Central Excise - Valuation - Admissibility of discounted price for advance payments - Determination of assessable value - Regarding - Central Excise - 6/54/86-CX.1

Central Excise - Valuation - Admissibility of discounted price for advance payments - Determination of assessable value - Regarding F. No. 6/54/86-CX.1 Dated 23-4-1987 Government of India Ministry of Finance (Department of Revenue) Central Board of Excise Customs, New Delhi Subject : Central Excise - Valuation - Admissibility of discounted price for advance payments - Determination of assessable value - Regarding I am directed to say that a doubt has been raised as to whether a discounted price can be acceptable as the assessable value under Section 4 of the Central Excises and Salt Act, when such discount is given in respect of all payments made in advance. 2. The question had arisen in the background of a CERA objection relating to a Unit in Madurai Collectorate manufacturing PVC Resins. Discount to the extent of Rs. 375/- per M.T. was being given to the customers in the cases where the payments were being made at any time before the delivery of goods. CERA disputed the admissibility of the discounted price on the strength of para 3(c) of Ministry's instructions in F. No. 312/1/75-CX.10, dated 8-8-1975. In the said instructions, it has, inter alia, been mentioned that the seller may be prepared to pay some interest to the buyer or show some reduction in the price, if the buyer makes payment in advance of the due date of payment, however, any reduction in price on this account would not be acceptable because the reduction is not a reduction in the price of the goods, but is because of the interest payable by the seller to the buyer for the period the money is paid in advance. CERA argued that, in the instant case also, the discount provided for advance payment was not a reduction in the price itself as it had no nexus with the sale or the sales promotion of the product but was a compensation for the loss of interest on account of advance payment and therefore this abatement from the assessable value was not justified. 3. The matter has been examined in the Board. It is observed that para 3 (c) of the earlier instructions, dated 8-8-1975 discussed above, envisages situations in which there is a time frame of advance payment, on account of which the discounts for such payments can be reasonably linked with compensation towards loss of interest. However, in the instant case, the discounted price is not linked with any such time frame and the reduced price is available even when the payment is made just before the delivery of the goods from the factory. There may not, therefore, be any interest, whether national or otherwise, payable by the seller to the buyer in all such cases. The Board is, therefore, of the view that the earlier instructions, dated 8-8-1975 would not be applicable to the present case. Accordingly, abatements in such cases in which the discounts are linked up with advance payments without any time frame, would be admissible for determining the assessable value. 4. These instructions may be brought to the notice of all field formations for their guidance. 5. The receipt of this letter may please be acknowledged.