an admissible discount in the normal business transactions. The 55% discount (including additional 8-10% given in excess of the other buyers) passed on by the Appellant to JEPL for their own purchases is entitled for an admissible deduction on account of trade discount and cannot be considered as a Commission . The impugned order is set aside - appeal allowed.

Issues Involved:

1. Determination of whether JEPL is a "related person" to the appellant under Section 4 of the Central Excise Act, 1944.
2. Legitimacy of the additional discount (8-10%) provided to JEPL and whether it constitutes a "commission" or a genuine trade discount.
3. Assessment of the mutuality of interest between the appellant and JEPL.
4. Evaluation of the correct assessable value for excise duty purposes.

Issue-wise Detailed Analysis:

1. Determination of Related Person:

The core issue was whether JEPL qualifies as a "related person" under Section 4 of the Central Excise Act, 1944, which would affect the valuation of goods for excise duty. The adjudicating authority initially held that there was mutuality of interest between the appellant and JEPL, thus considering them related. However, the Commissioner (Appeals) overturned this, stating that JEPL was a bulk buyer, not a related person, as per the precedent set by the Supreme Court in M/s. Metal Box India Ltd. vs. Collector, Madras. The Tribunal supported this view, noting that the original authority's decision was based solely on the related person aspect, which had been resolved in favor of the appellant.

2. Legitimacy of the Additional Discount:

The dispute centered on whether the additional 8-10% discount to JEPL was a genuine trade discount or a commission disguised as a discount. The adjudicating authority and Commissioner (Appeals) viewed this discount as a commission, arguing that it was not passed on to the ultimate buyers and was absorbed by JEPL, indicating a mutual interest. However, the Tribunal, referencing the Supreme Court's judgment in SESHASAYEE PAPER AND BOARDS LTD., clarified that when a discount is given to a buyer who purchases on their own account, it should be considered a trade discount, not a commission. The Tribunal found no evidence of a flow-back of funds, supporting the appellant's contention that the discount was legitimate.

3. Assessment of Mutuality of Interest:

The adjudicating authority and Commissioner (Appeals) claimed mutuality of interest due to shared directors and JEPL's shareholding in the appellant company. The appellant countered that mere shared directorships or shareholding does not establish mutuality of interest unless there is a flow of commercial benefits beyond the transaction. The Tribunal found no evidence of such mutuality, aligning with the appellant's argument that their relationship with JEPL was purely commercial and on a principal-to-principal basis.

4. Evaluation of the Correct Assessable Value:

The Revenue argued that the assessable value should be based on the list price, disregarding the discounts provided. The appellant maintained that discounts, including the additional 8-10%, were part of normal trade practices and should be deducted from the assessable value. The Tribunal highlighted that the 45% discount was undisputed and that the additional discount was a genuine trade discount, not a commission. It emphasized that the correct assessable value should reflect the net price after all genuine trade discounts, as per Section 4 of the Central Excise Act, 1944, and relevant case law.

Conclusion:

The Tribunal concluded that the 55% discount, including the additional 8-10%, was a legitimate trade discount and not a commission. It set aside the orders of the adjudicating authority and Commissioner (Appeals), allowing the appeal with consequential relief. The Tribunal's decision reaffirmed the principle that discounts should be recognized if they are genuine and passed on to the buyer, without any flow-back of funds to the seller.

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