IMPORTANT POINT
Discount granted in consideration of expeditious payment is directly related to price. Hence discount forming part of agreement for sale must be deducted from sale price for arriving at the (transaction) value “at the time of removal”.

Judgment :

R.F. Nariman, J.

1. M/s Purolator India Limited (hereinafter referred to as the appellant) is engaged in the manufacture of excisable goods, namely Filter Elements, Inserts, and Cartridges and Components. These goods are either cleared by the appellant to various vehicle manufacturers or stock transferred to depots from where they are further stock transferred to clearing and forwarding agents.

2. For effecting stock transfers, the appellant filed declarations under Rule 173C with the excise department. In these declarations, the appellant claimed deduction towards Sales Tax, Cash Discount and Volume Discount on excise duty payable to arrive at the assessable value under Section 4 of the Central Excise and Salt Act, 1944.

3. Apart from undertaking manufacturing activities, the appellant at times also receives goods from customers for repair in case of defects noticed by the customers. The customers either reject the entire lot or a particular box etc. if they notice any defect, so that their time is not wasted in checking each and every item and thus, goods are sent back to the appellant. On receipt of such consignments, the appellant checks the same for defects indicated and undertakes necessary repairs. Thereafter, the finished products are returned to customers. The appellant was filing the necessary D-3 declarations for receipt of such returned goods and was maintaining the register required in Form V for the said purposes and was thereafter returning such repaired items under the provisions of Rule 173H without payment of duty thereon.

4. A Show Cause Notice dated 2.4.2002 was issued wherein it was alleged that the appellant is not eligible for the various deductions claimed on account of volume discount, sales tax and cash discount. Besides this it was also alleged that the appellant has removed new finished excisable goods instead of old/repaired goods.

5. The appellant filed a detailed reply to the show cause notice countering each and every allegation. The Commissioner of Central Excise, Delhi-III passed an Order dated 31.12.2003 dropping the duty demands on all the issues for the period April 1996 to February 1997, being more than five years old. Further, he dropped the duty demand on the issue of cash discount for the period prior to July 2000. However, on the remaining issues, the Commissioner has confirmed duty demand of Rs. 44,66,247/-and also imposed penalty of Rs. 49,66,247/-on the appellant as follows:-

“ORDER

With a view to the discussion and findings recorded above

(i) invoke extended period of limitation provided in first proviso to Section 11A(1) of the Central Excise Act, 1944, and determine the following amounts in terms of provisions of Section 11A and direct the assessee to pay the same forthwith.

(a) Rs. 13,43,046/- towards duty involved on replaced goods cleared between March 1997 to March 2001.

(b) Rs. 14,27,483/- towards duty computed for the period of March 1997 to March, 2001 on volume discount.

(c) Rs, 11,96,601/- towards duty computed for the period of March 97 to March, 2001 on Sales Tax deduction and

(d) Rs. 4,99,117/-towards duty on cash discount for the period of July 2000 to March, 2001

(ii) confirm that the interest in terms of provisions of Section 11AB ibid is payable by the assessee on the amounts of (i) (a) to (i)(d) above;

(iii) impose a penalty of Rs. 44,66,247/-on assessee under the provisions of Section 11AC ibid;

(iv) impose a penalty of Rs. 5 lakhs on assessee in terms of provisions of Rule 173Q of the Central Excise Rules, 1944 and Rule 25 of the Central Excise Rules, 2001 both read with section 38A of the Central Excise Act, and

(v) appropriate the amounts of Rs. 29,140/-, Rs. 38,896/-, Rs. 42,728/-and Rs. 19,443/-which were voluntarily paid by the assessee on account of duty on handling charges and differential duty.

It is clarified that the amount of penalty in (iii) above shall be reduced to 25% thereof if the assessee deposits the amounts of the duty, interest and penalty, determ