1994 (2) TMI 141 - AT - Central Excise

Summary

Issues Involved:

1. Eligibility for deductions on account of trade discount, non-recoverable taxes, surcharge, and octroi.
2. Inclusion of advertisement and after-sales service expenses in the assessable value.
3. Limitation and suppression of facts.
4. Penalty imposed on the appellant.

Summary:

1. Eligibility for deductions on account of trade discount, non-recoverable taxes, surcharge, and octroi:

Peico Electronics and Electricals Ltd. (Peico) filed an appeal against the order of the Collector of Central Excise, Pune, which disallowed certain deductions claimed by Peico. The Collector observed that Peico was not eligible for deductions on account of a portion of the trade discount attributable to after-sales services and advertisement expenses incurred by dealers on behalf of Peico. The Collector allowed deductions for freight and transit insurance but modified the demand for non-recoverable taxes, surcharge, and octroi. The total duty confirmed was Rs. 7496623.80, with a penalty of Rs. 37 lakhs imposed on Peico.

2. Inclusion of advertisement and after-sales service expenses in the assessable value:

The Tribunal examined whether a portion of the trade discount given to dealers could be disallowed and added to the assessable value due to the dealers' obligation to advertise and provide after-sales services. The Tribunal noted that the dealers were required to provide free after-sales service and advertise for Peico's products under the terms of the agreement. The expenses incurred by the dealers for these services were not reimbursed by Peico and were to be met from the discount offered by Peico. The Tribunal held that the portion of the discount attributable to these activities was not a normal trade discount for the purposes of Section 4 of the Act and should be included in the assessable value.

3. Limitation and suppression of facts:

The Tribunal addressed the issue of limitation and suppression of facts. It was noted that the agreements with the dealers had been with the department for several years, and the price lists had been approved provisionally under Rule 9B of the Central Excise Rules, 1944. The Tribunal observed that the show cause notice issued was detailed and contained allegations based on documents and records of Peico. The Tribunal held that the extended period of limitation under the proviso to Section 11-A of the Act was applicable due to the suppression of facts by Peico.

4. Penalty imposed on the appellant:

The Tribunal considered the penalty of Rs. 37 lakhs imposed on Peico. Taking into account the facts and circumstances of the case, the Tribunal reduced the penalty from Rs. 37 lakhs to Rs. 10 lakhs. The appeal was otherwise rejected, and the order of the adjudicating Collector of Central Excise, Pune, was confirmed with regard to the discount attributable to after-sales service and advertisement to the extent of 2%.

Conclusion:

The appeal was partially allowed by reducing the penalty to Rs. 10 lakhs, while the Tribunal confirmed the findings of the Collector regarding the inclusion of expenses for after-sales service and advertisement in the assessable value and the applicability of the extended period of limitation. The portion of the order relating to non-recoverable taxes was vacated.