2006 (11) TMI 4 - AT - Central Excise

Central Excise Valuation Transaction value Price actually paid or payable at the time of delivery shall be considered as transaction value Cost of finance and cash discount whether availed of or not are to be granted as abatement even after 1.7.2000 Allowable for deduction

Issues Involved:
1. Admissibility of cash discount under new valuation provisions effective from 1.7.2000.
2. Interpretation of Section 4 of the Central Excise Act, 1944 before and after 1.7.2000.
3. Comparison of old and new provisions regarding trade discounts.
4. Determination of transaction value for excisable goods.
5. Relevance of previous judicial decisions under old Section 4.
6. Impact of Board Circulars and WTO rulings on interest and valuation.

Detailed Analysis:

1. Admissibility of Cash Discount:
The primary issue is the admissibility of cash discounts under the new valuation provisions effective from 1.7.2000. The new Section 4 emphasizes the "transaction value" rather than a deemed value, which means the price actually paid or payable for the goods when sold. The Tribunal concluded that cash discounts should be considered in determining the transaction value, even if not availed by the customer, provided the price difference is attributable to interest on delayed payments.

2. Interpretation of Section 4 Before and After 1.7.2000:
Section 4 of the Central Excise Act, 1944 underwent significant changes effective from 1.7.2000. Previously, the assessable value was the "normal price" at which goods were ordinarily sold in wholesale trade. Post 1.7.2000, the assessable value is the "transaction value," i.e., the price actually paid or payable for each removal of goods. The Tribunal noted that the new provisions do not require the price to be from wholesale trade alone and can include retail prices.

3. Comparison of Old and New Provisions Regarding Trade Discounts:
Under the old Section 4, trade discounts were explicitly allowed if they were in accordance with the normal practice of wholesale trade. The new Section 4 does not explicitly mention trade discounts. However, the Tribunal interpreted that discounts should still be permissible if they meet the criteria of the transaction value, meaning they should reflect the price actually paid or payable.

4. Determination of Transaction Value for Excisable Goods:
The Tribunal emphasized that the transaction value should reflect the price at the time and place of removal. If a cash discount is offered for prompt payment and is not availed, the higher price due to delayed payment should be seen as including an interest component. This interest should not be added to the assessable value unless it is exorbitant or not in line with normal business practices.

5. Relevance of Previous Judicial Decisions Under Old Section 4:
The Tribunal considered previous decisions under the old Section 4, such as Bhartia Cutler Hammer Ltd. vs. CCE and MRF Ltd., which allowed cash discounts even if not availed, treating the higher price as including interest on delayed payments. These decisions were deemed relevant as they align with the principle that interest on delayed payments should not be included in the assessable value.

6. Impact of Board Circulars and WTO Rulings on Interest and Valuation:
The Tribunal referred to Board Circulars and WTO rulings, which support the exclusion of interest on delayed payments from the transaction value. The Board's Circular dated 30.6.2000 clarified that interest for delayed payments should not form part of the transaction value if the interest charges are clearly distinguished from the price and the financing arrangement is documented.

Conclusion:
The Tribunal concluded that cash discounts and the cost of finance should be granted as abatements from the assessable value, even after the new valuation provisions effective from 1.7.2000. The matter was sent back to the referral bench for passing appropriate orders, with the decision pronounced in court on 10.11.2006.

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