Maruti Udyog Limited Vs. Cce - Court Judgment

Excerpt:
1. m/s. maruti udyog limited is a manufacturer of motor vehicles which are liable to central excise duty on ad-valorem basis. from 1998 to march 2001 they offered a special rebate to dealers in respect of three varieties of motor vehicles. the rate of the rebate was rs. 1000 per maruti 800 cars & omni vans and rs. 2000 per esteem cars. the central excise duty was paid on these vehicles on the basis of assessable values which excluded the special rebate from the price of the vehicles. under the orders impugned in these appeals, the commissioner of central excise has held that it was not permissible to reduce the rebate from the price of the automobiles while fixing the assessable value of the automobiles. consequently, duty short levied on account of such reduction has been demanded in addition to imposing penalties equal to the duty short levied and interest on the short levy.2. the finding regarding ineligibility of the special rebates for reduction has been reached on the ground that the special rebate scheme is not in accordance with the normal practice of trade discount inasmuch as the rebate was only deposited into a dealer reserve fund not provided for in the dealership agreement. the commissioner's finding as to why the special rebate cannot be treated as a discount are as under: "i have also found that after the above sales policy bulletin dated 11.4.98, though a rebate of an amount of rs. 1000 per m-800, omni was known to their dealers prior to removal of the goods from the factory but the amount of that rebate has not been actually passed on to their dealers by m/s. mul, and has been refunded to/retained by m/s. mul in the form of dealer reserve fund in view of the clauses of the policy that the account will continue to be maintained at m/s. mul and will not be refunded to the dealers till the validity of the dealership agreement and that no lien shall be entertained on that account. thus the said amount is retained by mul for indefinite period. i do not accept the party's plea that they have said special rebate to the dealer in the form of credit notes and the dealers are treating the same as their income and are paying income tax on it and dealer have control, over credits made in that account and it was due to them as i have found that though the book transaction in respect of credit notes have been made by mul by accumulating the special rebate in the dealers reserve fund account but the dealers was not permitted to use the amount of that account as per principles of any other account maintained by any person in any bank or financial institutions. i have also found that the dealer was not even permitted to use the amount of that fund even for the purpose of credit for vehicles dispatches by mul to the dealer. my views are also based on the fact that clause 5.5 of the bulletin dt. 11.4.97 specifically state that no lien shall be entertained on the dealers reserve fund account and the amount of the fund was available to dealers only after the closure of the dealership relation with mul. there is no force in the party plea that the amount of fund not available to dealers at the end of the dealership agreement as there was specific time frame for the dealership and thus amount of the fund was retained by mul indefinitely, in view of the above discussion i also don't accept the party's plea that the dealers have consented for terms and condition of that reserve fund and dealer having no control over the said fund cannot effect the eligibility of the special rebate for abatement. moreover i have found that m/s. mul has been retaining entire amount of special rebate of their customer in reserve fund and the said scheme was purposely made to their benefit by mul by way of creating a dealer reserve fund and accumulating amount in the said fund in the name of special rebate to raise their working capital as discussed above. moreover, the party has proposed to give interest @ 10% to the dealers which is less than the normal rate of interest, so i feel that the scheme of special rebate cannot be termed as discount". (para 33 of the order).3. the appellant's submission on the above findings are that the special rebate had in fact been allowed to the dealers of the automobile and that the amounts on this count were deposited in the security deposit of individual dealers only so as to ensure that, over a period of time, dealers have enough security deposit with the maruti udyog limited so as to cover the value of one month's purchase of automobile. it has been stated that the condition regarding deposit of amounts in the dealers reserve fund was stipulated to ensure some protection to maruti against default in payment by dealers. the appellants have explained that such a condition in no way altered the position that the rebate/discount was actually given to the dealers.the rebate was always deposited into the separate security deposit account of the dealers and maruti paid an interest @ 10% on the security deposit. it has been further stated that in the books of accounts of m/s. maruti udyog the rebate amount remained as a liability and the books of accounts of the dealers showed the special rebate amounts as income. the learned counsel for the appellant pointed out that the rebate was actually paid and its receipt is also clear from the fact that the dealers included the special rebate amounts as their income and paid income tax accordingly. further, part of the rebate amount (rs. 330 to rs. 385 per vehicle) was withdrawn immediately from the reserve fund by the dealers for the purpose of payment of income tax. in these circumstances, it is the contention of the learned counsel for the appellant that the fact of the deposit of the rebate into the dealer reserve fund was of no relevance for determining whether it was a discount because manner of payment of the rebate and its utilization are entirely for the party's concerned to agree upon.the learned counsel also pointed out that the commissioner's observation regarding restriction on the use of the amount by the dealers is not material to the dispute inasmuch as the rebate undoubtedly belonged to the dealers and it was never returned to m/s.maruti udyog limited.4. the learned counsel for the appellants also submitted that it is settled law that mere depositing of the rebate with maruti udyog as a reserve fund would not in any way alter the fact that the rebate has been allowed from the price of the goods. during the hearing of the case, learned counsel for the appellant pointed out that the dealer's reserve fund always remained the asset of the dealers and, while it earned interest during the period of deposit, it was refunded upon termination of the agreement. the learned counsel pointed out that this arrangement was a normal, commercial arrangement inasmuch as the manufacturer had to ensure that the sale of vehicles made to the dealers was adequately secured even as dealers were given reasonable discount. the learned counsel also pointed out that the liability to return the deposit remains proved by the fact that the entire amount in the reserve fund of enpack motors (one of the dealers) was returned to it upon the termination of its dealership. the learned counsel for the appellants has relied on the following observations of the apex court in support of this contention: "34. section 37(1) uses the expressions, in relation to forfeiture, 'any sum collected by the person......shall be forfeited'. what does 'collected' mean here? words cannot be construed effectively without reference to their context. the setting colours the sense of the word. the spirit of the provision lends force to the construction that 'collected' means collected and kept as his' by the trader. if the dealer merely gathered the sum by way of tax and kept it in suspense account because of dispute about tax liability or was ready to return it if eventually it was not taxable, it was not collected. 'collected', in an australian customs tariff act, was held by griffith, c. j., no "to include money deposited under an agreement that if it was not legally payable it will be returned': (words & phrases, p 274) we therefore semanticise 'collected' not to cover amounts gathered tentatively to be given back if found non-exigible from the dealer.5. as against the aforesaid submissions on behalf of the appellant, learned sdr has pointed out that the commissioner was right in holding that this was not a case of discount inasmuch as the so-called special rebate was not passed on to the buyers. instead, only a book entry was made. he also pointed out that discount has to be determined and has to be paid at a specific time. indefinite retention of the amount by the manufacturer reduce the rebate to mere meaningless book entry. the learned sdr also relied on the following observation of the apex court on the question of discount in para 45 in the case of government of india v. madras rubber factory, 1995 (51) ecc 1 (sc): 1995 (77) elt vol. 464: "45. we may now take up for consideration the several claims of deduction relating to trade discounts. but what does the expression "discount" mean? according to the concise oxford dictionary, it means "a deduction from the bill or amount due given especially in consideration of prompt or advance payment or to a special class of buyers". now, according to the latter part of sub-clause (ii) of section 4(4)(d) such trade discounts, as are not refundable under any circumstances, and are allowed in accordance with the normal practice of the wholesale trade at the time of removal of such goods, are to be excluded from the value of the goods".6. it is clear from the records that the appellants have granted special rebate as claimed to their dealers in respect of the three varieties of automobile covered by the rebate scheme. it had also intimated the central excise authorities in 1998 about the scheme. the amount due as rebate was allowed through credit note and the amounts were deposited in the dealers reserve fund. that the rebate amount was actually paid and belongs to the dealers is established by the fact that part of the amount was withdrawn by the dealers in the year of accumulation itself towards payment of income tax and the remaining amount with interest upon the termination of the dealership. that the interest was at a reasonable rate of 10% also shows that the arrangement was not an eyewash. the actual return of the balance in the reserve fund of enpack motor goes to confirm the veracity of the appellants claim that the special rebates have actually been given. it is not a case where the rebate (discount) was not given or once given the same was returned. the credit of the discount into the dealers reserve fund and its return only on termination of the dealership etc.make no difference to the essential fact of grant of non-refundable discount. these are arrangements that the parties are at liberty to mutually negotiate. further, the manufacturer was entirely within his commercial rights to insist on security deposit from the dealers, in case the special rebate was not agreed to be deposited into the security deposit as was done in the present case, the manufacturer could have asked for separate payment as security deposit. these are matters entirely between manufacturers and their dealers. the tax authorities are not to go into them unless the arrangement is found to a devise to evade tax. the present case clearly is not such a device.7. in view of what has been stated above, we find no justification for holding that the special rebate in question was not a permissible deduction as discount. the appeals are accordingly allowed, with consequential relief to the appellant, after setting aside the impugned orders.

Judgment:
1. M/s. Maruti Udyog Limited is a manufacturer of motor vehicles which are liable to central excise duty on ad-valorem basis. From 1998 to March 2001 they offered a Special Rebate to dealers in respect of three varieties of motor vehicles. The rate of the rebate was Rs. 1000 per Maruti 800 cars & Omni Vans and Rs. 2000 per Esteem cars. The central excise duty was paid on these vehicles on the basis of assessable values which excluded the special rebate from the price of the vehicles. Under the orders impugned in these appeals, the Commissioner of Central Excise has held that it was not permissible to reduce the rebate from the price of the automobiles while fixing the assessable value of the automobiles. Consequently, duty short levied on account of such reduction has been demanded in addition to imposing penalties equal to the duty short levied and interest on the short levy.

2. The finding regarding ineligibility of the special rebates for reduction has been reached on the ground that the special rebate scheme is not in accordance with the normal practice of trade discount inasmuch as the rebate was only deposited into a Dealer Reserve Fund not provided for in the dealership agreement. The Commissioner's finding as to why the special rebate cannot be treated as a discount are as under: "I have also found that after the above sales Policy Bulletin dated 11.4.98, though a rebate of an amount of Rs. 1000 per M-800, Omni was known to their dealers prior to removal of the goods from the factory but the amount of that rebate has not been actually passed on to their dealers by M/s. MUL, and has been refunded to/retained by M/s. MUL in the form of Dealer Reserve fund in view of the clauses of the policy that the account will continue to be maintained at M/s. MUL and will not be refunded to the dealers till the validity of the dealership agreement and that no lien shall be entertained on that account. Thus the said amount is retained by MUL for indefinite period.

I do not accept the party's plea that they have said special rebate to the dealer in the form of credit notes and the dealers are treating the same as their income and are paying income tax on it and dealer have control, over credits made in that account and it was due to them as I have found that though the book transaction in respect of credit notes have been made by MUL by accumulating the special rebate in the Dealers Reserve Fund Account but the dealers was not permitted to use the amount of that Account as per principles of any other account maintained by any person in any bank or financial institutions. I have also found that the dealer was not even permitted to use the amount of that Fund even for the purpose of credit for vehicles dispatches by MUL to the dealer. My views are also based on the fact that Clause 5.5 of the Bulletin dt. 11.4.97 specifically state that no lien shall be entertained on the Dealers Reserve Fund Account and the amount of the fund was available to dealers only after the closure of the dealership relation with MUL.

There is no force in the party plea that the amount of fund not available to dealers at the end of the dealership agreement as there was specific time frame for the dealership and thus amount of the fund was retained by MUL indefinitely, In view of the above discussion I also don't accept the party's plea that the dealers have consented for terms and condition of that reserve fund and dealer having no control over the said fund cannot effect the eligibility of the special rebate for abatement. Moreover I have found that M/s. MUL has been retaining entire amount of special rebate of their customer in Reserve Fund and the said scheme was purposely made to their benefit by MUL by way of creating a Dealer Reserve Fund and accumulating amount in the said fund in the name of special rebate to raise their working capital as discussed above. Moreover, the party has proposed to give interest @ 10% to the dealers which is less than the normal rate of interest, so I feel that the scheme of special rebate cannot be termed as discount". (Para 33 of the order).

3. The appellant's submission on the above findings are that the special rebate had in fact been allowed to the dealers of the automobile and that the amounts on this count were deposited in the security deposit of individual dealers only so as to ensure that, over a period of time, dealers have enough security deposit with the Maruti Udyog Limited so as to cover the value of one month's purchase of automobile. It has been stated that the condition regarding deposit of amounts in the dealers reserve fund was stipulated to ensure some protection to Maruti against default in payment by dealers. The appellants have explained that such a condition in no way altered the position that the rebate/discount was actually given to the dealers.

The rebate was always deposited into the separate security deposit account of the dealers and Maruti paid an interest @ 10% on the security deposit. It has been further stated that in the books of accounts of M/s. Maruti Udyog the rebate amount remained as a liability and the books of accounts of the dealers showed the special rebate amounts as income. The learned Counsel for the appellant pointed out that the rebate was actually paid and its receipt is also clear from the fact that the dealers included the special rebate amounts as their income and paid income tax accordingly. Further, part of the rebate amount (Rs. 330 to Rs. 385 per vehicle) was withdrawn immediately from the reserve fund by the dealers for the purpose of payment of income tax. In these circumstances, it is the contention of the learned Counsel for the appellant that the fact of the deposit of the rebate into the dealer reserve fund was of no relevance for determining whether it was a discount because manner of payment of the rebate and its utilization are entirely for the party's concerned to agree upon.

The learned Counsel also pointed out that the Commissioner's observation regarding restriction on the use of the amount by the dealers is not material to the dispute inasmuch as the rebate undoubtedly belonged to the dealers and it was never returned to M/s.

Maruti Udyog Limited.

4. The learned Counsel for the appellants also submitted that it is settled law that mere depositing of the rebate with Maruti Udyog as a reserve fund would not in any way alter the fact that the rebate has been allowed from the price of the goods. During the hearing of the case, learned Counsel for the appellant pointed out that the dealer's reserve fund always remained the asset of the dealers and, while it earned interest during the period of deposit, it was refunded upon termination of the agreement. The learned Counsel pointed out that this arrangement was a normal, commercial arrangement inasmuch as the manufacturer had to ensure that the sale of vehicles made to the dealers was adequately secured even as dealers were given reasonable discount. The learned Counsel also pointed out that the liability to return the deposit remains proved by the fact that the entire amount in the reserve fund of Enpack Motors (one of the dealers) was returned to it upon the termination of its dealership. The learned Counsel for the appellants has relied on the following observations of the Apex Court in support of this contention: "34. Section 37(1) uses the expressions, in relation to forfeiture, 'any sum collected by the person......shall be forfeited'. What does 'collected' mean here? Words cannot be construed effectively without reference to their context. The setting colours the sense of the word. The spirit of the provision lends force to the construction that 'collected' means collected and kept as his' by the trader. If the dealer merely gathered the sum by way of tax and kept it in suspense account because of dispute about tax liability or was ready to return it if eventually it was not taxable, it was not collected.

'Collected', in an Australian Customs Tariff Act, was held by Griffith, C. J., No "to include money deposited under an agreement that if it was not legally payable it will be returned': (Words & Phrases, P 274) We therefore semanticise 'collected' not to cover amounts gathered tentatively to be given back if found non-exigible from the dealer.

5. As against the aforesaid submissions on behalf of the appellant, learned SDR has pointed out that the Commissioner was right in holding that this was not a case of discount inasmuch as the so-called special rebate was not passed on to the buyers. Instead, only a book entry was made. He also pointed out that discount has to be determined and has to be paid at a specific time. Indefinite retention of the amount by the manufacturer reduce the rebate to mere meaningless book entry. The learned SDR also relied on the following observation of the Apex Court on the question of discount in para 45 in the case of Government of India v. Madras Rubber Factory, 1995 (51) ECC 1 (SC): 1995 (77) ELT Vol. 464: "45. We may now take up for consideration the several claims of deduction relating to trade discounts. But what does the expression "discount" mean? According to the Concise Oxford Dictionary, it means "a deduction from the bill or amount due given especially in consideration of prompt or advance payment or to a special class of buyers". Now, according to the latter part of Sub-clause (ii) of Section 4(4)(d) such trade discounts, as are not refundable under any circumstances, and are allowed in accordance with the normal practice of the wholesale trade at the time of removal of such goods, are to be excluded from the value of the goods".

6. It is clear from the records that the appellants have granted special rebate as claimed to their dealers in respect of the three varieties of automobile covered by the rebate scheme. It had also intimated the Central Excise authorities in 1998 about the scheme. The amount due as rebate was allowed through credit note and the amounts were deposited in the Dealers Reserve Fund. That the rebate amount was actually paid and belongs to the dealers is established by the fact that part of the amount was withdrawn by the dealers in the year of accumulation itself towards payment of Income Tax and the remaining amount with interest upon the termination of the dealership. That the interest was at a reasonable rate of 10% also shows that the arrangement was not an eyewash. The actual return of the balance in the reserve fund of Enpack Motor goes to confirm the veracity of the appellants claim that the special rebates have actually been given. It is not a case where the rebate (discount) was not given or once given the same was returned. The credit of the discount into the dealers reserve fund and its return only on termination of the dealership etc.

make no difference to the essential fact of grant of non-refundable discount. These are arrangements that the parties are at liberty to mutually negotiate. Further, the manufacturer was entirely within his commercial rights to insist on security deposit from the dealers, in case the special rebate was not agreed to be deposited into the security deposit as was done in the present case, the manufacturer could have asked for separate payment as security deposit. These are matters entirely between manufacturers and their dealers. The tax authorities are not to go into them unless the arrangement is found to a devise to evade tax. The present case clearly is not such a device.

7. In view of what has been stated above, we find no justification for holding that the special rebate in question was not a permissible deduction as discount. The appeals are accordingly allowed, with consequential relief to the appellant, after setting aside the impugned orders.