Akal Springs Pvt. Ltd. Vs. Collector of Central Excise - Court Judgment

Excerpt:
1. appellants are manufacturers of motor vehicle parts falling under the erstwhile tariff item 68. they were availing benefit of notification no. 120/75 following invoice price procedure. they claimed deduction of 8% cash discount which was being made available to customers who were making advance payment or who had cash credit balance. the percentage was worked out on the amount of advance payment or the amount of credit balance. assistant collector issued notices to the appellant proposing disallowance of the deduction. appellant resisted the notices stating that discount was offered to all customers and, therefore, was admissible. assistant collector rejected this contention and disallowed the deduction. collector (appeal) upheld these orders. hence, the present appeals.2. there is no doubt that cash discount or prompt payment discount is entitled to deduction for arriving at the assessable value. there is no dispute about this position. the dispute in these cases relates to the discount of 8% offered to customers who make advance payment for the price of the goods to be supplied or who have cash credit balance with the manufacturer in their name. if on the particular day advance payment is made or cash credit balance exists to a certain extent, 8% of that amount is to be given as discount. the lower authorities felt that appellant was getting indirect benefit from the advance payment.3. two aspects have to be borne in mind in resolving the controversy.cash discount or prompt payment discount is admissible undoubtedly.here we are dealing not with prompt payment but with advance payment.where there is a question of advance payment, the principles laid down by the supreme court in metal box india ltd. v. collector of central excise, madras, 1995 (75) e.l.t. 449 (sc) will govern the matter. if the advance has influenced the price to the extent the price is influenced has to be treated as part of the assessable value.4. this does not mean that the entire discount granted to customers who make advance payment or maintain cash credit balance is to be disallowed. what is to be disallowed is only the extent of the additional benefit conferred on the customers on account of the advance payment or maintenance of the cash credit balance. a person who makes advance payment or maintains credit balance cannot be in a more disadvantageous position than a customer who makes immediate payment or prompt payment. the former is certainly entitled to whatever benefit the latter would be entitled to get. if there is any extra benefit that is, than the former gets, that, in the given circumstances, may be regarded as the extent influenced by the advance deposit.5. the reply to the show cause notice refers to a circular issued by the appellant to customers. unfortunately, a copy of the circular was not made available either to the lower authorities or to us. in the circumstances, we feel that appellant must be given an opportunity to place a copy of the circular and other materials, if any, before the appropriate authority in the matter.6. in the result, the impugned orders are set aside and the cases are remanded to the jurisdictional assistant commissioner for fresh decision in accordance with law and in the light of the observations in this order, after giving due notice to the appellant. appeals are allowed.

Judgment:
1. Appellants are manufacturers of motor vehicle parts falling under the erstwhile Tariff Item 68. They were availing benefit of Notification No. 120/75 following invoice price procedure. They claimed deduction of 8% cash discount which was being made available to customers who were making advance payment or who had cash credit balance. The percentage was worked out on the amount of advance payment or the amount of credit balance. Assistant Collector issued notices to the appellant proposing disallowance of the deduction. Appellant resisted the notices stating that discount was offered to all customers and, therefore, was admissible. Assistant Collector rejected this contention and disallowed the deduction. Collector (Appeal) upheld these orders. Hence, the present appeals.

2. There is no doubt that cash discount or prompt payment discount is entitled to deduction for arriving at the assessable value. There is no dispute about this position. The dispute in these cases relates to the discount of 8% offered to customers who make advance payment for the price of the goods to be supplied or who have cash credit balance with the manufacturer in their name. If on the particular day advance payment is made or cash credit balance exists to a certain extent, 8% of that amount is to be given as discount. The lower authorities felt that appellant was getting indirect benefit from the advance payment.

3. Two aspects have to be borne in mind in resolving the controversy.

Cash discount or prompt payment discount is admissible undoubtedly.

Here we are dealing not with prompt payment but with advance payment.

Where there is a question of advance payment, the principles laid down by the Supreme Court in Metal Box India Ltd. v. Collector of Central Excise, Madras, 1995 (75) E.L.T. 449 (SC) will govern the matter. If the advance has influenced the price to the extent the price is influenced has to be treated as part of the assessable value.

4. This does not mean that the entire discount granted to customers who make advance payment or maintain cash credit balance is to be disallowed. What is to be disallowed is only the extent of the additional benefit conferred on the customers on account of the advance payment or maintenance of the cash credit balance. A person who makes advance payment or maintains credit balance cannot be in a more disadvantageous position than a customer who makes immediate payment or prompt payment. The former is certainly entitled to whatever benefit the latter would be entitled to get. If there is any extra benefit that is, than the former gets, that, in the given circumstances, may be regarded as the extent influenced by the advance deposit.

5. The reply to the show cause notice refers to a circular issued by the appellant to customers. Unfortunately, a copy of the circular was not made available either to the lower authorities or to us. In the circumstances, we feel that appellant must be given an opportunity to place a copy of the circular and other materials, if any, before the appropriate authority in the matter.

6. In the result, the impugned orders are set aside and the cases are remanded to the jurisdictional Assistant Commissioner for fresh decision in accordance with law and in the light of the observations in this order, after giving due notice to the appellant. Appeals are allowed.