Deduction Of Trade Discount From Assessable Value Is Admissible On Sale Transactions: CESTAT

The Mumbai Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the deduction of trade discount from assessable value is admissible on sale transactions.

The bench of S.K. Mohanty (Judicial Member) and M.M. Parthiban (Technical Member) has observed that the transaction value should be considered as the price at which the CNG were supplied by the appellants to Brihanmumbai Electric Supply and Transport (BEST), and such a price should be considered as the value for the purpose of assessing and discharge of central excise duty liability.

The appellant/assessee entered into a contract with Brihanmumbai Electric Supply and Transport (BEST) for the supply and sale of compressed natural gas (CNG) through compressors and dispensers supplied by the appellants. The equipment was installed in the depot belonging to BEST with a certain prescribed pressure. The BEST had provided space and other civil structures within their premises for establishing the outlets. In terms of the agreement, a trade discount at different rates per kg was offered on the sale of CNG. The selling rate of CNG fixed for BEST is less than the selling rate of CNG sold from the appellant's outlets to other buyers.

The modus operandi adopted by the appellants was interpreted by the Department as meaning that in the name of 'trade discount', such additional consideration was received by the appellants, and since other civil structures were provided by the buyer, i.e., BEST free of cost, the value of such additional consideration shall be included in the assessable value in terms of Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, and as such, the appellants are liable to pay central excise duty on such consideration.

On the basis of the analysis by the department, show cause proceedings were initiated, seeking confirmation of the duty demand on the appellants. The show cause notice issued in this regard was adjudicated, and central excise duty was confirmed along with interest on the appellants. On appeal against the original order, the Commissioner (Appeals) upheld the original order and rejected the appeal filed by the appellants.

The issue raised was whether the trade discount offered by the appellants to BEST, being a bulk buyer, can be treated as an additional consideration for the sale of CNG in the event that, due to the technical necessity of the product, the compressors or dispensers are to be installed at the premises of BEST for the supply of CNG to their buses and outside vehicles.

The tribunal noted that the valuation provisions contained in Section 4 of the Central Excise Act, 1944, were substituted by the Finance Act, 2000, w.e.f. July 1, 2000. The amended provisions have considered different transaction values for the price charged to different customers for assessment purposes, subject to the condition that transactions are purely based on commercial consideration, buyer and seller are not related to each other, and the price charged is the sole consideration for such a sale at the time and place of delivery.

The tribunal found that the department had considered the price charged by the appellants to other customers as the transaction value for the supplies made to BEST. No evidence is forthcoming that the discount offered by the appellants to BEST was in lieu of the infrastructural facilities extended to them.

Counsel For Appellant: Payal Nahar

Counsel For Respondent: Rajiv Ranjan

Case Title: Mahanagar Gas Ltd. Versus Commissioner of Central Excise, Mumbai

Case No.: Excise Appeal No. 86836 of 2015

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