In a recent ruling, the Mumbai Bench of Customs, Excise, and Service Tax Appellate Tribunal ( CESTAT ) has held that excise duty is not payable on trade discounts offered to bulk buyers of compressed natural gas ( CNG ).
Mahanagar Gas Ltd, the appellants/assessees have entered into a contract with Brihanmumbai Electric Supply and Transport (BEST) for the supply and sale of compressed natural gas ( CNG ) through compressors and dispensers supplied by the appellants. The equipment was installed in the depot belonging to BEST with a certain prescribed pressure. For this purpose, BEST had provided space and other civil structures within their premises for establishing the outlets. In terms of the agreement, the trade discount was offered at different rates per kg. for the sale of CNG. The selling rate of CNG fixed for BEST was less than the selling rate of CNG sold from the appellant’s outlets to other buyers.
The method adopted by the appellants was interpreted by the Department in the name of ‘trade discount’. Since other civil structures were provided by the buyer, i.e., BEST, free of cost, the value of such additional consideration shall be included in the assessable value in terms of Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000. The appellants were liable to pay central excise duty on consideration.
A show cause proceeding was initiated, seeking confirmation of the duty demand on the appellants. The Show Cause Notice was issued, in which the central excise duty demand was confirmed along with interest on the appellants. On appeal, the Commissioner (Appeals) upheld the original order and rejected the appeal filed by the appellants.
The issue involved is, whether trade discount offered by the appellants to BEST, being a bulk buyer, can be treated as an additional consideration for sale of CNG, in an eventuality, where due to technical necessity of the product, the compressors or dispensers are to be installed at the premises of BEST for supply of CNG to their buses and outside vehicles.
The two member bench of S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) has observed that no evidence is forthcoming that the discount offered by appellant-assessee to Brihanmumbai Electric Supply and Transport (BEST) was in lieu of the infrastructural facilities extended to them. Further held that the transaction value should be considered the price at which the CNG were supplied by the appellants to BEST, and such a price should be considered the value to assess and discharge of central excise duty liability.
While allowing the appeal, the tribunal held that deduction of trade discount from assessable value was admissible on sale transactions.
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