1999 (6) TMI 176 - AT - Central Excise

Summary

Issues Involved:
1. Whether interest on receivables is to be included in the assessable value.
2. Whether the discount cost as overriding discount to M/s. ITC by appellants is deductible from the assessable value.
3. Whether advertisement charges borne by the dealers are to be included in the assessable value.

Issue-wise Detailed Analysis:

1. Interest on Receivables:
The appellants argued that interest on credit sales should be deductible from the assessable value, citing the Supreme Court's decision in Shriram Fertilisers & Chemicals and other relevant case laws. They contended that interest, being a post-manufacturing expense, should be excluded regardless of whether it is charged separately or included in the price. The Revenue countered that if the interest cost is inbuilt in the price and not charged over and above the sale price, it should not be deductible.

The Tribunal referred to the Supreme Court's decisions and other Tribunal rulings, concluding that interest on receivables should not be included in the assessable value. The Tribunal emphasized that the principle of prompt payment versus credit sales applies, and thus, the appellants are entitled to deductions of interest on credit sales from the assessable value.

2. Overriding Discount to M/s. ITC:
The appellants claimed that the discount given to M/s. ITC should be deductible from the assessable value, arguing that the transactions were on a principal-to-principal basis and not as a stock transfer. They cited several Supreme Court decisions to support their claim that trade discounts known prior to sale and available to all buyers in a class should be deductible.

The Revenue argued that the overriding discount was for services rendered after delivery and thus should not be deductible. However, the Tribunal found that the relationship between the appellants and M/s. ITC was that of bulk wholesale dealer and not as selling or commission agent. The Tribunal concluded that the discount was a legitimate trade discount and should be deductible from the assessable value.

3. Advertisement Charges Borne by Dealers:
The appellants contended that advertisement expenses incurred by dealers should not be added to the assessable value, as no sums were recovered from the dealers for these expenses. They cited various case laws where it was held that advertisement expenses not recovered from dealers should not be included in the assessable value.

The Revenue argued that advertisement expenses by dealers should be included in the assessable value, especially considering the relationship between the appellants and their wholly-owned subsidiary, Hallmark Tobacco Co. The Tribunal, however, found no evidence of any flow-back of additional considerations to the appellants from the dealers. It concluded that the advertisement expenses incurred by the dealers had no nexus with the sale of goods by the appellants and should not be included in the assessable value.

Conclusion:
The Tribunal allowed the appeal, concluding that:
- Interest on receivables should not be included in the assessable value.
- The overriding discount to M/s. ITC is a legitimate trade discount and deductible from the assessable value.
- Advertisement expenses incurred by dealers should not be included in the assessable value as there was no flow-back of additional considerations to the appellants.

The order-in-appeal was set aside, and the appellants' appeal was allowed with consequential relief as per law.