Rule 6 of Central Excise Valuation Rules not invocable when Discount Policy is Generally Offered for all Customers: CESTAT [Read Order]

M/s. Hyderabad industries limited the appellant is the manufacturer of asbestos products. The appellant during the impugned period sold goods from factory gate and also from their sales depot at Kerala in respect of stock transferred goods on payment of central excise duty based on the price card fixed by the corporate office, the price card is the rate at which the excisable goods are supplied to the buyer of goods.

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As per the appellant they have a discount policy wherein cash discount of Rs. 2/- was allowed in case of payments made by the dealers /stockist are within the stipulated period or before delivery of the goods, all the buyers knew about the discount policy of the appellant and some of the dealers/ stockists avail and some do not avail which is their regular business practice.

Cash discount is an admissible deduction, the appellant also detected freight charges from the assessable value in respect of goods supplied from place of removal, the audit conducted by Central Excise Revenue Audit (CERA) raised 2(two) objections on the ground that the appellant did not include freight charges in respect of clearances from depot in the transaction value and that the cash discount passed on to the buyers of the goods was not admissible deduction hence 6( six) show cause notice for the period 01.04.2008 to 31.12.2014 were issued, the first 2(two) show cause notices invoked extended period.

The adjudicating authority dropped the demand against the appellant of Rs. 1,32,82,374/- on account of non-inclusion of freight charges in the transaction value after due process of law, however disallowed cash discounts as an admissible deduction and confirmed the amounts demands as proposed in the show cause notice along with penalties.

The adjudicating authority referring to the provisions of Section 4(1)(a)&(b) read with Explanation 2 to Rule 6 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 held that additional discount given only to customers who made advanced payments and transaction value is acceptable only when the price is not influenced by other consideration and in the present case additional discount given to customer who makes advances is clearly an additional consideration which influenced the price and therefore includable in the assessable value.

Further, the adjudicating authority referring to decisions in the case of Gauri Ganesha Real Estates Vs. CCE,justified invocation of longer period for the first 2(two) show cause notices dated 05.03.2012 and 07.11.2013. Accordingly the adjudicating authority confirmed the levies in all the 6(six) show cause notices. Aggrieved by the impugned orders the appellant filed these appeals before the Tribunal.

The appellant submitted that; the order of the Commissioner is not sustainable both on merits and limitation; the appellant had declared the cash discount policy before sale of goods from the place of removal and the same was shown in the central excise invoices separately and passed on to the buyer of goods; it is a contract of sale therefore in terms of Section 4(3)(d) the actual amount paid or payable for the goods is the transaction value liable to central excise duty.

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It was held that the actual amount paid is less to the extent of cash discount has part of the contract of sale and the same is in accordance with the valuation rules and is eligible for eligible reduction. The appellant further submitted that; Rule 6 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 has no application; no evidence adduced either in the show cause notice or in the adjudication order to the effect that the advances received have influenced the fixation of price of the goods; the authorities failed to appreciate that the price remains the same whether amounts received in advance or not that is it is not the price that is reduced but what is reduced is the value due to discount given as cash discount.

even though the appellant described it as advance payment it is a cash discount; it is well settled by a number of judicial precedents that cash discounts are admissible for deduction from the price of goods and sole consideration for sale; the appellant before the adjudicating authority had relied on the following case laws; i) Techmseh Products India Pvt., Ltd. Vs. CCE, Hyderabad-IV 2006 (193) ELT 87 (Tri-Bang) and ii) CCE, Meerut-II Vs. Dharampal Satyapal Ltd. - 2001 (130) ELT 915 (Tri-Del).

The issue involved in the subject case is with regard to advance payments received by the appellant from the buyers for which the appellant has given cash discounts on the price as per the price card and the discount policy of the appellant. The contention of the department is that the advances received by the appellant from the buyers had influenced the price of the goods and therefore they are not eligible deductions as per Section 4(1)(a)&(b) read with Explanation 2 to Rule 6 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.

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The tribunal found that the appellant had given cash discounts to the buyers of the goods who had paid advances and the discounts are as per the already disclosed rates which are available for all the buyers who pay the amounts in advance or who pay the sale consideration within the stipulated periods after the delivery of the goods.

Revenue has not brought in any evidence to the effect that the advances received by the appellant had influenced the price of the goods supplied to such buyers except that they were allowed certain prescribed cash discounts. It was found that the discount policy of the appellant is known to the buyers and they are not discounts which are given only to a certain category of buyers.

The two member bench of P. A. Augustian, Member (Judicial) and Pullela Nageswara Rao, Member (Technical) held that there is no reason for invoking Rule 6 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 and set aside the impugned orders.

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