In a recent ruling of the Bangalore Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) modified a limitation order by the Commissioner of Central Tax, allowing appeal on the grounds of limitation.
The appellant,Toyota Kirloskar Motor Private Limited is engaged in the manufacture of Multi Utility Vehicle (MUV),passenger cars, parts falling under Central Excise Tariff Act, 1985. They manufacture a number of cars and the rate of their Central Excise duty varies from one vehicle model to another.
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During the audit it was found that appellant passed on discounts under various sales incentive/promotion schemes circulated to its dealers from time to time. The discount was specified for each model of vehicle by specifying the discount amount. It was alleged that due to cross-model discount and adjustment of discounts provided to spare parts and service charges against the value of vehicles attracting higher rate of duty were not informed to the department, hence resulting in undervaluation of goods.
Consequently a show cause notice was issued on 11.4.2017 for recovery of short-payment of duty of Rs.54,33,17,188 for the period April 2012 to June 2014 with interest and penalty. During adjudication the demand was confirmed with interest and an equal amount of penalty which resulted in the appeal.
The appellant represented by Adv. Ravi Raghavan submitted that the appellant engages dealers across India through various dealership agreements to sell their vehicles to consumers and as per the general industrial practise the appellant offered various incentive and discount schemes to their dealers, prior to the removal of the vehicles from the factory. The discount schemes were of varying nature.
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In further submission the counsel stated that the definition of ‘Transaction value’ as prescribed under Section 4(3)(d) of the Central Excise Act, 1944 has been satisfied in the case and the net realization from the customer is relevant for the purpose of payment of duty. And the appellants have duly discharged Central Excise duty on this amount, therefore, there is no short-payment of Excise duty.
The appellant’s counsel also argued that vehicles have been sold by the appellant to the dealers who are unrelated parties at the price mentioned in the invoice which is actually paid or payable by the dealer to them, thus there is no flow of additional consideration from the dealer to the appellant.
He referred to the Circular dated 30.6.2003 issued by the Board wherein it has clarified that transaction value includes whatever is recovered from the buyer which is in connection with the sale and the said Circular is binding on the department.
Further, he has submitted that the incentive schemes floated by the appellant are driven factors and would even relate to the high rate of duty related to cars such as Fortuner, Innova and Corolla and are not specifically limited to other cars. And it is immaterial whether the discount schemes were floated for small cars, once the discount has been given on the face of the invoice.
Therefore, he concluded that the extended period of limitation is not applicable in the present case as the appellant has not suppressed any facts and all facts were within the knowledge of the department. The department has failed to bring out any evidence on suppression therefore such an allegation can’t be sustained and the penalty is not imposable.
The representative of revenue submitted that the procedure adopted by the appellant to pass on discounts is not permissible under the provisions of Section 4 of the Central Excise Act, 1944.
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The adjudicating authority has found that on the basis of the evidence that discount passed on certain models of cars were actually related to the discount of some other model of cars, hence, held that transaction value of the said cars is not in accordance with Section 4(1)(a) of the Central Excise Act, 1944.
The two-member Bench of D.M. Misra and R. Bhagya Devi observed that discounts passed on by the appellant to the dealers does not satisfy the requirement of a trade discount to qualify for deductions if the discount is declared for a particular model of car, the end-user is not receiving the discount and the discount is purely arbitrary; hence, can’t be availed as an abatement from the price of the goods.
Therefore the cross-model utilization of discount is inadmissible to the appellant and there exists no issue of misdeclaration of facts, the larger period of limitation can’t be invoked and the demand is barred by limitation.
As a result the impugned order was modified and appeal was allowed on the ground of limitation only.
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