The CESTAT ( Customs Excise and Service Tax Appellate Tribunal ) decided that using discounts across different car models is not allowed, based on Tata Motors Ltd ruling. They sided with the revenue on this issue but granted the appeal because the excise demand from the department was time barred.
The tribunal upheld the ruling from Tata Motors Ltd., confirming that cross-model discounts are not allowed. They found no reason to challenge this principle. Since the appellant had used this discount method since 2008 without previous objections from the department, and the issue only arose after the Tata Motors judgment, there was no evidence of suppression or misstatement. Therefore, the demand was deemed time barred , and the appeal was granted on the grounds of limitation.
In this case, the appellant, Toyota Kirloska Motor Private Limited is involved in manufacturing Multi Utility Vehicles (MUVs) and passenger cars, as well as parts, under Chapter Subheadings 8703 23 10 and 8708 10 90 of the Central Excise Tariff Act, 1985. Their product line includes models such as Innova, Fortuner, Corolla, Etios Sedan, Etios Liva, Camry, and Camry Hybrid, with varying rates of Central Excise duty. Higher rates apply to the Fortuner, Innova, and Corolla models.
During an audit, it was found that the appellants provided discounts through various sales incentive and promotion schemes to dealers, with specific discounts declared for each vehicle model. The discounts were applied to models like Etios, Liva, Innova, and Camry hybrid but were accounted for as reductions in assessable value for models like Fortuner, Innova, and Corolla, which have higher duty rates.
The assessable value of these vehicles was adjusted by accounting for discounts on spare parts turnover and service charges. It was alleged that these cross-model discounts and adjustments were not reported to the department, leading to undervaluation of goods.
A show-cause notice was issued on April 11, 2017, demanding recovery of short-paid duty amounting to Rs. 54,33,17,188/- for the period from April 2012 to June 2014, along with interest and penalties. The demand was confirmed with interest and an equal penalty, prompting the current appeal.
The advocate of Toyota Kirloskar, Ravi Raghavan, argued that various discount schemes offered to dealers were standard industry practices and were declared in advance. These included wholesale incentives, retail sale incentives, and loyalty schemes. Incentives earned by dealers were computed monthly and communicated to the finance team for disbursement, and the Comptroller Auditor General had objected to this practice, citing a precedent from the Tribunal in the case of Toyota Motors Ltd. vs. CCE, Pune.
The counsel further argued that the discounts were factored into the transaction value as per Section 4(3)(d) of the Central Excise Act, and referenced the judgment in Purolator India Ltd. vs. CCE, Delhi-III. It was contended that the price paid by dealers was the actual consideration for the goods, and Central Excise duty was duly discharged on this amount. No additional consideration flowed from dealers to the appellants.
Additionally, the advocate referred to a Circular dated June 30, 2003, clarifying that transaction value includes all amounts recovered from the buyer in connection with the sale, supported by the judgment in Commissioner of Central Excise, Bolpur vs. Ratan Melting and Wire Industries.
He argued that the incentives were quantity discounts that should be deducted to arrive at the transaction value and that the cross-utilization of discounts, which allegedly led to undervaluation, was incorrect.
The advocate also argued against the applicability of the extended period of limitation, citing previous departmental audits and a lack of objection, referencing Commissioner of Central Excise, Bangalore vs. Pragathi Concrete Products (P) Ltd.
The Revenue’s Authorised Representative reiterated the findings of the adjudicating authority, asserting that cross-model discount utilisation is not permissible under Section 4 of the Central Excise Act, and cited the case of Tata Motors Ltd. The adjudicating authority found that discounts declared for one model were applied to another, thus violating Section 4(1)(a) of the Act.
The Revenue argued that the appellant had suppressed the correct assessable value, justifying the extended period of limitation and penalties.
The two member bench of D M Mishra and R. Bhagya Devi noted that the key issue was whether discounts for small/mid-segment cars could be applied to luxury models with higher duty rates or whether cross model utilisation of incentives/discounts are admissible
The Tribunal’s decision in Tata Motors Ltd. held that discounts passed on by the appellant to the dealers does not satisfy the requirement of a trade discount to qualify for deduction in as much as 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, not available as an abatement from the price of the goods.
The CESTAT in this case found no reason to deviate from this principle in the Tata motors case, concluding that cross-model discounts were inadmissible. However, they determined that the larger period of limitation cannot be invoked as the appellant had been transparent in their practices, and the demand was based on available records. Thus, the appeal was allowed on the grounds of limitation.
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