2001 (6) TMI 690 - AT - Central Excise

Summary

Issues Involved:

1. Differential Duty Demand
2. Trade Discounts and Their Admissibility
3. Reimbursement of Advertisement Charges
4. Invocation of Extended Period under Section 11A
5. Imposition of Penalty under Rule 173Q

Detailed Analysis:

1. Differential Duty Demand:

The Commissioner confirmed a differential duty demand of Rs. 6,04,087.00 for the period from 1-4-1988 to 31-12-1990 and Rs. 34,09,433.17 for the period from 1-1-1991 to 16-04-1992 under the proviso to Section 11A of the Central Excise and Salt Act, 1944. The demand was based on the finding that M/s. Elgi did not pass on the full trade discount to buyers as claimed in their price lists, but instead paid a portion as overriding commission to distributors, main dealers, and branches. The Commissioner also noted that M/s. Elgi reimbursed advertisement charges to dealers, which was included in the assessable value. The Tribunal upheld the Commissioner's findings, emphasizing that the trade discount was not uniformly passed on to all buyers and that the differential discount was used as an area sales commission for services like after-sales service and inventory maintenance, making it inadmissible.

2. Trade Discounts and Their Admissibility:

M/s. Elgi claimed trade discounts varying from 10% to 45% on different products and declared that such discounts were uniformly allowed to all buyers. However, investigations revealed that the full trade discount was not passed on to all buyers. Instead, a portion of the discount was paid to distributors or branches as an area sales commission to cover after-sales service, advertisement expenses, and inventory maintenance. The Tribunal cited the Supreme Court's decision in the case of Kirloskar Brothers v. Collector of Central Excise, which held that higher discounts given to area dealers for providing after-sales service are not deductible. The Tribunal also referred to the MRF case, which established that only trade discounts known prior to the removal of goods and uniformly available to all wholesale dealers are admissible.

3. Reimbursement of Advertisement Charges:

The Commissioner found that M/s. Elgi reimbursed 50% of the actual advertisement expenses incurred by dealers, which was included in the assessable value. However, the Tribunal noted that the show cause notice proposed to demand duty on expenses incurred by M/s. Elgi out of their own funds, with no flow back proven. Since M/s. Elgi did not claim any abatement in the assessable value on account of these advertisement charges, the Tribunal held that the demand for duty on such advertisement charges did not arise.

4. Invocation of Extended Period under Section 11A:

The Commissioner invoked the extended period under the proviso to Section 11A of the Central Excise and Salt Act, 1944, on the grounds of suppression of facts with intent to evade payment of duty. M/s. Elgi argued that the demand was time-barred and that the department was aware of their sales procedure. However, the Tribunal upheld the Commissioner's decision, noting that M/s. Elgi had declared in their price lists that they were giving uniform trade discounts to all buyers, which was not the case. The Tribunal found that M/s. Elgi had suppressed the fact that a portion of the discount was passed on to distributors or branches for after-sales service and inventory maintenance, justifying the invocation of the extended period.

5. Imposition of Penalty under Rule 173Q:

The Commissioner imposed a penalty of Rs. 10,00,000/- on M/s. Elgi under Rule 173Q of the Central Excise Rules, 1944, for willful misstatement resulting in duty evasion. The Tribunal agreed with the Commissioner's findings, noting that M/s. Elgi had resorted to willful misstatement, leading to a duty evasion of over Rs. 40 lakhs. The Tribunal found the penalty to be reasonable and upheld the Commissioner's order.

Conclusion:

The Tribunal dismissed the appeals, confirming the Commissioner's order. The Tribunal found that M/s. Elgi had not passed on the full trade discount uniformly to all buyers, had reimbursed advertisement charges to dealers, and had suppressed facts with intent to evade duty. The extended period under Section 11A was rightly invoked, and the penalty under Rule 173Q was justified. The Tribunal emphasized that only those trade discounts known prior to the removal of goods and uniformly available to all wholesale dealers are admissible.