Discount Can’t Be Added In Assessable Value

The Mumbai Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the discount cannot be treated as additional consideration and added to arrive at an assessable value.

The bench of Suvendu Kumar Pati (Judicial Member) and Anil G. Shakkarwar (Technical Member) has observed that when there is no evidence of flow of additional consideration, the assessable value arrived at after allowing trade discount is as per the provisions of Section 4(1)(a) of Central Excise Act, 1944. For use of land, the appellant is separately paying lease rent. Therefore, there is no additional consideration flowing to the appellant from the purchaser of the goods.

Background

The appellant/assessee is engaged in manufacture and distribution of compressed natural gas (CNG) falling under Tariff Item No.27112100 of First Schedule to Central Excise Tariff Act, 1985. Appellant is registered with Central Excise and paying central excise duty.

During the course of EA 2000 audit conducted by officers of Revenue during the months of December 2012 to January 2013, it was noticed by the officers of Revenue that the appellant had entered into an agreement dated 20.01.2009 with Navi Mumbai Municipal Transport for supply and sale of CNG through compressors and dispensers supplied by the appellant and installed in the depot premises of Navi Mumbai Municipal Transport.

In terms of the said agreement, a trade discount of Rs.0.17 per kg. for the period from August 2010 to November 2010 and the same of Rs.0.26 per kg. for the period December 2010 to June 2013 was to be allowed by the appellant on sale of CNG to Navi Mumbai Municipal Transport.

It appeared to Revenue that the said trade discount is an additional consideration flowing from Navi Mumbai Municipal Transport to the appellant for establishing outlets in the premises of Navi Mumbai Municipal Transport.

It appeared to Revenue that in terms of Rule 6 of Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, the said discount provided by the appellant to Navi Mumbai Municipal Transport was required to be added to the assessable value to determine central excise duty payable by the appellant.

With the said contentions, appellant was issued with a show cause notice dated 08.04.2014 demanding additional central excise duty of Rs.4,07,862. There were proposals for collecting interest and imposing a penalty.

The show cause notice was adjudicated. The original authority has not taken into consideration the said sublease agreement and taken into consideration only the agreement and confirmed the demand and imposed equal penalty.

Aggrieved by the order, appellant preferred appeal before Commissioner (Appeals).

For subsequent period from July 2013 to March 2014, similarly worded show cause notice dated 11.06.2014 was issued to the appellant demanding central excise duty of Rs.69,602/- from the appellant on the same grounds.

The show cause notice was contested by the appellant on the same grounds similar to earlier show cause notice and the said show cause notice was decided by original authority through another order through which demand of central excise duty of Rs.69,602/- was confirmed with imposition of penalty of Rs.15,000.

The appellant preferred appeal before Commissioner (Appeals). Both the appeals were decided through a common order by Commissioner (Appeals) who did not interfere through his order with the original orders passed.

Arguments

The assessee contended that it had taken land on sublease basis from Navi Mumbai Municipal Transport for the purpose of setting up of Mahanagar Gas Ltd. outlets for a monthly lease rent as per sublease agreement and the entire infrastructure and equipment have been set up by the appellant at their own cost.

The allegation that additional consideration in the form of space and civil structure has been provided by Navi Mumbai Municipal Transport in its premises for establishing and running Mahanagar Gas Ltd. outlets is factually incorrect as the appellant is paying monthly lease rent to Navi Mumbai Municipal Transport for using the said premises for establishing and running outlets.

The assessee submitted that there is no case for allegation of additional consideration and the price charged by Navi Mumbai Municipal Transport was the sole consideration for sale of CNG.

Therefore, the trade discount given by the appellant cannot be considered as additional consideration and the same does not merit to be added to the transaction value in terms of Section 4(1)(a) of Central Excise Act, 1944.

Conclusion – Assessable Value

The tribunal while allowing the appeal held that the discount offered by the appellant to Navi Mumbai Municipal Transport cannot be treated as additional consideration and cannot be added to arrive at assessable value.