Discounts Declared For Small Mid Segment Cars Can't Be Allowed To Luxury Model Cars: CESTAT
The Bangalore Bench of Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the cross-model utilisation of discounts is not admissible.
The bench of D.M. Misra (Judicial Member) and R. Bhagya Devi (Technical Member) has observed that the so-called special discount claimed to have been passed on by the appellant to the dealers is not a trade discount at all so as to be eligible for exclusion from the assessable value of the goods removed as per the provisions of Section 4 of the Central Excise Act. Therefore, denial of abatement of the said discount from the assessable value of the goods sold is clearly sustainable in law.
The appellants/assessee are engaged in the manufacture of multi-utility vehicles (MUVs)/passenger cars and parts falling under Chapter Sub-Hearings 8703 23 10 and 8708 10 90 of the Central Excise Tariff Act, 1985. They manufacture various models of cars, viz., the Innova, Fortuner, Corolla, Etios Sedan, Etios Liva, Camry, and Camry Hybrid. The effective rate of Central Excise Duty varies from one vehicle model to another.
The Fortuner, Innova, and Corolla models carry a high rate of central excise duty in comparison to other models. During the course of the audit of the records, it has been observed that the appellant is passing on discounts under various sales incentive/promotion schemes circulated to its dealers from time to time.
The discount was declared for each model of the vehicle, specifying the discount amount. The discounts have been extended for specific models. On an analysis of the discounts based on various models, it was observed that they had adopted discount methodology only for specific types of models, viz., Etios, Liva, Innova, and Camry hybrid models.
It was accounted for through a reduction in the assessable value in the dealer invoices in respect of clearances of Fortuner, Innova, and Corolla models, which attract a higher rate of duty.
It was noticed that the assessable value of the vehicles was reduced by adjusting the discounts allowed by dealers on spare parts turnover sold to end-users based on the previous month turnover and also for payment of service charges for various services such as after-sales warranty expenses.
It was alleged that due to the cross-model discount and adjustment of discounts provided to spare parts and service charges against the value of vehicles attracting a higher rate of duty, they were not informed to the department; hence, they had indulged in undervaluation of the goods.
A show-cause notice was issued to them for recovery of short-payment of duty for the period April 2012 to June 2014 with interest and penalty. On adjudication, the demand was confirmed with interest and an equal amount of penalty.
The assessee contended that the definition of 'transaction value' as prescribed under Section 4(3)(d) of the Central Excise Act, 1944, has been satisfied in the present case, and post 1.7.2000, net realization from the customer is relevant for the purpose of payment of duty. The price actually paid or payable as mentioned in the invoice is relevant for the purpose of assessment. The price mentioned in the invoices, which is net of the discount offered, is the sole consideration for the sale of goods, which is the amount actually paid or payable. The appellants have duly discharged Central Excise Duty on this amount; therefore, there is no short-payment of Excise Duty.
The department contended that the mechanism and the procedure adopted by the appellant to pass on the incentive/discount earned against a particular model and for a particular month are based on passed on against another model and during the following month, which is not permissible and admissible discount under the provisions of Section 4 of the Central Excise Act, 1944. The adjudicating authority has found that on the basis of the evidence that discounts passed on certain models of cars were actually related to the discounts of some other models of cars, it is hence held that the transaction value of the said cars is not in accordance with Section 4(1)(a) of the Central Excise Act, 1944.
The issue raised was whether the incentive of discounts declared for small/mid segment cars be allowed to luxury model cars, i.e., Fortuner, Innova, and Corolla, attracting a higher rate of duty. In other words, whether cross-model utilization of incentives and discounts is admissible.
The tribunal held that the appellant has been following the mechanism of passing incentives/discounts since 2008, and no objection has been raised by the department. The demand has been computed on the basis of available records. A show-cause notice was issued to the appellant demanding differential duty, proposing denial of deduction from the price.
The tribunal while allowing the appeal on the grounds of limitation held that there is no suppression, misdeclaration, or misstatement of facts on the part of the appellant, and iIn the absence of any suppression or misdeclaration, a larger period of limitation cannot be invoked.
Counsel For Appellant: Ravi Raghavan
Counsel For Respondent: H. Jayathirtha
Case Title: M/s. Toyota Kirloskar Motor Private Limited Versus The Commissioner of Central Tax
Case No.: Central Excise Appeal No. 20667 of 2018