1994 (5) TMI 105 - AT - Central Excise

Summary

Issues Involved:
1. Admissibility of Turnover Discount as a Deduction
2. Admissibility of Additional Discount as a Deduction
3. Applicability of Judgments under Sales Tax Laws to Central Excises & Salt Act

Summary:

1. Admissibility of Turnover Discount as a Deduction:
The assessee granted turnover discounts to wholesale dealers based on the turnover achieved on a slab basis, as indicated in the policies signed at the commencement of the year and reflected in the price lists filed u/s 173C. The Asstt. Collector initially allowed these deductions, but later disallowed them, arguing that the discounts were not given at the time of clearance but based on future transactions. The Tribunal, after examining various judgments, concluded that turnover discounts are admissible deductions. The Tribunal reasoned that the nature and allowance of the discount were known prior to the removal of goods, and the discount was a legitimate commercial consideration to promote sales. The Tribunal distinguished the present case from the Orient General Industries case, stating that the turnover discount in this case was part of the normal trade practice and was known to the dealers at the time of removal of goods.

2. Admissibility of Additional Discount as a Deduction:
The additional discount was granted to dealers in certain regions to increase sales where market conditions were poor. The Asstt. Collector initially allowed these deductions but later disallowed them on similar grounds as the turnover discount. The Tribunal directed the authorities to ascertain the nature of the additional discount from the account books and allow the deduction if it met the criteria laid down in the judgment. The Tribunal emphasized that the nature and allowance of the discount should be known prior to the removal of goods and that such discounts are permissible if they are given for legitimate commercial reasons and reduce the sale price.

3. Applicability of Judgments under Sales Tax Laws to Central Excises & Salt Act:
The Tribunal examined various judgments under Sales Tax laws and concluded that the principles laid down in these judgments are relevant for interpreting Section 4 of the Central Excises & Salt Act. The Tribunal noted that the definition of 'sale price' under Sales Tax laws is in pari materia with the definition of 'assessable value' under Section 4. The Tribunal relied on judgments such as Baidyanath Ayurved Bhawan, Jeevanlal, and Motor Industries, which allowed deductions for discounts given for legitimate commercial reasons, even if the discounts were contingent on future transactions. The Tribunal rejected the contention that the discounts should be disallowed because they were not given at the time of removal of goods.

Separate Judgment:
Member (T), P.K. Kapoor, disagreed with the majority opinion, holding that turnover and additional discounts are not admissible deductions under Section 4(4)(d)(ii) of the Central Excises & Salt Act, 1944. He reasoned that the discounts were contingent and not known at the time of removal of goods, and thus did not meet the criteria laid down by the Supreme Court. The matter was referred to a third Member, P.C. Jain, who concurred with the view that turnover and additional discounts are not admissible deductions. Consequently, the appeals were allowed in favor of the Department.