The Ahmedabad bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that trade discounts cannot be added to central excise duty.
Ingersoll Rand India Limited, the appellant is a manufacturer of Air Compressors, Air Motors, Spares for Air Compressors, Bus Air Conditioning Systems and parts thereof falling under Chapter 84 of the Central Excise Tariff Act, 1985. The department contended that the appellant made clearances of the finished goods for home consumption by two methods (i) direct sales to customers w are actual users and (ii) to distributors appointed by the office who in turn sold the goods to the actual user buyers.
It was noticed by the department that when the goods cleared directly to the actual users, the goods were assessed at the values mentioned in the invoices. However, in respect of goods cleared through the distributors, the distributors were given a discount called “Base Discount” of up to 15% of the price declared in the invoices. Thus it was noticed that there were two sets of assessable value for the same product i.e. the higher value in the case of direct sales and discounted value for the clearances made to distributors.
The department has contended that the discount offered to the distributors as per the agreement between the appellant and their distributors is for performing installation and after-sale services within the warranty period of the product.
The service of installation and after-sale service within the warranty period was required to be provided by the distributor as per the distributor’s agreement and the expense incurred towards such installation and after-sale service was to be borne by the distributor and ch expenses were not to be reimbursed by the appellant to its distributors.
It was further contended by the department that in the case of the direct sales by the appellant to its actual users, the expenses of installation and after-sale service during the warranty period are borne by the appellant himself and they are included in the assessable value for assessment and levy of duty.
The appellant submitted that it is a settled law that any discount indicated in the invoices and is known to both the parties i.e. buyer and seller is not includable in the transaction value for payment of Central Excise Duty.
It was submitted that there is no allegation in the show cause notices of any flow back of any monetary consideration to the appellant over and above the price declared by them in the invoice to the distributors. It is further mitted that the impugned order- I originally presumed that the discount granted by the appellant to the distributors is nothing but the charges for after-the-sale service which is granted free of cost by the distributor within the warranty period.
“Since the sale invoice which has been issued to the distributors by the appellant offering a 15 % discount is normally a trade discount and the department has failed to discharge its responsibility to establish that there has been any flow back of consideration from the buyer to the appellant.”., the bench viewed.
A two-member bench comprising Mr Ramesh Nair, Judicial Member and Mr C L Mahar, Technical Member held that penalty under the Excise Act, is not applicable and discount cannot be added to the amount of Central Excise Duty.
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