1996 (5) TMI 172 - AT - Central Excise

Summary

Issues:
Admissibility of distribution discount under Section 4 of the Central Excises & Salt Act.

Detailed Analysis:

1. Background:
The appeal was filed by M/s. Kerala Electric Lamp Works Ltd. against the Order-in-Appeal of the Collector of Central Excise (Appeals), Madras, regarding the admissibility of the distribution discount given by M/s. Crompton Greaves Ltd. (CG), who were related parties.

2. Arguments by Appellants:
The appellants contended that the distribution discount was a permissible deduction known at the time of clearance and allowed to their distributors. They cited various legal decisions supporting their claim that the discount was permissible under the law and was actually allowed by M/s. CG.

3. Arguments by Respondent:
The respondent argued that the discount claimed was not a true discount but a form of compensation to distributors for expenses related to further sales of the goods.

4. Tribunal's Consideration:
The Tribunal examined the nature of the discount and the classifications of dealers by CG. It noted that the Asstt. Collector did not dispute that the discount was indeed a discount but rejected the claim based on the purpose of the discount for further sales to retailers by distribution-oriented dealers.

5. Legal Precedents:
The Tribunal referred to the Supreme Court cases of U.O.I. v. Bombay Tyre International Pvt. Ltd. and Metal Box India Ltd. v. CCE, emphasizing the allowance of trade discounts known prior to goods' removal and the permissibility of differential discounts to different classes of buyers.

6. Tribunal's Decision:
After considering all relevant factors, the Tribunal held that the distribution discount given to distribution-oriented dealers was a permissible deduction. It noted that the discount was known prior to goods' removal, allowed through invoices, and lacked evidence of extra-commercial considerations. The Tribunal set aside the order of the Collector (Appeals) and allowed the appeal in favor of the appellants.

Conclusion:
The Tribunal's decision clarified the admissibility of the distribution discount under the Central Excises & Salt Act, emphasizing the importance of known discounts, established practices, and lack of extra-commercial considerations in determining the legitimacy of deductions.