Discount known prior to clearance of goods must be deducted from Transaction Value – CESTAT


 A.    Brief Facts of the Case:

1.1       In this case, the Appellant are the manufacturer of P & P Medicines falling under sub-heading No. 3003.10 of the Schedule to the Central Excise Tariff Act, 1985. They cleared their excisable goods first to depot and while selling goods through distributors, they have given quantity discount.

1.2       The Revenue objected and disallowed quantity discount on the ground that the quantity discount scheme should be known prior to clearance of the goods from the factory and therefore the quantity discount was disallowed.

1.3       Aggrieved by the Adjudication order, the appellant filed appeal before the Commissioner (Appeals), who rejected the same. Therefore, Appellant preferred Appeal before the Hon’ble Tribunal.

B.     Discussions and findings:

2.1       Hearing both the sides, Hon’ble Tribunal reiterates that this fact is not under dispute that the goods were first cleared from the factory not for sale but as a stock transfer to their depot and from depot the actual sale has taken place. The correct sale value and discount, if any, can only be determined and reflected in the sale bill and same is irrelevant in case of clearance from factory to depot as said transaction is not the sale transaction. Therefore, even if all the judgments relied upon by the Revenue are applied, it will support the appellant’s case for the reason that they have declared their quantity discount before the sale of the goods from the place of removal i.e. Depot and discount was shown in the sale invoice.

2.2       The Hon’ble Tribunal placed reliance on the definition of the Transaction Value as given under Section 4 (3)(d) of the Central Excise Act, 1944 and observed that from the said definition it can be seen that the actual amount that the buyer is liable to pay at the time of sale or at any other time shall be the transaction value. In the present case admittedly the sale has not taken place from the factory gate but goods were sold from the depot and at the time of sale from the depot the price charged was the price minus quantity discount, therefore, the price excluding the quantity discount is an amount payable at the time of sale or at any other time. Hence, excluding the discount value is the correct transaction value and duty cannot be charged on the discount amount which is neither paid nor payable in the case of sale of the goods.

2.3       Further, the Tribunal relied on the judgment of the Hon’ble Supreme Court in the case of Purolator India Ltd Vs. Commissioner of Central Excise, Delhi-III [2015 (323) ELT 227 (S.C.)], in which it was held as under:


18. It can be seen that Section 4 as amended introduces the concept of “transaction value” so that on each removal of excisable goods, the “transaction value” of such goods becomes determinable. Whereas previously, the value of such excisable goods was the price at which such goods were ordinarily sold in the course of wholesale trade, post amendment each transaction is looked at by itself. However, “transaction value” as defined in sub-clause (3)(d) of Section 4 has to be read along with the expression “for delivery at the time and place of removal”. It is clear, therefore, that what is paramount is that the value of the excisable goods even on the basis of “transaction value” has only to be at the time of removal, that is, the time of clearance of the goods from the appellant’s factory or depot as the case may be. The expression “actually paid or payable for the goods, when sold” only means that whatever is agreed to as the price for the goods forms the basis of value, whether such price has been paid, has been paid in part, or has not been paid at all. The basis of “transaction value” is therefore the agreed contractual price. Further, the expression “when sold” is not meant to indicate the time at which such goods are sold, but is meant to indicate that goods are the subject matter of an agreement of sale. Once this becomes clear, what the learned counsel for the assessee has argued must necessarily be accepted inasmuch as cash discount is something which is “known” at or prior to the clearance of the goods, being contained in the agreement of sale between the assessee and its buyers, and must therefore be deducted from the sale price in order to arrive at the value of excisable goods “at the time of removal”.


C.      Judgment of the Tribunal:

3.1      In view of our above observation on facts and settle legal position of law, Hon’ble Tribunal held that quantity discount was correctly claimed by the appellant as the same was claimed at the time of sale of the goods. Consequently, the impugned order was set aside and the appeal filed by the Appellant was allowed.

[M/s Biochem Pharmaceutical Industries v. Commissioner of Central Excise, Mumbai-III in Appeal No.E/2480/05]

Date of Judgment: January 1, 2016.

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