2000 (7) TMI 275 - AT - Central Excise

Summary

Issues:
Deduction of commission paid to dealers for computing assessable value of cotton yarn.

Analysis:
The dispute in the appeal concerns the deduction of commission paid to dealers for calculating the assessable value of cotton yarn manufactured by the appellants. The Department argues that the commission paid to dealers is not a permissible deduction as the dealers were considered selling agents, not independent dealers purchasing yarn for further sale.

The appellants, engaged in manufacturing cotton yarn, sell their product through sales depots, premises, and appointed dealers due to fluctuating prices determined by demand and supply. The agreements with dealers outline the responsibilities, including full payment to the appellants for received yarn and a commission of 1.5% on the net sale value. The appellants assert that the commission, paid through credit notes, is a trade discount permissible under Section 4 of the Central Excise Act.

The Commissioner (Appeals) and Assistant Commissioner disallowed the commission as a trade discount, considering the dealers as agents of the appellants. The appellants argue that the agreement with dealers is on a principal-to-principal basis, citing legal precedents like the Supreme Court's decision in Moped India Ltd. v. Assistant Commissioner of Central Excise and VST Industries Ltd. v. CCE to support their claim for deduction.

The JDR contends that the commission paid to dealers is linked to net sales, indicating a sales promotion activity that should be included in the assessable value. Referring to legal precedents like M/s. Coromandel Fertilizers India Ltd. v. U.O.I., it is argued that such payments are not trade discounts but incentives for sales promotion, not deductible under Section 4.

The Tribunal finds that the relationship between the appellants and dealers is principal-to-principal, with the dealers purchasing goods and holding a security deposit, indicating a sale transaction. The commission linked to net sales does not change the nature of the relationship, as confirmed by legal precedents. The Tribunal allows the appeal, setting aside the impugned order in favor of the appellants.