1999 (4) TMI 338 - AT - Central Excise

Issues Involved:

1. Whether certain prices under a contract entered into between respondents and their customers, already approved by the Revenue, could be reduced by the respondents under a new contract for keeping up the business relationship with the customers under Section 4 of the Central Excise Act, 1944.
2. Whether the reduced prices declared by the respondents in Part-II Price-list filed under revision of earlier Part-II Price-list in terms of the contract, were required to be approved by the Department at the reduced rate or not.

Issue-wise Detailed Analysis:

1. Reduction of Prices Under a New Contract:

The core issue revolves around whether the respondents could reduce the prices under a new contract to maintain business relationships, even though the original contract did not contain a price variation clause. The Revenue argued that the absence of a price variation clause in the original contract meant that the prices were firm and could not be altered. They contended that allowing such reductions would undermine the sanctity of the original contract and that such reductions were influenced by extraneous factors like maintaining future business relationships, which did not satisfy the requirement that "price is the sole consideration for sale" under Section 4(1)(a) of the Central Excise Act, 1944.

The Commissioner (Appeals) found that the absence of a clause in the purchase orders stating that the price would remain firm until the completion of the supply meant that the prices could be reduced based on market conditions. The Commissioner (Appeals) set aside the Assistant Commissioner's order and remanded it for approval of the revised price lists, as there was no evidence to suggest that the price was not the sole consideration for the sale.

The Tribunal, in its majority opinion, held that the Revenue Authorities are not Price Fixation Authorities and that if both parties to the contract agreed to vary the prices, they could not be compelled not to do so. The Tribunal emphasized that the sale price, even if reduced, is the assessable value for the purpose of Central Excise, provided there is no doubt about the genuineness of the reduced prices.

2. Approval of Reduced Prices by the Department:

The second issue concerns whether the reduced prices declared by the respondents in the revised Part-II Price-list should be approved by the Department. The Assistant Commissioner initially rejected the respondents' claim for approval of the reduced prices, arguing that the original contract did not allow for price variation. The Commissioner (Appeals) disagreed, stating that in business parlance, the price factor depends on demand and supply, and there was no clause in the contract that the price would remain firm until the completion of the supply.

The Tribunal's majority opinion supported the view that the reduced prices should be approved, as the Revenue did not challenge the fact that the goods were sold at the reduced prices. The Tribunal cited previous cases where the contracted price, even if lower than the cost price, was adopted as the assessable value if there was no doubt about the genuineness of the contract price.

However, a separate opinion by another member of the Tribunal disagreed, stating that any change in price should flow from the contract itself. The member argued that allowing reduced prices due to extraneous factors like maintaining future business relationships did not satisfy the requirement that "price is the sole consideration for sale" under Section 4(1)(a). Therefore, the reduced prices could not be accepted for assessment purposes.

Third Member Decision:

The matter was referred to a third member due to the difference in opinion. The third member agreed with the view that the prices in the contracts were firm and final and that any reason for the change in price should flow from the contract. The third member concluded that the reduced prices could not be approved as they did not satisfy the requirement that "price is the sole consideration for sale" under Section 4(1)(a).

Final Decision:

The majority opinion of the Tribunal, supported by the third member, held that the reduced prices could not be approved for assessment purposes, and the appeal of the Revenue was allowed. The matter was remanded to the referring Bench for final orders.

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