Whether quantity discount allowable if such discount given at depot?

PJ/CASE LAW/2016-17/3207

Case:-BIOCHEM PHARMACEUTICAL INDUSTRIES VERSUS COMMR. OF C. EX., MUMBAI-III

Citation:- 2016(337) E.L.T. 276(Tri-Mumbai)

Brief facts:- This appeal is directed against Order-in-Appeal No. AT/216/M-III/2005, dated 12-4-2005 passed by the Commissioner of Central Excise (Appeals), Mumbai Zone-II, wherein ld. Commissioner (Appeals) rejected the appeal of the appellant by upholding the order-in-original No. KDN/11/SBN/2004, dated 14-9-2004.
The fact of the case is that the appellant are the manufacturer of P & P Medicines falling under sub-heading No. 3003.10 of the Schedule to the Central Excise Tariff Act, 1985. They cleared their excisable goods first to depot and while selling goods through distributors, they have given quantity discount. The Revenue objected and disallowed quantity discount on the ground that the quantity discount scheme should be known prior to clearance of the goods from the factory and therefore the quantity discount was disallowed. Aggrieved by the Adjudication order, the appellant filed appeal before the Commissioner (Appeals), who rejected the same therefore appellant before Tribunal.

Appellant’s contention:- Shri R.B. Pardeshi, with Shri N.S. Patel, ld. Counsels appearing on behalf of the appellant submits that the goods while clearing from the factory was not for sale it was only a stock transfer and from the depot goods were sold and before selling the goods there was a circular issued for quantity discount and accordingly quantity discount was provided to the buyers, therefore, it cannot be said that the discount was provided subsequent to the clearance of the goods from the place of removal. He submits that only reason for disallowing the quantity discount by the Revenue is that the quantity discount was not declared before clearance of the goods from the factory but fact remains is that the goods not sold while clearing the same from the factory, therefore, any discount or even the sale price is not relevant at the time of clearance of the goods from the factory to depot. The sale was effected only from the depot and at the time of raising actual sale invoice discount was provided in the invoice itself.

Respondent’s contention:- On the other hand, Shri Ajay Kumar, ld. Joint Commissioner (AR) appearing on behalf of the Revenue reiterates the findings of the impugned order. He placed reliance on following judgments :

(a)   Union of India & Others v. M/s. Bombay Tyres International Pvt. Ltd. [1984 (17) E.L.T. 329 (S.C.)].
(b)   Goodlass Nerolac Paints Ltd. v. Union of India [1993 (65) E.L.T. 186 (Bom.)].
(c)   MRF Ltd. v. Collector of Central Excise, Madras [1997 (92) E.L.T. 309 (S.C.)].

He submits that as per the above judgments, it is necessary that the scheme of discount should be predetermined before the clearance of the goods from the factory, therefore the discount was rightly disallowed in the impugned order.

Reasoning of judgement:-We find that this fact is not under dispute that the goods were first cleared from the factory not for sale but as a stock transfer to their depot and from depot the actual sale has taken place. The correct sale value and discount if any, can only be determined and reflected in the sale bill and same is irrelevant in case of clearance from factory to depot as said transaction is not the sale transaction therefore even if all the judgments relied upon by the Revenue are applied, it will support the appellant’s case for the reason that they have declared their quantity discount before the sale of the goods from the place of removal i.e. Depot and discount was shown in the sale invoice. In recent judgment of Purolator India Ltd. v. Commissioner of Central Excise, Delhi-III, we find that as per the definition of ‘transaction value’ under the amended Section 4 the “transaction value” means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter, but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods.
From the above definition it can be seen that the actual amount that the buyer is liable to pay at the time of sale or at any other time shall be the transaction value. In the present case admittedly the sale has not taken place from the factory gate but goods were sold from the depot and at the time of sale from the depot the price charged was the price minus quantity discount therefore the price excluding the quantity discount is an amount payable at the time of sale or at any other time. Hence excluding the discount value is the correct transaction value and duty cannot be charged on the discount amount which is neither paid nor payable in the case of sale of the goods. In this regard Hon’ble Supreme Court in the case of Purolator India Ltd.v. Commissioner of Central Excise, Delhi-III [2015 (323) E.L.T. 227 (S.C.)] has observed as under :
It can be seen that Section 4 as amended introduces the concept of “transaction value” so that on each removal of excisable goods, the “transaction value” of such goods becomes determinable. Whereas previously, the value of such excisable goods was the price at which such goods were ordinarily sold in the course of wholesale trade, post amendment each transaction is looked at by itself. However, “transaction value” as defined in sub-clause (3)(d) of Section 4 has to be read along with the expression “for delivery at the time and place of removal”. It is clear, therefore, that what is paramount is that the value of the excisable goods even on the basis of “transaction value” has only to be at the time of removal, that is, the time of clearance of the goods from the appellant’s factory or depot as the case may be. The expression “actually paid or payable for the goods, when sold” only means that whatever is agreed to as the price for the goods forms the basis of value, whether such price has been paid, has been paid in part, or has not been paid at all. The basis of “transaction value” is therefore the agreed contractual price. Further, the expression “when sold” is not meant to indicate the time at which such goods are sold, but is meant to indicate that goods are the subject matter of an agreement of sale. Once this becomes clear, what the learned counsel for the assessee has argued must necessarily be accepted inasmuch as cash discount is something which is “known” at or prior to the clearance of the goods, being contained in the agreement of sale between the assessee and its buyers, and must therefore be deducted from the sale price in order to arrive at the value of excisable goods “at the time of removal”.
In view of above observation on facts and settled legal position of law, we are of the considered view that quantity discount was correctly claimed by the appellant as the same was claimed at the time of sale of the goods. We therefore set aside the impugned order and allow the appeal of the appellant.

Decision:-Appeal allowed.

Comment:-The crux of the case is that quantity discount, even if allowed on account of clearances by depot is admissible to the assessee if recorded on the invoice issued by the depot. This is for the reason that the phrase ‘transaction value’ is to be read with expression “for delivery at the time and place of removal”. Although, manufacturer pays excise duty on clearance of goods from the factory premises but if quantity discount is allowed from depot premises and the same is mentioned on the invoices, the same should be admissible.

Prepared By: Rakshay Tater

Comments

PJ/CASE LAW/2016-17/3207

Post a Comment

Query