Th AO should reopen the return u/s 148 and also make the additions.considering the involvement of revenue,it is also better to be on the safe side. IT might happen that at high court or Supreme court level, the judgement is reversed. At that time, action u/s 148 may also be time barred.
Further , it is very necessary to verify returns of assessee of years earliers and as well as of subsequent years.There are very high probablity that assessee may have claimed this deduction in all the years from the book profit.
Also charge interest u/s 220(2) on the amount of tax demamded.
IT: Claim of reduction from book profits computed under section 115JB of amount of deduction eligible under section 80-IC is an incorrect claim
■■■
[2013] 35 taxmann.com 233 (Delhi - Trib.)
IN THE ITAT DELHI BENCH 'G'
Assistant Commissioner of Income-tax, Circle - Hardwar
v.
SBL Industries (P.) Ltd.*
J. SUDHAKAR REDDY, ACCOUNTANT MEMBER
AND C.M. GARG, JUDICIAL MEMBER
AND C.M. GARG, JUDICIAL MEMBER
IT APPEAL NO. 3957 (DELHI) OF 2012
[ASSESSMENT YEAR 2010-11]
[ASSESSMENT YEAR 2010-11]
MAY 23, 2013
Section 115JB, read with section 80-IC, of the Income-tax Act, 1961 - Minimum alternate tax [Deduction under section 80-IC] - Whether a deduction under section 80-IC is not an item of adjustment in Explanation 1 to section 115JB; thus, while computing book profits under section 115JB, reduction of amount deductible under section 80-IC cannot be claimed - Held, yes [Para 10] [In favour of revenue]
FACTS
| ■ | The assessee-company, a manufacturer of homeopathic medicine filed return of its income and claimed deduction of same amount under section 80-IC. Even though there was book profit, it did not compute MAT payable under section 115JB. | |
| ■ | The return was processed under section 143(1) by the centralised processing centre. The book profit was deemed to be the total income and tax thereon at the rate of 15 per cent was computed. Thus, provision of minimum alternate tax (MAT) under section 115JB was applied. | |
| ■ | In appeal before the Commissioner (Appeals), the assessee contended that the issue whether a company, which is eligible for deduction under section 80-IC, has to pay MAT under section 115JB or not, cannot be decided under section 143(1) as it is highly debatable. The Commissioner (Appeals) accepted the contentions of the assessee. | |
| ■ | On revenue's appeal: |
HELD
| ■ | A plain reading of the same shows that under section 143(1)(a)(ii), the Assessing Officer can compute the total income or loss, after making adjustment of incorrect claim, if such incorrect claim is apparent from any information in the return. Explanation (a) explains what is 'an incorrect claim apparent from any information in the return.' [Para 8] | |
| ■ | Section 115JB is a special provision. It imposes minimum tax liability on an assessee-company on its book profits. The mode of computation is specified therein. The Supreme Court in the case of Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273/122 Taxman 562held that while computing the book profits of a company under section 115J, the Assessing Officer has only the power of examining whether books of account are certified by the authorities under the Companies Act and there after as the limited power of making increase or decrease of certain items specifically provided for in the Explanation to section 115J. [Para 9] | |
| ■ | Applying the proposition laid down by the Supreme Court to section 115JB, it was found that a deduction under section 80-IC is not an item of adjustment in Explanation 1 to section 115JB. While so, to claim reduction of the amount deductible under section 80-IC, while computing book profits under section 115JB, is not in accordance with the apparent reading of the provisions of section 115JB. Thus, such a claim is an incorrect claim and this is apparent from information in the return as defined in the Explanation (1) to section 143(1)(a)(ii). Hence the Assessing Officer is correct in making adjustment under section 143(1). The fact that the return is processed by a computer or by the Officer himself, does not make a difference, as in our opinion computerized processing is only an aid to the Assessing Officer. As computation of book profits under section 115JB is not done in accordance with the provisions of the Act, and when an incorrect claim of reduction from book profits of amount which the assessee is eligible under section 80-IC is made, it is an incorrect claim apparent from the record, which can be adjusted under section 143(1). In the result the order of the Commissioner (Appeals) is set aside and the order of the Assessing Officer is restored. [Para 10] |
CASE REVIEW
Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273/122 Taxman 562 (SC) (para 10) followed.
J.S. Khlawat for the Appellant. Sanjay Nath for the Respondent.
ORDER
J. Sudhakar Reddy, Accountant Member - This is an appeal filed by the Revenue directed against the order of the Commissioner of Income Tax (Appeals)-I, Dehradun dt. 29.03.2012 pertaining to the Assessment Year 2010-11.
2. Facts in brief:- The facts of the case as brought out at paras 1 to 1.1 of the Commissioner of Income Tax (Appeals)'s order which is extracted for ready reference.
"The assessee company is a manufacturer of homeopathetic medicine. The only point for determination in this appeal is whether the Assessing Officer was correct in applying minimum alternate tax (MAT) provision under Section 115 JB of the Income Tax Act, 1961 while processing the return under Section 143(1) of the Income Tax Act, 1961.
1.1. Return of income showing total income of Rs.9,81,110/- was e-filed on 04.10.2010. The assessee claimed deduction of Rs.22,26,99,178/- under Section 80-IC of the Income Tax Act, 1961. Even though there was book profit of Rs.22,65,01,252/-, it did not compute MAT payable under Section 115 JB of the Income Tax Act, 1961. The return was processed under Section 143(1) of the Income Tax Act, 1961 by the Centralised Processing Centre (CPC), Bangalore on 17.03.2011. In the intimation issued subsequent to the processing of the return, the book profit was deemed to be the total income and tax thereon @ 15% i.e. Rs.3,39,75,188/- was computed. In other words, the provision of MAT under Section 115 JB of the Income Tax Act, 1961 was applied while processing the return under Section 143(1) of the Income Tax Act, 1961. Aggrieved against this, the assessed has preferred the present appeal."
3. Before the Ld.CIT(A), the assessee contended that the scope of powers of the AO while processing a return under Section 143(1) of the Income Tax Act, 1961 is limited. He can make adjustments only with regard to arithmetical error over an incorrect claim. It was contended that the issue whether a company, which is eligible for deduction u/s 80IC of the Income Tax Act, 1961, has to pay MAT u/s 115JB of the Income Tax Act, 1961 or not cannot be decided u/s 143(1) of the Income Tax Act, 1961 as it is highly debatable. The CIT(A) accepted the contentions of the assessee. Aggrieved the revenue is in appeal before us on the following grounds:-
| "1. | The Ld.CIT(A) has erred in law and on facts in allowing the appeal of the assessee and cancelling the order under Section 143(1) of the Income Tax Act, 1961 passed by the ACIT, CPC, Bangalore. | |
| 2. | The Ld.CIT(A) has erred in law and on facts in holding the issue "Whether MAT is payable by a company claiming deduction under Section 80-IC" is debatable. | |
| 3. | That the Jurisdictional High Court, Uttarakhand in the case of Sidcul Industrial Associations vs. State of Uttarakhand (2011) 199 Taxman, 75 has held that s.115 JB of the Income Tax Act, 1961 will apply to an assessee being a company, even if it is entitled to deductions under Section 80-IC of the Income Tax Act, 1961. | |
| 4. | That even though the Ld.CIT(A) has decided that the case falls under the jurisdiction of Assessing Officer of Haridwar Range, Ld.CIT(A) has erred in not providing any opportunity of being heard to ACIT, Circle-Haridwar on the matter and as such the order is against natural justice. | |
| 5. | The order of the Ld.CIT(A) be set aside and that of the Assessing Officer be restored." |
4. The Ld.DR submitted that the AO is empowered to make adjustments u/s.143(1) of the Income Tax Act, 1961. He submitted that the processing is done through computer and as the issue is an apparent mistake committed by the assessee while filing its return of income and the central processing unit has made the said adjustment to correct this apparent mistake. He referred to sec.143(1)(a)(ii) and submitted that if an incorrect claim is made and when such incorrect claim is apparent and from any information in the return, the AO is authorized to make an adjustment.
5. The Ld.Councel for the assessee Mr.Sanjay Nath submitted that Explanation (a)(ii) to Sec.143(1) supports the case of the assessee as the term incorrect claim apparent from any information in the return is defined. He contended that the AO has limited power u/s.143(1) of the Income Tax Act, 1961 and that the adjustment made is beyond his powers, as the computation of book profits u/s 115 JB with reference to deduction u/s 80 IC is a highly debatable issue.
6. Rival submissions heard. On a careful consideration of the facts and circumstances of the case and on a perusal of the papers on record as well as the orders of the authorities below and case laws cited, we hold as follows.
7. The subject matter before us is the scope and ambit of S.143(1) of the Act.
The relevant portions of S.143(1) are extracted for ready reference:
'143. (1) Where a return has been made under section 139, or in response to a notice under sub-section (1) of section 142, such return shall be processed in the following manner:
| (a) | the total income or loss shall be computed after making the following adjustments, namely :- |
| (i) | any arithmetical error in the return; or | |
| (ii) | an incorrect claim, if such incorrect claim is apparent from any information in the return; |
| ** | ** | ** |
Explanation : For the purposes of this sub-section, -
| (a) | "an incorrect claim apparent from any information in the return" shall mean a claim, on the basis of an entry, in the return, |
| (i) | of an item, which is inconsistent with another entry of the same or some other item in such return; | |
| (ii) | in respect of which the information required to be furnished under this Act to substantiate such entry has not been so furnished; or | |
| (iii) | in respect of a deduction, where such deduction exceeds specified statutory limit which may have been expressed as monetary amount or percentage or ratio or fraction.' |
8. A plain reading of the same shows that u/s 143(1)(a)(ii), the AO can compute the total income or loss, after making adjustment of incorrect claim, if such incorrect claim is apparent from any information in the return. Explanation (a) explains what is "an incorrect claim apparent from any information in the return."
9. S.115 JB is a special provision. It imposes minimum tax liability on an assessee company on its book profits. The mode of computation is specified therein. The Hon'ble Supreme Court in the case of Apollo Tyres Ltd. v. CIT [2002] 255 ITR 273/122 Taxman 562 held that while computing the book profits of a company u/s 115J under the Act, the AO has only the power of examining whether books of accounts are certified by the authorities under the Companies Act and there after as the limited power of making increase or decrease of certain items specifically provided for in the Explanation to S.115J.
10. Applying the proposition laid down by the Hon'ble Supreme Court to S.115 JB, we find that a deduction u/s 80-IC, is not an item of adjustment in Explanation I to S.115 JB. While so, to claim reduction of the amount deductible u/s 80-IC, while computing book profits u/s 115 JB, is not in accordance with the apparent reading of the provisions of S.115 JB. Thus, in our considered opinion, such a claim is an incorrect claim and this is apparent from information in the return as defined in the Explanation (a) to S.143(1)(a)(ii) of the Act. Hence the AO is correct in making adjustment u/s 143(1). Thus, we are unable to persuade ourselves to agree with the finding of the Ld.CIT(A)-I, Dehradun on this issue. The fact that the return is processed by a computer or by the Officer himself, does not make a difference, as in our opinion computerized processing is only an aid to the AO. As computation of book profits u/s 115 JB of the Act is not done in accordance with the provisions of the Act, and when an incorrect claim of reduction from book profits of amount which the assessee is eligible u/s 80 IC is made, it is an incorrect claim apparent from the record, which can be adjusted u/s 143(1) of the Act. In the result the order of Ld.CIT(A) is set aside and the order of the AO is restored.
11. In the result the appeal of the Revenue is allowed.
2014-TIOL-115-ITAT-DEL
IN THE INCOME TAX APPELLATE TRIBUNAL
BENCH 'F' NEW DELHI
BENCH 'F' NEW DELHI
ITA No.3235/Del/2012
Assessment Year: 2008-09
Assessment Year: 2008-09
INCOME TAX OFFICER
WARD-15(2), NEW DELHI
WARD-15(2), NEW DELHI
Vs
M/s RAJAT DEEP OVERSEAS (P) LTD
179-A, LIG FLATS, RAJOURI GARDEN
NEW DELHI
PAN NO:AABCR4099N
179-A, LIG FLATS, RAJOURI GARDEN
NEW DELHI
PAN NO:AABCR4099N
ITA No.2309/Del/2012
Assessment Year: 2008-09
Assessment Year: 2008-09
M/s RAJAT DEEP OVERSEAS (P) LTD
179-A, LIG FLATS, RAJOURI GARDEN
NEW DELHI
179-A, LIG FLATS, RAJOURI GARDEN
NEW DELHI
Vs
INCOME TAX OFFICER
WARD-15(2), NEW DELHI
WARD-15(2), NEW DELHI
R P Tolani, JM And Shamim Yahya, AM
Date of Decision: January 10, 2014
Appellant Rep by: Shri Vivek Kumar Sr. DR
Respondents Rep by: Shri Ved Jain FCA & Smt Rano Jain, CA
Respondents Rep by: Shri Ved Jain FCA & Smt Rano Jain, CA
Income Tax - Sections 80HH, 80-IA(8), 80IC, 115JB, 143(3) – Whether merely because the industrial undertaking earned higher profits does not call for an inference that claim of deduction is to be wily nily reduced on presumption – Whether deduction claimed under section 80IC is eligible while computing the book profit under section 115JB.
The assessee is an industrial undertaking situated at Haridwar and is claimed to be an eligible unit u/s 80-IC of the Act. AO though held the assessee is eligible for deduction u/s 80-IC, however, the amount of deduction u/s 80IC was reduced holding that the profitability of the company was very high as comparable to market and a substantial part of it was attributable to brand value, experience and knowledge of the directors and activities of branches. AO also hed that the assessee is liable to pay MAT under Section 115JB and is not covered by exemption provided under sub-section (6) of Section 115JB.
CIT (A) held that the AO was not justified in reducing the deduction u/s 80IC on account of experience and knowledge of directors. CIT (A) also held that AO was not correct in estimating 20% of the turnover as the profit on account of brand and reduced the same to 10% of the sale. Further it was held that AO was not correct in restricting the balance deduction to 12% of the total profit on account of the expenses of branches. CIT (A), however, confirmed the order of the AO holding that assessee to be liable to MAT u/s 115JB of the Act and is not exempt under clause (6) of Section 115JB.
Assessee contended that the prime condition of allowing deduction u/s 80IC is to the effect that eligible unit should be engaged in manufacturing or production of the article or thing. There is no condition about the ownership of brand in allowing deduction u/s 80IC. The calculation of ratio of 20% by the AO and 10% by CIT(A) is purely a guess work which is evident from the fact that the 20% of the sale comes to 61% of the net profit. Assessee has not paid any expenditure paid as royalty or brand value to anyone. The goods manufactured and sold pertain to the impugned Haridwar unit which is corroborated by the Excise and VAT returns. The eligible income is to be ascertained on the ordinary principle of commercial accounting. There is no provision in sec. 80IC to reduce the profit of any industrial undertaking attributable to any estimated or hypothetical brand value. The turnover shown in the balance sheet is correct, fully vouched and no error or discrepancy whatsoever has been pointed out.
After hearing both the parties, the ITAT held that,
++ the assesses books have been accepted, brand is owned by it which is integral part of the assets of the eligible unit. The sales have not been disturbed; profits of the eligible unit have gone up to 33% from preceding year's 29% due to its product superiority. The basis given by authorities below for reduction of claim is vague and factually incorrect based on an assumption that brand does not belong to the assessee. Without any material or basis, it is assumed that it may belong to some other concern connected to its directors. The fact of the matter is that the brand is owned by assessee and the products manufactured at Haridwar unit are the only products. There exists no other entity which is identified as owner of the brand by AO thus the allegation is factually incorrect;
++ merely because the industrial undertaking earned higher profits does not call for an inference that claim of deduction is to be wily nily reduced on presumptions. Thus, CIT(A)'s order retaining the reduction of 10% is deleted;
++ the Directors are employees of the company and they have been suitably compensated. It is settled law that revenue cannot sit in the armchair of businessman and decide which business expenditure should be incurred in which manner. The AO cannot sit on assesses business acumen and judgment to decide that which percentage of the turnover should be paid to the directors for their experience and knowledge;
++ assessee filed a consolidated financial statement in which the expenses incurred by all the units and the head office have been reduced before arriving at the total eligible profit for claiming deduction u/s 80IC. AO has not controverted this statement in any manner. All sales, purchases and manufacturing activities are carried out by the Haridwar Unit. The other branches are providing sales promotion and after sales service The income earning activities thus cannot be held to the carried out from places other than the eligible unit besides in consolidated financial statement the income of these branches has already been reduced;
++ on going through the sub-section (6) of section 115JB it is clear that the exemption is available "from any business carried on.......... in a unit." The assessee has carried on the business in its unit at Haridwar and hence it is eligible for deduction under Section 115JB of the Act. The word between Unit and Special Economic Zone is not 'of', it is 'or'. Thus the unit does not get quantified with Special Economic Zone. The word 'Unit' is independent and hence the deduction cannot be restricted to a unit of SEZ. The deduction will be available from any business carried on in a Unit.
The assessee is an industrial undertaking situated at Haridwar and is claimed to be an eligible unit u/s 80-IC of the Act. AO though held the assessee is eligible for deduction u/s 80-IC, however, the amount of deduction u/s 80IC was reduced holding that the profitability of the company was very high as comparable to market and a substantial part of it was attributable to brand value, experience and knowledge of the directors and activities of branches. AO also hed that the assessee is liable to pay MAT under Section 115JB and is not covered by exemption provided under sub-section (6) of Section 115JB.
CIT (A) held that the AO was not justified in reducing the deduction u/s 80IC on account of experience and knowledge of directors. CIT (A) also held that AO was not correct in estimating 20% of the turnover as the profit on account of brand and reduced the same to 10% of the sale. Further it was held that AO was not correct in restricting the balance deduction to 12% of the total profit on account of the expenses of branches. CIT (A), however, confirmed the order of the AO holding that assessee to be liable to MAT u/s 115JB of the Act and is not exempt under clause (6) of Section 115JB.
Assessee contended that the prime condition of allowing deduction u/s 80IC is to the effect that eligible unit should be engaged in manufacturing or production of the article or thing. There is no condition about the ownership of brand in allowing deduction u/s 80IC. The calculation of ratio of 20% by the AO and 10% by CIT(A) is purely a guess work which is evident from the fact that the 20% of the sale comes to 61% of the net profit. Assessee has not paid any expenditure paid as royalty or brand value to anyone. The goods manufactured and sold pertain to the impugned Haridwar unit which is corroborated by the Excise and VAT returns. The eligible income is to be ascertained on the ordinary principle of commercial accounting. There is no provision in sec. 80IC to reduce the profit of any industrial undertaking attributable to any estimated or hypothetical brand value. The turnover shown in the balance sheet is correct, fully vouched and no error or discrepancy whatsoever has been pointed out.
After hearing both the parties, the ITAT held that,
++ the assesses books have been accepted, brand is owned by it which is integral part of the assets of the eligible unit. The sales have not been disturbed; profits of the eligible unit have gone up to 33% from preceding year's 29% due to its product superiority. The basis given by authorities below for reduction of claim is vague and factually incorrect based on an assumption that brand does not belong to the assessee. Without any material or basis, it is assumed that it may belong to some other concern connected to its directors. The fact of the matter is that the brand is owned by assessee and the products manufactured at Haridwar unit are the only products. There exists no other entity which is identified as owner of the brand by AO thus the allegation is factually incorrect;
++ merely because the industrial undertaking earned higher profits does not call for an inference that claim of deduction is to be wily nily reduced on presumptions. Thus, CIT(A)'s order retaining the reduction of 10% is deleted;
++ the Directors are employees of the company and they have been suitably compensated. It is settled law that revenue cannot sit in the armchair of businessman and decide which business expenditure should be incurred in which manner. The AO cannot sit on assesses business acumen and judgment to decide that which percentage of the turnover should be paid to the directors for their experience and knowledge;
++ assessee filed a consolidated financial statement in which the expenses incurred by all the units and the head office have been reduced before arriving at the total eligible profit for claiming deduction u/s 80IC. AO has not controverted this statement in any manner. All sales, purchases and manufacturing activities are carried out by the Haridwar Unit. The other branches are providing sales promotion and after sales service The income earning activities thus cannot be held to the carried out from places other than the eligible unit besides in consolidated financial statement the income of these branches has already been reduced;
++ on going through the sub-section (6) of section 115JB it is clear that the exemption is available "from any business carried on.......... in a unit." The assessee has carried on the business in its unit at Haridwar and hence it is eligible for deduction under Section 115JB of the Act. The word between Unit and Special Economic Zone is not 'of', it is 'or'. Thus the unit does not get quantified with Special Economic Zone. The word 'Unit' is independent and hence the deduction cannot be restricted to a unit of SEZ. The deduction will be available from any business carried on in a Unit.
Revenue's appeal dismissed and assessee's appeal partly allowed
ORDER
Per: R P Tolani:
These are two cross appeals, filed by the revenue as well as the assessee, arising from CIT(A) order dated 29th March, 2012 relating to A.Y. 2008-09. Both the appeals are heard together and disposed of by a common order for the sake of convenience.
2. Respective grounds, effectively raised, are as under:
Assessee's appeal :-
Ld. CIT(A) erred in law and on facts in upholding the reduction in assesses claim u/s sec. 80IC on following issues:i. 10% of total turnover attributing it to market value of brand of the assessee., despite no such expenditure was incurred by it.ii. Upholding AO's action in holding that provisions of sec. 115JB is applicable to assesses case.
Revenue appeal:-
Ld. CIT(A) erred in law and on facts in upholding the reduction in assesses claim u/s sec. 80IC on following issues:(i) Restricting apportionment of profits in respect of Brand valuation to 10%.(ii) Deleting reduction of claim u/s 80IC by Rs. 29,75,890/- worked out by AO as attributable to directors due to high net profit of 33%.(iii) Assessee carried out only assembling of imported parts at Haridwar. CIT(A) failed to appreciate that profits reported by assessee were generated by joint activities of head office and branches. Hence the eligible profits have been rightly apportioned by AO between head office and branches.
2.1. A perusal of the grounds reveal that the main and common issue involved in both the appeals pertains to claim of deduction under Section 80-IC beside assesee's ground about application of 115JB.
3. Brief facts are the assessee is an industrial undertaking situated at Haridwar (Uttrakhand) and is claimed to be an eligible unit u/s 80-IC of the Act. It is engaged in the manufacture of auto parts like power locks, car locks and other similar parts used in the automobile industry. Its manufacturing operations commenced in preceding assessment year i.e. 2007-08 resulting in income of Rs.78.34 lacs on sales of Rs.2.72 crores on which deduction u/s 80IC was allowed by AO at Rs.78.34 u/s 80-IC by assessment u/s 143(3) dated. on 17-12-04.
3.1. During the year under consideration, assessee's turnover and book results improved resulting into income of Rs.3.69 Crores on the sales of Rs.10.55 croes, on which deduction u/s 80IC is claimed. The AO, though held that the assessee is eligible for deduction under Section 80-IC, however, the amount of deduction u/s 80IC was reduced holding that the profitability of the company was very high as comparable to market and a substantial part of it was attributable to the following factors:-
i) Brand valueii) Experience and knowledge of the directorsiii) Activities at the Branches
3.2. Based on these observations, AO held that Rs.2,11,03,237/- being 20% of the sale of Rs.10,55,16,186/- as the element of profit attributable to the market value of these factors i.e. brand value which is not eligible for deduction u/s 80-IC.
3.3. Ld. AO further held that the profit of Rs.52,75,809/- (being 5% of sale value of Rs.10,55,16,186/-) is attributable to the experience and knowledge of the directors, to whom Rs. 23.00 lacs were paid by assessee which was also not eligible for deduction under Section 80-IC.
3.4. It was further held that out of the balance profits i.e.Rs.1,07,68,503/-, 12% thereof was the profit eligible for deduction under Section 80-IC as against Rs.3,48,05,903/- claimed by assessee. Besides further holding that assessee is liable to pay MAT under Section 115JB and is not covered by exemption provided under sub-section (6) of Section 115JB.
3.5. Aggrieved assessee preferred appeal before ld. CIT(A) who held that the AO is not correct in estimating 20% of the turnover as the profit on account of brand and reduced the same to 10% of the sale. The CIT(A) further held that the AO was not justified in reducing the deduction u/s 80IC on account of experience and knowledge of directors which increased the income of the undertaking, and deleted the reduction of claim on this count. It was also held that the AO was not correct in restricting the balance deduction to 12% of the total profit on account of the expenses of branches.
3.6. Ld. CIT(A), however, confirmed the order of the AO holding that assessee to be liable to MAT under Section 115JB of the Act and is not exempt under clause (6) of Section 115JB.
3.7. Aggrieved both, the parties are before us; assessee against the partial disallowance of 10% of the turnover as profit on account of the market value of the brand; upholding the liability u/s 115JB and the revenue in respect of the relief granted by the learned CIT(A).
4. Ld. Counsel for the assessee Shri Ved Jain contends that ground. 1 of departmental appeal and ground 5 of assessee's appeal pertain to the first issue i.e. the determination of the profits eligible for deduction under section 80-IC. It has not been disputed that assessee is having an industrial undertaking at Haridwar which is eligible for deduction under section 80-IC. The entire sales of Rs.10,55,16,186/- has been made from Haridwar unit and assessee does not have any other unit or any other sales, purchases or income. The sale and purchases are fully vouched, there is no whisper of any allegation that sales have been over-invoiced or the purchases are understated by assessee. Books of accounts have been fully accepted. Thus there is neither any dispute about the veracity of accounts and their audit nor the computation of net profit of Rs.3,48,47,549/-.
4.1. Ld. AO has observed that assesses profits in preceding year are 29% and in current year 33%. Thus there is marginal increase in the profits as compared to earlier year. Despite these observations AO n page 1, para 2 has further held as under:-
"The net profit of the assessee works out to be 33% of the turnover which is very much higher as compared to the Industry average which is 3-5% of the turnover."
4.2. It amounts to observation based on surmises and conjectures. This fact is neither based on comparative instances nor any factual data, it is a generalized observation and unfounded allegation. It is vehemently argued that the observation is factually incorrect as no cogent basis whatsoever is placed on record to support it.
4.3. In appeal ld CIT(A) reduced it to 10% by following observations:
"AO has held that the appellant company had been showing high profit from the very first day and has attributed the high percentage of profit to the brand value established by the company before it started its manufacturing operation. The AO ha held that any extra profit realized by the assessee as a result of brand cannot be attributed to the business of the industrial undertaking and thus cannot be held to be eligible for deduction u/s 80IC of the Act. Since profit attributable to the brand value cannot be said to be derived by the industrial undertaking and hence eligible for deduction u/s 80IC, the contention of the AO in this regard is correct. As it has already been discussed above, only that profit which is derived by the industrial undertaking is eligible for deduction u/s 80IC.The AO has estimated the brand value to be 20% of the sale value of the products and has accordingly held that 20% of the sale value is attributable to the brand and not to the eligible industrial undertaking. The AO has computed the brand value on the basis of the total turnover of the appellant company. Computing the brand value on the basis of turnover is correct as the value of brand would have an impact on the total sales i.e. the turnover of the company. The estimation made by the AO however seems to be on the higher side as the sales turnover during the period ending 31-03-2006 was Rs. 1.21 crore as against Rs. 10.55 crore in the relevant period i.e. 10% of the present turnover approximately. Keeping in view, the growth of the company in the two years after start of manufacturing process and the profit attributable to the reduced cost of the goods as result of manufacturing, a against goods purchased by the appellant company from the market, the brand value of the goods is valued at 10% of the total turnover which in the current year was Rs. 10,55,16,186/-. Thus, out of the total profit the eligible profit for the purpose of section 80IC would be reduced by 10% Rs. 10,55,16,186 i.e. Rs. 1,05,51,618/-."
4.4. It is pleaded that ld. CIT(A) failed to appreciate that there is no reference to any expense on brand building incurred by the undertaking out of books or utilization of any brand owned by some other entity. Copy of registration certificate of brand in assesses name was already filed. Thus the brand is also a commercial asset of the eligible undertaking and is part of its income generating apparatus and is an integral part of the eligible profits for deduction u/s 80IC. The claim has been allowed on same lines in preceding year by an assessment u/s 143(3) after due verification. When assessee has demonstrated that the sale proceeds pertain to eligible unit, brand is owned by it and there is no allegation that any out of books expenditure has been incurred by unit for brand expenditure; there is no justification at all to reduce the claim u/s 80IC, ignoring these glaring facts.
4.5. Ld. counsel further contends that the prime condition of allowing deduction u/s 80-IC is to the effect that eligible unit should be engaged in manufacturing or production of the article or thing. There is no condition about the ownership of brand in allowing deduction u/s 80IC. The calculation of ratio of 20% by the AO and 10% by CIT(A) is purely a guess work which is evident from the fact that the 20% of the sale comes to 61% of the net profit. It is an admitted fact that assessee has not paid any expenditure paid as royalty or brand value to anyone. The goods manufactured and sold pertain to the impugned Haridwar unit which is corroborated by the Excise and VAT returns which are placed on PB pages 62 to 68. It is settled law that the eligible income is to be ascertained on the ordinary principle of commercial accounting. There is no provision in sec. 80IC to reduce the profit of any industrial undertaking attributable to any estimated or hypothetical brand value. The provision stipulates deduction of profits of industrial undertaking and do not refer to any reduction whatsoever on assumptions.
4.6. The assessee is subject to excise laws under which assesses product prices are approved after due inspection/ verification and in case of exigencies even referred to the cost audit, The major purchases of the assessee are by way of import of raw material which are subject to verification at the time of import. Hence the turnover shown in the balance sheet is correct, fully vouched and no error or discrepancy whatsoever has been pointed out.
4.7. It is pleaded that the reference made by ld CIT(A) to the judgment of the Authority for Advance Ruling in the case of Shams Tabrez Vanti [2005] 273 ITR 0299 = (2005-TIOL-06-ARA-IT)for upholding the disallowance of 10% of the turnover as income not arising from industrial undertaking is not proper. In this case the issue pertained to the interest income on the fixed deposit and the Authority for Advance Ruling has held that "source of income is independent of the export and hence cannot be considered to be an eligible income."
4.8. Similarly the reference by CIT(A) to the judgment of the Supreme Court in the case ofLiberty India vs. CIT [2009] 317 ITR 0218 = (2009-TIOL-100-SC-IT) is also not correct. It was a case of a Duty Drawback/DEPB and not of deduction i/s 80IC, there it was held that Duty Drawback and DEPB are independent source of income and cannot be included while determining the eligible income for deduction.
4.9. In the present case there is no dispute about the income earned being only from manufacture or production of article or thing. The only source of income as is evident from the profit and loss account is sales of Rs.10,55,16,186 from Haridwar unit only, where the manufacturing activities are being carried on and there is no other source of income like interest or DEPB or Duty Drawback or interest on FDR. On the contrary, both the lower authorities by apportioning a part of it towards market value of brand are going against the judgment of Hon'ble Supreme Court itself rendered in Liberty India (Supra). The entire sales being out of the manufacturing of product, there cannot be any bifurcation of sales that a percentage is on account of manufacturing and the other to brand value. The entire sales being from manufacturing no notional or hypothetical splitting is possible as endeavored by both the authorities below by arbitrarily assigning part of sales as estimated value of brand. More so when there is nothing on record to support the notion that assessee is using any technology owned by somebody else.
4.10. Reliance is placed by ld. Counsel on following judgments:-
(i) Ram Panjwani and Co vs IAC 39 ITD 21 (Delhi) –15. As regards the issue of bifurcation of income for the purposes of section 80HH, we find considerable merit in the submissions of the learned counsel for the assessee. The decision of the Supreme Court in the case of Anglo-French Textile Co. Ltd. was in an altogether different context. In that case the question was of bifurcation of income attributable to the taxable territories (British India) and attributable to the non-taxable territories. In that case bifurcation had to be made and was justified. The language of section 80HH, however, is different. While applying the provisions of the said section one has to see whether there was an industrial undertaking and what were the profits and gains derived from such an industrial undertaking. There is no manner of doubt that the assessee was running two industrial undertakings at Jammu and Yamuna Nagar. The assessee was manufacturing sleepers out of the forest trees. The income was derived from these industrial undertakings. It could not be said that the profit was derived partly from manufacturing activities and partly from trading activities. According to us the activity of getting a forest on lease, of felling the trees, of manufacturing the sleepers, of transporting them to the branches and of selling them was one integrated activity which could not be bifurcated or partitioned.Once the source was identified, namely, that the income had been derived from the industrial undertaking, no further enquiries could be made by the Revenue authorities. Shri Sapra's reliance on the decision of Karnataka High Court in Sterling Foods case is wellfounded. It is significant to note that where the legislature itself wanted bifurcation it had made provision for the same in the relevant section. Section 80HHC of the Act is a case in point. That section makes a clear distinction between the export sales and other sales because such a distinction was inherent in the situation and was called for. There is no such distinction contemplated under section 80HH. Manufacture or production of an article or thing is a condition precedent for an undertaking to become an industrial undertaking. That, however, does not mean that the profits derived from manufacture alone can be taken into consideration for working out the deduction under section 80HH. Once a particular undertaking is held to be an industrial undertaking then there is no alternative, but to go to the profits and gains derived from such an industrial undertaking for working out the relief under section 80HH. The use of the word "manufacture" is in a different context which should not be lost sight of. There is no justification for stretching it further and to hold that only manufacturing profits in the backward area would be considered for the purposes of section 80HH and not the trading profits. In a case where an assessee was manufacturing sleepers and was also purchasing sleepers for trading purposes it could perhaps be said that the assessee was having two separate activities and perhaps the income derived from the sale of sleepers which were purchased by the assessee it could be said that relief under section 80HH was not admissible. That is, however, not the case with the assessee. The assessee was not purchasing any sleepers from outside parties in its branches at Yamuna nagar and Jammu. The activity of manufacture and sale of the sleepers by the assessee has been held by us to be an integrated activity which could not be bifurcated or divided. It is also a salutary and well-settled principle of law that while construing the exemption provision a liberal approach should be adopted. As regards the Jammu branch there was no justification for reducing the profits by Rs. 9,99,133 as the sales were also taking place at Jammu which is a backward area. So even as per the learned CIT's own reasoning, such deduction from the profits was unjustified. Having regard to the entire facts and circumstances of the case including the one that assessment year 1985-86 was not the initial year. We hold that the learned CIT was in error in deducting amounts of Rs. 6,51,026 and Rs. 9,99,133 from the Yamuna Nagar branch and Jammu branch respectively for working out relief under section 80HH.(ii) Commissioner of Income Tax Versus M/s Godawari Power & Ispat Ltd. (Chhattisgarh High Court)'Whether on the facts and in the circumstances of the case, the "market value", as specified in Section [80-IA (8)] of the Act would be the same as the "sale price" of the State Electricity Board when the assessee did not incur any transmission loss or administrative or any other charges which the State Electricity Board has to incur for the same?'31. The market value of the power supplied to the Steel-Division should be computed considering the rate of power to a consumer in the open market and it should not be compared with the rate of power when it is sold to a supplier as this is not the rate for which a consumer or the Steel- Division could have purchased power in the open market. The rate of power to a supplier is not the market rate to a consumer in the open market.32. In our opinion, the AO committed an illegality in computing the market value by taking into account the rate charged to a supplier: it should have been compared with the market value of power supplied to a consumer.33. It is admitted by the Department that in Chhattisgarh the power was supplied to the industrial consumers at the rate of Rs. 3.20/- per unit for the AY 2004-05 and Rs. 3.75/- per unit for the AYs 2005-06 and 2006-07. It was this rate that was to be considered while computing the market value of the power.34. The CIT-A and the Tribunal had rightly computed the market value of the power after considering it with the rate of power available in the open market namely the price charged by the Board. There is no illegality in their orders.35. In view of above, the question is decided against the Department and in favour of the Assessee. The tax appeals have no merit. They are dismissed.(iii) Commissioner of Income-tax -III Versus Velankani Information Systems (P.) Ltd., (ITA Nos. 374 & 375 of 2011 and 273 to 276 of 2012 dated - April 2, 2013 (Karnataka)But if the assessee is in the business of taking land, putting up commercial buildings thereon and letting out such buildings with all furniture as his profession or business, then notwithstanding the fact that he has constructed a building and he has also provided other facilities and even if there are two separate rental deeds, it does not fall within the heading of income from house property. Therefore, firstly what is the intention behind the lease and secondly what are the facilities given along with the buildings and documents executed in respect of each of them is to be seen. Thirdly it is to be found out whether it is inseparable or not. If they are inseparable and the intention is to carry on the business of letting out the commercial property and carrying at complex commercial activity and getting rental income therefrom, then such a rental income falls under the heading of profits and gains of business or profession. In fact, any other interpretation would defeat the very object of introduction of Section 80-IA as well as the scheme which is framed by the Government for development of industrial parks in the country. In that view of the matter, the finding recorded by the Appellate Authority as well as the Tribunal is in accordance with law and does not suffer from any legal infirmity which calls for interference. Accordingly, the substantial questions 1 and 2 are answered in favour of the assessee and against the revenue.
5. Ld. DR supported the order of AO.
6. We have heard the rival contentions and perused the material available on record. We find merit in the contentions of ld counsel that assesses books have been accepted, brand is owned by it which is integral part of the assets of the eligible unit. The sales have not been disturbed; profits of the eligible unit have gone up to 33% from preceding year's 29% due to its product superiority. The basis given by authorities below for reduction of claim is vague and factually incorrect based on an assumption that brand does not belong to the assessee. Without any material or basis, it is assumed that it may belong to some other concern connected to its directors. The fact of the matter is that the brand is owned by assessee and the products manufactured at Haridwar unit are the only products. There exists no other entity which is identified as owner of the brand by AO thus the allegation is factually incorrect.
6.1. The provision of sec 80IC have been introduced by legislature to promote the industrial activity and their profitability. Merely because the industrial undertaking earned higher profits does not call for an inference that claim of deduction is to be wily nily reduced on presumptions. In consideration of entirety of facts and circumstances we see no justification in CIT(A)s order retaining the reduction of 10% from the deduction, same is deleted. Revenues ground is dismissed and that of assessee is upheld on this issue.
7. Apropos second issue raised by revenue facts are, disallowance of Rs.29,75,809/- made by the AO, computed @ 5% of the turnover as the value of the directors' experience and knowledge.
8. Ld. DR supports the order of AO.
9. Ld. Counsel for the assessee contends that the Directors are employees of the company and they have been suitably compensated. It is settled law that revenue cannot sit in the armchair of businessman and decide which business expenditure should be incurred in which manner. The AO cannot sit on assesses business acumen and judgment to decide that which percentage of the turnover should be paid to the directors for their experience and knowledge.
9.1. Ld. CIT(A) on page 20 of his order has elaborately dealt with the facts and contentions and objectively held that the payment of Rs.23 Lacs to director is adequate and calls for no further estimation based on surmises. It is pleaded by the assessee that reasonings given by the CIT(A) for deletion of the addition are objective and correct the order needs to be upheld.
10. We have heard the rival contentions and perused the material available on record. Ld. CIT(A) has deleted this disallowance by following observations:
"The AO has held that any extra profit realized by the assessee as a result of the services know-how and special knowledge of the director cannot be attributed to the business of the industrial undertaking and thus cannot be held to be eligible for deduction u/s 80IC of the Act. The AO has estimated the value of services know-how and special knowledge of the director to be 5% of the sale value of the products and has accordingly held that 5% of the sale value is attributable to the service, know-how and special knowledge of the director and not to the eligible industrial undertaking. As per the profit & loss a/c and as per the assessment order a sum of Rs. 23,00,000/- is being paid to the directors as salary and another Rs. 13,00,000/- is being paid to M/s R.D. Enterprises, the distributor of the products of the company. The AO has held that 5% of the turnover of the company is attributable to the experience and specialized knowledge of the director and not to the eligible unit. As per the P&L a/c for the period ending 31-03-2006, the director's remuneration was Rs. 60,000/-. Over a period of two years it has been increased to Rs. 23,00,000/-. This shows that adequate compensation is being provided to the director for his services, knowledge, contract and skills. As the company ha adequately compensated the director for using their experience and specialized knowledge, therefore, the benefit accruing to the company belongs to it and would form part of its eligible profit. Benefit accruing a company as a result of experience or knowledge of its employees (Directors) cannot be used to bifurcate the eligible profit derived by the industrial undertaking u/s 80IC. Therefore, the decision of the AO that 5% of the sale value does not form part of the eligible profit is not sustained."
9.2. In our view the reasoning adopted by CIT(A) is proper and justified. While dealing with the first issue raised by revenue we have given elaborate reasons to hold that claim u/s 80IC can not be reduced on surmises and assumptions. For the same reasons we uphold the order of ld CIT(A) on this issue. Revenue ground is dismissed.
10. The facts about third issue raised by revenue are – ld. AO held that entire profits derived by industrial undertaking at Haridwar cannot be allowed as it is to be allocated to other branches on the basis of salary and wages expenses. Thus only 12% of the profit derived from the industrial undertaking will be eligible for deduction under section 80-IC. Assessee claimed that all the purchases, sales and manufacturing activities are carried out at Haridwar industrial undertaking only. There is no rationale to hold that expenses incurred at the Branch offices/head office will be the basis for allowing deduction under section 80-IC of the Act. Rejecting assesses explanation AO reduced the claim u/s 80IC.
10.1. Aggrieved assessee preferred first appeal, where it was contended that it is not the case of the AO that all the expenses of head office or branches have not been deducted while computing 80-IC of the Act. The AO's contention is baseless as an assumption may be possible when there is a finding that part of these expenses is not deducted while working of the eligible income. When it un disputed that relevant expenses have been properly and correctly accounted for in the books which are duly audited and considered while computing the income of the eligible unit, there is no rationale in the assuming that any other activity is carried out by the appellant.
10.2. Ld. CIT(A) deleted the reduction of claim u/s 80IC by observing as under:
"The AO has held that the entire profit cannot be held to be derived from the undertaking at Haridwar and has allocated the profit to different branches on the basis of expense under the head salary and wages. The AO has held that the entire profit cannot be held to be derived from the undertaking at Haridwar and has held that most of the income earning activities resulting in profit to the assessee is carried from places other than the eligible unit and thus this income cannot be held to be eligible for deduction u/s 80IC of the Act. The entire sales are being made from the Haridwar branch. This is further confirmed from the VAT details filed by the appellant. The excise records also confirm that the entire manufacturing activities is being carried out at Haridwar Unit. The affidavit has also been filed by the Director of the appellant company during assessment proceedings confirming that all sales and purchases are being made by the Haridwar Unit. The other units of the appellant company are providing sales promotion and after sales service The income earning activities thus cannot be held to the carried out from places other than the eligible unit. Further, the appellant company has prepared a consolidated financial statement in which the expenses incurred by all the units and the head office have been reduced before arriving at the total eligible profit for claiming deduction u/s 80IC. Keeping in view the above facts and circumstances, the decision of the AO is not sustained."
11. Ld. DR relied on the order of AO and ld. Counsel for assessee on the order of CIT(A).
12. We have heard the rival contentions and perused the material available on record. It is not disputed that assessee filed a consolidated financial statement in which the expenses incurred by all the units and the head office have been reduced before arriving at the total eligible profit for claiming deduction u/s 80IC. AO has not controverted this statement in any manner. All sales, purchases and manufacturing activities are carried out by the Haridwar Unit. The other branches are providing sales promotion and after sales service The income earning activities thus cannot be held to the carried out from places other than the eligible unit besides in consolidated financial statement the income of these branches has already been reduced. In consideration of all these facts and circumstances we uphold the order of CIT(A), this ground of the revenue is dismissed.
13. Apropos assesses remaining issue about MAT, Ld. AO held that the assessee is liable to pay MAT under Section 115JB. The CIT(A) has upheld the order. In this regard it may be relevant to refer to sub-section (6) of Section 115JB which reads as under:-
"(6) The provisions of this section shall not apply to the income accrued or arising on or after the 1st day of April, 2005 from any business carried on, or services rendered, by an entrepreneur or a Developer, in a Unit or Special Economic Zone, as the case may be."
13.1. The authorities below have held that this exemption is available to SEZ only and that too when the assessee is a developer. On going through the above sub-section (6) it is clear that the exemption is available "from any business carried on.......... in a unit." The assessee has carried on the business in its unit at Haridwar and hence it is eligible for deduction under Section 115JB of the Act. The word between Unit and Special Economic Zone is not 'of', it is 'or'. Thus the unit does not get quantified with Special Economic Zone. The word 'Unit' is independent and hence the deduction cannot be restricted to a unit of SEZ. The deduction will be available from any business carried on in a Unit.
14. After hearing both the parties and perusing the material available on record we see no infirmity in the orders of authorities below which are upheld. Assessee's ground in this behalf is dismissed.
15. In the result revenue's appeal is dismissed and assessee's appeal is partly allowed.
(Order pronounced in open court on 10.1.2014.)
014-TIOL-619-CESTAT-MUM
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH, MUMBAI
COURT NO.II
WEST ZONAL BENCH, MUMBAI
COURT NO.II
Appeal Nos. E/1362 to 1365/2012
Arising out of Order-in-Original No.19/CE/2012 Dated: 25.5.2012
Passed by the Commissioner of Central Excise, Pune
Passed by the Commissioner of Central Excise, Pune
Date of Hearing: 29.11.2013
Date of Decision: 25.3.2014
Date of Decision: 25.3.2014
1) TATA MOTORS LTD, PUNE
2) SHRI S KRISHNAN
3) SHRI RAJESH BAGGA
4) SHRI NITIN SETH
2) SHRI S KRISHNAN
3) SHRI RAJESH BAGGA
4) SHRI NITIN SETH
Vs
COMMISSIONER OF CENTRAL EXCISE, PUNE
Appellant Rep by: Shri V Sridharan, Sr Adv.
Respondent Rep by: Shri K M Mondal, Special Consultant
Respondent Rep by: Shri K M Mondal, Special Consultant
CORAM: P R Chandrasekharan, Member (T)
Anil Choudhary, Member (J)
Anil Choudhary, Member (J)
CX - Valuation - So-called 'special discount' is not a discount at all is established by the fact that it was never passed on to the ultimate customers of cars and, therefore, is includible in Assessable value - Demand of Rs.59 crores upheld against M/s Tata Motors Ltd by CESTAT
Background
M/s. Tata Motors Ltd. is engaged in the manufacture of passenger cars of Indica & Indigo brand and utility vehicles, such as Sumo, Safari in its factory at Pimpri, Pune. The present proceedings are concerned with the valuation of cars sold to dealers during the period April, 2006 to July, 2008. Indica cars are smaller compared to Indigo cars and at the relevant time, they carried lower a rate of duty, compared to Indigo cars and utility vehicles.
In August, 2009 based on information received by the DGCEI, Pune that TML had evaded Central Excise duty by reducing the assessable value of Indigo cars (except Indigo CS Model) in the guise of 'Special discount', investigation was conducted by the officers of DGCEI.
Facts that emerged from the investigation:
i) During the period from April, 2006 to July 2008, the incentive amounts attributable to Indica & Indigo Cars and payable to the dealers based on their performance as per the monthly Car Target Schemes were paid to the dealer by reducing the value of only Indigo Cars (except Indigo CS) under the guise of special discount @ Rs. 30,000/- or Rs. 45,000/- or Rs. 1,00,000/- (at different points of time) sold from the factory of TML to the dealer in the succeeding month(s).(ii) When sufficient number of Indigo Cars were not lifted by the dealer(s), then TML reduced the transaction value of Utility Vehicles so as to pass on the incentives attributable to Indica & Indigo Cars for the past period.iii) The transaction values of Indigo Cars & Utility Vehicles were reduced for paying the incentive amounts to dealers in the guise of 'special discounts' as these vehicles attracted higher rate of Central Excise duty than Indica Cars.
During the investigation, M/s TML worked out the duty at Rs.13,65,04,371/- and the same was paid along with interest of Rs.5,97,29,218/- and 25% penalty on the Excise Duty amounting to Rs.3,41,26,093/-.
After completion of investigation, a show-cause notice dtd. 6/5/2011 was issued to TML demanding a total Central Excise duty of Rs.59,00,94,013/- for the period April, 2006 to July, 2008, besides interest payable thereon apart from proposing to impose penalties under Section 11AC of the Central Excise Act, 1944 and under Rule 25 of the Central Excise Rules,2002, The notice also proposed to appropriate the amounts paid during the investigation. The notice also proposed imposition of penalties on Shri Krishnan, the then Vice President-Passenger Car, Shri Rajesh Bagga, Vice President-Legal and Shri Nitin Seth, General Manager Car Product Group of TML under Rule 26 of the Central Excise Rules, 2002 for their various acts of omissions and commissions.
The demand was confirmed along with interest and imposition of equal penalty. Personal penalties were also imposed on the various co-noticees.
Order of the Bench
++ In his letter to the investigating agencies vide PYG-416 dated 20-4-2011, the Sr. Vice President (Corp. Finance) had submitted that "the company had adopted the method of passing of discounts through sale of Indigo/UVs on a purely commercial consideration without any intent to evade payment of duty. According to us, it would not be out of place to state that had the company passed on the discounts as applicable to the respective vehicles, this controversy would not have arisen at all." It is further on record that they had also paid interest on the said duty amount apart from 25% thereof being the penalty payable on the said amount of duty short paid. [Payments made - duty of Rs.13,65,04,371/- interest of Rs.5,97,29,128/- and penalty of Rs.3,41,26,093/-]. In the said letter, it is further mentioned that this has been done to put an end to coercive investigation and the factum of payment should not construed as an admission of any offence in any manner of whatsoever. In view of the above factual position and considering the voluntary nature of payment made, the duty demand to the above extent along with interest has to be clearly upheld and we do so.
++ From a plain reading of the above (s.4) provisions, it can be seen that the article preceding the expression "goods" and "price" in the said section 4 is the definite article "the" and not an indefinite article. The use of the definite article implies that section 4 envisages determination of value in respect of the goods under removal for each removal of the goods. Therefore, if the valuation has to be done in respect of Indica cars which are removed and on which discounts are being offered on sale, the benefit of such reduction has to be made by reducing the price of Indica cars and determination of value has to be made for each removal of Indica cars. It is an admitted fact in the case before us that this has not been done.
++ The price reduction has been effected not on the goods to which it applies but by reducing the price of some other goods (other models of cars) which were cleared at a subsequent point of time. Thus the provisions of section 4 have not been adhered to or complied with on the transactions.
++ The Car Target Schemes do not specify or spell out in what form and in what manner the incentive amounts will be given to the dealers. It is on record that each dealer has a running account maintained with M/s. TML. Therefore, as a matter of accounting, in the normal course, the incentive amounts should have been credited to the dealer's running account maintained with M/s. TML. However, instead of doing so, M/s. TML chose to pass on the incentive amounts to the dealers in the guise of 'Special Discount' by reducing the transaction value of only the Indigo Cars purchased by the dealers during the subsequent months. These incentive amounts earned by the dealers by achieving the targets fixed by M/s. TML cannot be termed as a 'Special Discount' for the following reasons. The so-called 'Special Discount' has no relation to the goods under assessment and has not been passed on by reducing the price of the goods under assessment.
++ From the statements of dealers, it clearly emerges that the dealers did not receive any communication whatsoever from TML nor did they know that they would be receiving discounts of Rs.30,000/-, Rs.45,000/- or Rs.1,00,000/-, as the case may be, by means of reduction in prices of Indigo cars (for a certain number of vehicles) cleared by them from the factory of TML in the subsequent month. Thus, though the dealers knew that they would be receiving some discount on achieving the targets for both off-take and retail, they had no knowledge whatsoever about the quantum of the discount or how such discounts would be passed on and in what manner.
++ From the statements of the company personnel, it is evident that the top management of TML, barring Mr. Krishnan was completely ignorant or unaware of how the discounts were determined and passed on to the dealers. If that be so, it is unimaginable how the dealers could have come to know about the quantum of discount or its delivery mechanism.
++ The fact that the so-called 'special discount' is not a discount at all is established by the fact that it was never passed on to the ultimate customers of cars.
++ Monthly circulars addressed to the Regional Managers of TML with advice to inform the dealers of the incentive structure for the month are false & fabricated. These were created only to tell the investigation that the dealers were aware of the discount structure before removal of the goods.
++ The following conclusions emerge -
(1) The special discounts under the Car Target and Schemes were passed on to the dealers not as reduction in the prices of the goods to which they relate to but as a reduction in the prices of some other goods cleared in the subsequent month.(2) The discount was a conditional one subject to achieving certain off-take and retail targets and basis for fixing these targets were not made known to the dealers.(3) The so called discounts were dealer specific and there is no evidence on record that these were uniform within the same class of buyers.(4) Most of the discounts were reimbursements/compensation to the dealers by the appellant for the various services rendered by the dealers to the customers such as warranty services, insurance services, financial services (interest subventions), loyalty and exchange bonuses.(5) The quantum and method of reimbursement of the discounts were not made known to the dealers at or before the sale of cars. The same was also not known to the top management of the appellant firm and there was no company policy for giving such discounts.(6) The entire scheme was conceived and operationalized by only one person and the quantum and form adopted for passing on the discounts were arbitrary.(7) There is no evidence brought out by the appellant that the novel discount scheme adopted by them was an industry/trade practice and the dealership agreement did not also envisage any such scheme.(8) There is also no evidence on record to show that the goods on which the discounts were given (by price reduction of cars) while effecting sales to the dealers were passed on to the customer, that is, buyers of the cars. In fact the evidences available on record prove the contrary.(9) An attempt was made to mislead the investigation by submission of false/fabricated circulars claimed to have been issued to the dealers the receipt of which has been denied by all the dealers. Even the Regional Sales Managers who were directed to circulate the same were not aware of their existence as also the top management who were directly concerned with the business operations of the appellant firm.
++ The so-called "special discount" offered by the appellant does not conform to any of the requirements of the trade discount. That is, it is not known at or prior to the removal of the goods; it is not in accordance with any established trade practice; it is not in accordance with any established trade practice; it is uniform within the same class of buyers; it is purely arbitrary; it is a compensation for the services rendered by the dealers on behalf of the manufacturer, masqueraded as a discount; it is not passed on to the end customers; and it is not passed on as a price reduction of the goods to which it pertains to. Thus 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. The demand for differential duty confirmed in the impugned order is upheld.
++ Once the demand for differential duty is upheld, the liability to pay interest thereon is automatic and consequential.
Limitation:
++ It is not in dispute that the appellant did not declare or inform the department about the new incentive scheme at any point of time either through letters or by way of declaration in the statutory returns filed with the department. In these circumstances, the contention of the appellant that the demands are hit by limitation cannot be accepted. The decision of the High Court of Gujarat in the case of Neminath Fabrics 2011-TIOL-10-HC-AHM-CX is relevant.
++ The appellant resorted to subterfuge by fabricating false documents to mis-lead the investigation. This conduct of the appellants also clearly establishes both suppression and willful mis-statement on their part to evade excise duty.
++ The extended period of time has been rightly invoked.
Penalty on assessee u/s 11AC:
++ Once the demand for differential duty and interest by invoking the extended period of time is upheld, mandatory penalty under section 11AC is imposable. We uphold the penalty imposed under section 11AC. However, since part of the differential duty of Rs.13,65,04,371/- along with interest thereon and 25% of the duty as penalty has been paid by the appellant before the issue of show cause notice, the mandatory penalty imposable under section 11AC would be only Rs.45,34,89,642/-, as abatement of penalty to the extent of 75% is available if duty, interest and penalty is paid within 30 days of the date of the order confirming the duty demand. Therefore, in respect of differential duty of Rs.13,65,04,371/-, only 25% of the said amount (which has already been paid) is liable to be paid as penalty.
Penalties on company personnel:
++ The said penalty is imposable u/r 26 of CER, 2002 only when the goods, on which differential duty is confirmed, are held liable to confiscation under Rule 25 of the said Rules and the persons concerned are aware that the goods are liable to confiscation. Neither in the show-cause notice nor in the impugned order, is there any proposal to hold the goods liable to confiscation nor any finding to that effect. In the absence of such a finding, imposition of penalties on the said officials of the appellant firm cannot be sustained in law.
Appeals disposed of
Cases law cited -
CE vs. Gujarat Bottling Co. - 1998 (99) ELT 330 (T)...Para 3.5
Perfect Victor Circle Vs. CCE- Order dated 25.6.1998...3.6
GOI vs. Madras Rubber Factory - 2002-TIOL-49-SC-CX...Para 3.7, 3.9
Addison & CO. Ltd. Vs. CCE - 1997 (91) ELT 532 (SC)...Para 3.10
CCE Vs. Punjab Chemicals & Pharmaceuticals - 1999 (107) ELT 57 (T)...Para 3.11
Electrolux Kelvinator Ltd. Vs. CCE - 2003-TIOL-148-CESTAT-DEL...Para 3.11
Fag Precision Bearing Vs. CCE - 2000 (118) ELT 711 (T)...Para 3.11
Reliance Industries Limited Vs. CCE - 2001 (133) ELT 773 (T)...Para 3.11
Bhor Industries Vs. CCE in order NO. A/178-179/WZB/2005/C-I dated 5.1.2005 - 2005-TIOL-390-CESTAT-MUM...Para 3.11
Goodlass Nerolac Vs. UOI - 1993 (65) ELT 186 (Bom)...Para 3.11
Supreme Court - 1994 (73) ELT A58 (SC)...Para 3.11
Nalco Chemicals Ltd. vs. CCE - 1998 (104) ELT 730 (tri)...Para 3.12
Samtel India Ltd. Vs.CCE - 1998 (103) ELT 92 (T)...Para 3.12
UOI Vs. Bombay Tyre International - 2002-TIOL-33-SC-CX-LB ...Para 3.14
CCE Vs. Victory Electricals- Order dated 18.11.2013 - 2013-TIOL-1794-CESTAT-MAD-LB...Para 3.18
CCE Vs. TFL Quinn India Pvt. Ltd. - 2012-TIOL-35-CESTAT-BANG...Para 3.24
Motors & General Insurance Stores Vs. CIT - 2002-TIOL-820-SC-IT-LB...Para 3.27
(1967) 66 ITR 692 (SC)...Para 3.27
Bhattacharjee Brothers Vs. Supdt. of Taxes, Dibrugarh - 1986 STC 63 (346)...Para 3.27
Union of India & Ors. Vs. Bombay Tyres International Pvt. Ltd. - 2002-TIOL-33-SC-CX...Para 4.3
Asstt. Commissioner of C.Ex. & Ors. V/s. Madras Rubber Factory Ltd. & Ors. - 2002-TIOL-382-SC-CX...Para 4.4
Commissioner of Customs V/s. Bureau Veritas - 2005-TIOL-24-SC-CUS-LB...Para 4.5
Chandra Kishor Jha vs. Mahabir Prassad & Ors. [(1999) 8 SCC 266]...Para 5.3
Auto Lamps Ltd. vs. Collector of Central Excise [1986 (10) ECC 170)...Para 5.4
[1997 (94) ELT A160 (SC)]...Para 5.4
Maruti Suzuki India Ltd. - 2010-TIOL-1127-CESTAT-DEL-LB ...Para 6.4
2013 (291) ELT A81 (SC)]...Para 6.4
Neminath Fabrics - 2011-TIOL-10-HC-AHM-CX...Para 7
Mcdowell And Co. Ltd. vs. Commercial Tax Officer - 2002-TIOL-40-SC-CT-CB,...Para 7.2
Ramsay [1982 AC 300]...Para 7.2
ORDER NO: A/200-203/14/EB/C-II
Per: P R Chandrasekharan:
1. The appeals are directed against Order-in-Original No. 19/CE/2012 dated 25/05/2012 passed by the Commissioner of Central Excise, Pune. The case was heard on 19/9/2013, 11/10/2013, 27/11/2013, 28/11/2013 and 29/11/2013. The final written submissions were filed by the Revenue on 9/12/2013 and by the appellant M/s Tata Motors Ltd. on 7/1/2014.
2. The brief facts of the case are as follows:
2.1 M/s. Tata Motors ltd. (TML, for short) is engaged in the manufacture of passenger cars of Indica & Indigo brand and utility vehicles, such as Sumo, Safari in its factory at Pimpri, Pune. The present proceedings are concerned with the valuation of cars sold to dealers during the period April, 2006 to July, 2008.
2.2 Indica cars are smaller compared to Indigo cars and at the relevant time, they carried lower a rate of duty, compared to Indigo cars and utility vehicles. TML sold one car under one invoice and invoices in the relevant period stated that the transaction value was arrived at as per Section 4(1)(a) of the Central Excise Act, 1944.
2.3 In August, 2009, an information was received by the DGCEI, Pune that TML had evaded central Excise duty by reducing the assessable value of Indigo cars (except Indigo CS Model) in the guise of 'Special discount'. Based on this information, investigation was conducted by the officers of DGCEI.
2.4 In the course of investigation, it was found that TML had devised a scheme called Monthly Car targets and schemes. These schemes are linked with dealers' achievement of monthly retail sales and monthly off-take targets. Once the dealers achieve the off-take and retail sale targets, they become entitled to certain incentives. These schemes were in the nature of providing accessories, loan with soft interest rates, free extended warranty, or free insurance cover provided for the vehicles. In some cases, it was a plain cash discount provided by the dealer. To ensure that the dealer's reselling margins were not affected, TML was compensating or subsidizing the expenses incurred by the dealers in offering the above schemes to the buyers. In respect of each of such schemes, TML's contribution was mentioned. There were certain other schemes like loyalty bonus, dealers' sales person's incentives, etc. Under the dealer sales persons' incentives, TML gave incentives to the dealers' sales person to sell a particular model of Tata car and the dealer's sale person got paid a certain amount which was borne by TML. IT is these expenses which were borne by the dealers while reselling the cars purchased from TIL to the ultimate consumers, which are being compensated by TML. This compensation was done by way of reduction of the value of some of the Indigo cars sold in the subsequent months by an amount of Rs. 1,00,000/- per car.
2.5 During the investigation, statements of most of the senior officials of TML were recorded to ascertain the factual position. Shri Suhas Kulkarni, Asstt. General Manager (Finance), in his statement recorded on 03/08/2009, on being asked as to how discounts reflected in the invoices of TML to its dealers were worked out, stated that quantification of discount was done by their Sales-Finance office at Thane in consultation with their Marketing office at Mumbai. He also submitted copies of discount circulars addressed to all the Car dealers in respect of the passenger cars for May, June and July, 2008 one of which read as follows:
DISCOUNT CIRCULAR | ||
NS/858 | Date: 7 th May, 2008 | |
To, All Car Dealers Dear Sir, Incentive Payable during the period 8.5.2008 to 11.06.2008 This is to inform you that you will be entitled to the following discount for the Period 08.05.2008 to 11.06.2008 | ||
Product | No. of Vehicles | Amount per Vehicles (Rs.) |
Indigo | As per list | 1,00,000.00 |
2.6 Shri S. Krishnan, Vice President (Passenger Cars) in his statement recorded on 26/08/2009, inter alia, submitted the discount circulars for the months of January & February, 2008 addressed to Regional Managers, West, East, North & South and a copy of the said circular for the month of January, 2008 read as follows:
DISCOUNT CIRCULAR | |
To, Regional Managers, West, East, North & South | Jan 2, 2008 |
Sub: Incentive Structure for the month of Jan'08 We are pleased to inform the incentives Structures for the month of Jan'08 | |
All Utility vehicles | - Rs. 85,000 |
All Indica/Indigo CS | - Rs. 0 |
All, Indigo, Man | |
Kindly inform the dealers of the scheme for the month. | |
Regards S.G. Saksena | Nitin Seth |
(Head-UV Product Group) | (Head-Car Product Group) |
CC: Mr. S. Krishnan - Vice President. | |
2.7 In his subsequent statement dt. 18.03.2010, Shri S. Krishnan had also, inter alia, admitted that the figures of special discounts offered to the dealers (i.e. Rs.30,000/-, Rs. 45,000/- and Rs. 1,00,000/-) were arbitrarily arrived to pass on the total incentives to the dealers by reducing the transaction value of Indigo Cars. He also stated that the dealers were not concerned with the method of payment as long as they received the incentives.
2.8 Statements of the following authorized dealers of TML were also recorded.
(i) Shri S.C. Vartak, Vice President, M/s. Pandit Automotive Pvt. Ltd., Pune(ii) Shri Suraj Dada, Managing Director of M/s. Dada Motors pvt. Ltd., Savitri, Ludhiana.(iii) Shri Ravleen Singh Grewal, Director of M/s. Garyson Motors pvt. Ltd. Sherpur Chowk, Ludhiana(iv) Shri Gautamchand Jain, Managing Director of Autofin Limited.(v) Shri Shree Kumar P., Dy General Manager of M/s. R.F. Motors Pvt.ltd., Kochi(vi) Shri Suman Kapur, General Manager of M/s. Society Motors Ltd.(vii) Shri S. Shanmugasundaram. General Manager (Finance) of M/s. VST Motors Ltd., Chennai(viii) Shri P. Chandra Sekhar, Sr. Manager, Finance & Corporate Affairs of M/s. Prerana Motors (P) Ltd., Bangalore.All of them had, inter alia, stated that the car target schemes submitted by them were the only discount and sale policies circulated by TML.
2.9 Statements of some of the Regional Managers of TML were also recorded in this regard.
(a) In his statement dtd. 05/11/2009, Shri Deepankar Tiwari, Regional Manager of TML, Mumbai, had, inter alia, stated that apart from Car/UV target schemes, no other document was issued to the dealers on monthly basis.(b) In his statement, Shri. K. Vijay Menon, Regional Manager-South-2, Passenger Car Business Unit, Chennai had, inter alia, stated that he had not seen the so-called circulars/incentive structure as submitted by Shri S. Krishnan under his statement dtd. 26/08/2009.
It, therefore, appeared that discount circulars/incentive structure as submitted by Shri Suhas Kulkarni and Shri S. Krishnan were false & fabricated documents. It also appeared that-
(i) The Monthly Car Target Schemes were the only circulars issued by TML in the course of sale of their cars;(ii) The Car Target Scheme contained various offers to the retail customers in the case of cars already bought by the dealers from TML.(iii) The Scheme also contained various incentives (separate incentive for each brand of car) for the dealer for lifting of more number of cars from TML.(iv) Investigation also found that during the period April, 2006 to July, 2008, the Car Target Scheme did not contain any provisions where discounts of Rs. 30,000/-, Rs. 45,000/- or Rs. 1,00,000/-, as the case may be, were to be given to the dealers at the time of purchase of Indigo Cars (except Indigo CS Model) from the factory of TML.(v) As per the Car Target Schemes, the dealer gave various discounts to the retail customers, part of which is compensated by TML. Further, TML also gave incentives to the dealers on the Off-take Targets being achieved by him on purchases from the factory of TML.(vi) As per the Car Target Schemes, the amounts in both the cases were different for different brands of Cars, such as Indica, Indigo, Indigo CS etc.(vii) Based on the performance of the dealers in the previous months vis-Ã -vis the Car Target Scheme, the Regional Offices worked out the incentive amounts payable by TML to the dealer in respect of each brand of Cars i.e. Indigo and Indica Cars.(viii) The Regional sales Offices relayed this information to their Sales Headquarters in the beginning of the month. The Sales Headquarters, in turn, conveyed this to their Sales-Finance Office at Thane to load the amount of incentives payable to each dealer in the System as discounts on the sale of Indigo Cars & Utility Vehicles only in the subsequent months from the factory of TML.
2.10 The investigation also found that during April, 2006 to July, 2008, incentives attributable to Indica Cars as per the Off-Take/retail targets achieved by the dealers were paid to the dealers by way of reducing the value of Indigo Cars @ Rs.1,00,000/- per Car sold in the succeeding month from the factory of TML to the same dealer. This has been admitted by the senior officials of TML in their respective statements recorded during the investigation.
2.11 What finally emerged from the investigation is as follows:
i) During the period from April, 2006 to July 2008, the incentive amounts attributable to Indica & Indigo Cars and payable to the dealers based on their performance as per the monthly Car Target Schemes were paid to the dealer by reducing the value of only Indigo Cars (except Indigo CS) under the guise of special discount @ Rs. 30,000/- or Rs. 45,000/- or Rs. 1,00,000/- (at different points of time) sold from the factory of TML to the dealer in the succeeding month(s).(ii) When sufficient number of Indigo Cars were not lifted by the dealer(s), then TML reduced the transaction value of Utility Vehicles so as to pass on the incentives attributable to Indica & Indigo Cars for the past period.iii) The transaction values of Indigo Cars & Utility Vehicles were reduced for paying the incentive amounts to dealers in the guise of 'special discounts' as these vehicles attracted higher rate of Central Excise duty than Indica Cars.
2.12 During the investigation, TML took the stand that the discounts were passed on to the dealers through the sales of Indigo Cars and Utility Vehicles in order to enable them to sustain their operation in an extremely competitive environment. It was just a case of cross model utilization of discounts and no mala fide could be attributed to them. However, to put an end to the investigation, they worked out the duty at Rs. 13,65,04,371/- and the same was paid along with interest of Rs. 5,97,29,218/- and 25% penalty on the Excise Duty amounting to Rs. 3,41,26,093/-.
2.13 However, on examination of the various documents and records as also the statements of the dealers, it appeared that the so-called 'special discount' is not relatable to any particular transaction between the dealer and TML. It was actually a case of settlement of the old claims of the dealers. During the investigation, it was also noticed from the Books of Accounts of M/s. Pandit Automotive Pvt. Ltd., one of the authorized dealers of TML that the incentive amount had been shown as 'receivables' from TML.
2.14 After completion of investigation, a show-cause notice dtd. 6/5/2011 was issued to TML demanding a total Central Excise duty of Rs. 59,00,94,013/- (including NCCD, Automobile Cess, Education Cess, Secondary & Higher Education Cess) for the period April, 2006 to July, 2008, besides interest payable thereon apart from proposing to impose penalties under Section 11AC of the Central Excise Act, 1944 and under Rule 25 of the Central Excise Rules,2002, The notice also proposed to appropriate the amounts of Central Excise duty of Rs. 13,65,04,371/- interest of Rs. 5,97,29,128/- and penalty of Rs. 3,41,26,093/- paid during the investigation. The notice also proposed imposition of penalties on Shri Krishnan, the then Vice President-Passenger Car, Shri Rajesh Bagga, Vice President-Legal and Shri Nitin Seth, General Manager Car Product Group of TML under Rule 26 of the Central Excise Rules, 2002 for their various acts of omissions and commissions.
2.15 In adjudication of the said notice, vide the impugned order dated 25.5.2012, the Commissioner confirmed the total duty demand of Rs. 59,00,94,013/- along with interest thereon and imposed an equal amount of penalty. The duty amount of Rs. 13,65,04,371/- and penalty of Rs. 3,41,26,093/- already paid were appropriated against the duty and penalty confirmed. The Commissioner has also confirmed and appropriated the interest amount of Rs. 5,97,29,128/- against the interest payable. The Commissioner also imposed penalties on the following persons under Rule 26 of the Central Excise Rules, 2002:
(i) Shri. S. Krishnan - Rs. 25 lakhs(ii) Shri Rajesh Bagga - Rs. 15 lakhs(iii) Shri Nitin Seth - Rs. 5 Lakhs
Aggrieved of the same, the appellants are before us.
3. The Ld. Counsel for the appellants submits the following:
3.1 The retail scheme discount is the discount given to the dealer which would be ultimately be passed on to the retail consumer and is not connected to any of the targets i.e., offtake target or retail target. The customers would not be concerned with dealers achieving the targets and hence such discounts have to be passed on to the customers irrespective of the dealer achieving/not achieving the off-take and retail targets. An affidavit of Mr. S. Krishnan has been filed in this regard.
3.2 The dealers have passed on the retail scheme benefits to the ultimate consumers and on back to back basis, the appellant has given discounts to the dealers. Therefore, there is effective reduction in the price of the vehicles sold to the dealer.
3.3 The relationship between the dealers and appellants are on principal to principal basis. There is only sale and purchase transaction between the appellants and the dealers and between dealers and consumers and no other relationship exists between the appellants and the dealer or between the dealer and consumer. The dealer is not providing any service to the ultimate consumer.
3.4 The discount given to the dealer is not a compensation for any service as no service is provided by the dealer to the consumer. The retails schemes are not the services but the benefits given to the consumers to boost the sale of Tata branded vehicles and on back to back basis, the appellants have given the discounts to the dealers. Effectively, there is reduction in the sale price of cars on account of consumer schemes. Hence the discount given is clearly eligible for deduction from the assessable value.
3.5 In the case of CCE vs. Gujarat Bottling Co. - 1998 (99) ELT 330 (T), the assessee gave discount to the wholesaler depending on the criteria of to whom the goods are subsequently sold by the wholesaler. The contention of the department was that the assessee gave higher discount on the goods sold to the wholesaler when the wholesaler subsequently sold the goods to Government or Railway canteen and gave less amount of discount when the goods were sold by the wholesaler to a person other than Government or Railway canteen. The Hon'ble Tribunal rejected this contention of the department and allowed the discount even when the discount was linked to sales made by the wholesaler to the consumer.
3.6 In the case of Perfect Victor Circle Vs. CCE- Order dated 25.6.1998, the assessee had sold parts of automobile to the wholesaler. The wholesaler had in turn sold these parts to the garage owner or mechanics. In the packing of parts of the vehicle, the assessee had put a coin in every pack. The assesse had claimed discount of the coins which were put in the packs. The contention of the department was that the discount given to the wholesaler was not the discount to the wholesaler but to the ultimate consumer. The Hon'ble Tribunal, though remanded the matter, gave a specific finding that such discount though ultimately passed on to the consumer is eligible for deduction from the value. In the present case also, the discount has been given to the dealer with a condition that the dealer would in turn pass on to the consumer in the form of certain services such as free insurance, extended warranty etc. Hence, the present case is squarely covered by the above decision of the Tribunal.
3.7 In the case of GOI vs. Madras Rubber Factory - 1999 (77) ELT 433 (SC) = 2002-TIOL-49-SC-CXwhich is relied upon by the Revenue, the assesee had manufactured tyres and sold the same with the warranty that the tyres would run for certain distance and if tyres do not run for such distance, the customer would be eligible for discount in the next sale of tyre to the said customer. Thus, there was a contract of sale of tyre between the assessee and the customer with the condition that the tyre would run certain distance. On breach of the contract, the customer was eligible to get compensation. The said compensation for breach of contract given to the customer as discount in the next sale was held to be not eligible as discount by the Hon'ble Supreme Court. In the present case, there is contract for sale of vehicle between the appellant and the dealer. The contract was honored and therefore the incentive was given to the dealer as discount. There is no breach of any contract and therefore, there cannot be any compensation for breach of contract. Hence, the discount given is not a compensation for breach of any contract which was the case before the Hon'ble Supreme Court in the case of MRF. In the said case, the Hon'ble Supreme Court further held that the quantity discount and year-end bonus is allowable as deduction from the value. If deduction of this discount is disallowed, then the deduction of discount held to be allowed by the Hon'ble Supreme Court in the MRF case would be redundant. Hence, the decision of Hon'ble Supreme Court is not applicable to the present case of the appellants.
3.8 The appellant submits that the discount given on the basis of off take and retail target is certainly in the nature of quantity discount. The quantity discount is clearly eligible for deduction from the assessable value. The scheme of quantity discount was made known to the dealers prior to the removal of goods. Hence, the quantity discount is eligible for deduction from the assessable value.
3.9 In the case of GOI Vs. Madras Rubber Factory- 1995 (77) ELT 433 (SC) = 2002-TIOL-49-SC-CX,the quantity discount and year end bonus discount were held eligible for deduction from the assessable value. The Hon'ble court held that if a discount is known and understood at the time of removal of the goods, through it is quantified later, the same is allowable.
3.10 In the case of Addison & CO. Ltd. Vs. CCE - 1997 (91) ELT 532 (SC), the assessee gave turnover discount which was provided as an incentive for the dealer to lift higher and higher volume of goods, the rate of discount increasing with the rise in the volume of purchases. The rate of turnover discount varied from region to region, product to product within the same region and also on the volume of turnover achieved by each dealer. The Hon'ble Supreme Court held that though the discount was given ad hoc on the basis of the previous year's performance and adjusted at the end of the year, the discount was known at the time of the purchase by the dealer and was found to be a well-accepted normal practice in the trade in these goods. It was accordingly held that the turnover discount was an admissible deduction.
3.11 Similarly in the case of CCE Vs. Punjab Chemicals & Pharmaceuticals - 1999 (107) ELT 57 (T) and Electrolux Kelvinator Ltd. Vs. CCE - 2004 (163) ELT 234 (T) = 2003-TIOL-148-CESTAT-DELthis tribunal had held that trade discount based on the quantity lifted by the dealer is eligible for deduction. Again in the case of Fag Precision Bearing Vs. CCE - 2000 (118) ELT 711 (T)the Hon'ble Tribunal had held that the turnover bonus is deductible from the assessable value. In the case of Reliance Industries Limited Vs. CCE - 2001 (133) ELT 773 (T) the Tribunal had held that the quantity discount given is an eligible deduction. Similarly, in the case of Bhor Industries Vs. CCE in order NO. A/178-179/WZB/2005/C-I dated 5.1.2005 = 2005-TIOL-390-CESTAT-MUM the hon'ble Tribunal had held that the trade discount which was known prior to the removal was eligible for deduction. Reliance is placed on the decisions of the Hon'ble Bombay High Court in the case of Goodlass Nerolac Vs. UOI - 1993 (65) ELT 186 (Bom) affirmed by the Hon'ble Supreme Court - 1994 (73) ELT A58 (SC).
3.12 The appellants have computed the discount based on the qualifying criteria mentioned in the scheme. The appellants computed total amount of discount entitled to each dealer and passed on the same to the dealers. It is in the nature of averaging of discount which is permissible in law. In Nalco Chemicals Ltd. vs. CCE - 1998 (104) ELT 730 (tri) and Samtel India Ltd. Vs.CCE - 1998 (103) ELT 92 (T), the Tribunal held that averaging of discount cannot be a ground to deny deduction of discount.
3.13 The appellants submit that they have issued an incentive scheme in the beginning of every month and therefore, the dealers are aware of the incentive scheme prior to the removal of goods. The discounts were calculated as per the scheme and same was passed onto the dealer in the invoices. There can be a doubt in cases where the discounts are given through credit notes but when the discount is given in the invoice itself, there cannot be any doubt that the discounts are not known prior to the removal of goods.
3.14 The Hon'ble Supreme Court in the case of UOI Vs. Bombay Tyre International - 1984 (17) ELT 329 (SC) = 2002-TIOL-33-SC-CX-LB had held that discounts allowed to be deducted from the sale price having regard to the nature of the goods, if established under agreements or under the terms of sale or by established practice, the allowance and the nature of the discount being known at or prior to the removal of the goods. Such Trade Discounts shall not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice price. In the present case, the discount scheme was known to the customer much prior to the removal of goods and therefore the discount is eligible for deduction.
3.15 The definition of transaction value under Section 4(3)(d) provides the "actual" price or payable. In the present case, the actual price paid or payable by the dealer for the sale of car is the net price mentioned in the invoice. There is no other consideration which is flowing from the dealer to the appellants in connection which is flowing from the dealer to the appellants in connection with the sale of cars. The department has also not invoked Rule 6 of Central Excise Valuation Rules, 2000. There is no dispute on this fact. The word "Actual" used in the definition of transaction value is opposed to any estimation or notional. In the instant case, the department, by denying the deduction of discount from the value of the goods, has demanded excise duty on the estimated or notional value which is not the actual. Hence, the contention of the department is contrary to the definition of transaction value.
3.16 Section 4(1)(a) of the Central Excise Act, 1944 provides that the value of the excisable goods would be the transaction value if, the goods are sold by the assessee, for delivery at the time and place of the removal, the assese and the buyer of the goods are not related and the price is the sole consideration for the sale. In the present case, undisputedly, the assessable value is transaction value as all the aforesaid conditions are satisfied.
3.17 The appellants have paid excise duty on the total amount received from the dealers. The appellants have received the amount from the dealers which is shown in the excise invoice. There is no dispute on the fact that the appellants have paid the excise duty on the entire amount received from the dealers and the appellants have not received any amount over and above the amount mentioned in the invoices. Therefore, any further demand of duty is contrary to the definition of transaction value and Section 4.
3.18 The aforesaid submissions is fully supported by the recent Larger Bench decision of CESTAT in the case of CCE Vs. Victory Electricals- Order dated 18.11.2013 = 2013-TIOL-1794-CESTAT-MAD-LB.
3.19 Excise department is concerned with the price of the goods sold. How the price is determined is not the concern of the excise department. The appellants have sold the vehicle at the prices mentioned in the invoice which is the amount actually paid or payable by the dealer. The vehicles sold by the appellants are liable to excise duty on the transaction value. There is no flow back of consideration from the dealer to the appellants. Hence, the price mentioned in the invoice is the price of the goods.
3.20 The appellants have maintained detailed records to justify the basis and quantification of discount. For the purposes of transparency, the appellants explained the manner of quantification and determination of discount. What is relevant for excise is only the price actually charged. How it is arrived at is not relevant. The incentive scheme issued by the marketing department of the appellants prescribes the qualifying criteria for the eligibility to the discount. The incentive schemes are issued every month. The incentive schemes issued by the appellants do not provide that the discount, for which dealer is entitled, is to be given in the same month in which the scheme has been issued. In other words, the discount entitlement is computed based on the qualifying criteria mentioned in the scheme for the month in which the scheme is issued but the discount earned has been passed on in the subsequent months. The scheme does not provide that the discount earned based on the scheme is for the goods sold in the month for which the scheme is issued. The impugned Order-in-Original has incorrectly held that he appellants had given discount in the sale made in the subsequent month whereas the discount was pertaining to sale made in the previous month.
3.21 The appellants sell vehicles to the dealers and the transactions of sale and purchase between the appellants and dealer are continuous in nature. In other words, the transaction between the appellant and dealer is not one time transaction. Therefore, the discount of the month, let us say April 2008, may be computed based on the qualifying criteria which may be a turnover of March 2008. It is not required that there should be relationship with the qualifying criteria for computing discount and the goods in which the discount has been given. Hence, the appellants have correctly given the special discount and same is eligible for the deduction from the assessable value. The contention of the department that value of the goods has to be determined for each removal. The appellants submit that they have correctly determined the value of each removal. The value of each goods is the value mentioned in the excise invoice which has been paid by the dealer.
3.22 CBEC Circular dated 30.6.2000 clarifies that discount is eligible for deduction when it is established that the discount for a given transaction has actually been passed on to the buyer of the goods. The differential discounts extended as per commercial considerations on different transactions to unrelated buyers if extended, cannot be objected to and different actual prices paid or payable for various transactions are to be accepted for working assessable value.
3.23 The appellants submit that the department has incorrectly presumed that the discount given in the sale of vehicles is not the discount for that very vehicle. Merely because discount has been computed on the basis of sale of turnover of other vehicles cannot be a ground to presume that the discount is not pertaining to the vehicle in which the discount has been given. The car target and incentive scheme does not provide that the discount computed based on the scheme is discount for the vehicles sold in that month only. The appellants submit that it is not required that the criteria for computation of discount and vehicle in which discount is given should be related. The discount given in the vehicle is discount for that very vehicle though the qualifying criteria to compute the discount may not have any relation to the vehicle in which the discount has been given. Hence, the appellants have correctly determined the value of each removal of the vehicle.
3.24 In the case of CCE Vs. TFL Quinn India Pvt. Ltd. - 2011 (267) ELT 641 (T) = 2012-TIOL-35-CESTAT-BANG the department contended that since the discount is not known at the time of removal of goods and therefore, the assessee should have followed the procedure of provisional assessment. The Tribunal held that assessee failed to follow CBEC's Excise Manual of Supplementary Instructions regarding disclosing intention of allowing the discount and request the department for provisional assessment, was immaterial as the nature of discount was known at time of clearance of goods. In the present case also, the deduction of discount has been denied to the appellants on the ground that the appellants have not followed the procedure for provisional assessment. The impugned Order-in-Original admittedly held that the deduction of discount is available if the appellants would have followed the procedure of provisional assessment. In view of the above decision, the denial of deduction for not following the procedure of provisional assessment is incorrect.
3.25 The Commissioner in the impugned Order-in-Original has held that the discount is settlement of past dues for the following reasons:
i) The dealer has shown the discount in his books as amounts receivable from the appellants;ii) The amount of discount given in the invoices represent, the amount due from the dealer, the amount due to the dealer, recovery towards advertisement cost incurred, recovery towards free insurance and extended warranty. Reliance in this regard has been placed on the statement of the officials of the appellants; The appellants submit that the accounting done by the dealer is not a determinative factor for any amount to be a discount. In fact, this supports the submission of the appellants that the discounts were very well known to the dealers and therefore, they were showing the discount as receivables in their books. In any case, this fact would not change the nature of discount given in the invoices. The appellants submit that a specific amount incurred towards advertisement by the dealer is reimbursed to the dealer. The amount so reimbursed is adjusted in the discounts given in the invoices. In other words, the amount of discount has been reduced to the extent of amount of advertisement given to the dealer and therefore, the appellants have given less amount of discount as the amount of discount has been reduced due to advertisement reimbursement to the dealer. Therefore, the appellants have claimed less deduction on account of discount. This cannot lead to conclusion that the discount is settlement of past dues. In view of the above, the appellants had erred in favour of the revenue by adjusting the amount relating to advertisement, extended warranty and free insurance. This is not a settlement of dues. Hence, the impugned Order holding that the discount is past settlement is incorrect.
3.26 The appellants issued incentive scheme to the dealers. The scheme provides eligibility criteria and the amount of incentive for which dealer would be eligible. The amount of discount to be passed on to the dealer is not mentioned in the scheme. There is nothing in the scheme which provides that the eligible discount amount is a settlement of past dues. The department by relying on various statements of the employees has interpreted the incentive scheme issued by the appellants on the basis of the statement of the dealers and employees of the appellants. The department cannot go beyond what has been written in the document specially when the appellants follows proper documentary process regarding the discount given to the dealers.
3.27 The Hon'ble Andhra Pradesh High Court in the case of Motors & General Insurance Stores Vs. CIT - 1967 (66) ITR 701 (AP) = 2002-TIOL-820-SC-IT-LB had held that it is not open to the department to deduce the nature of the documents from the purported intention by going behind the document or to consider the substance of the matter or to accept it in part and reject it in part or to re-write the document merely to suit the purposes of revenue. The Hon'ble High Court further held that where statutorily the parties have to reduce a certain transaction into writing, which transaction can only be evidenced in writing, it is not open to courts or any other authority to permit oral evidence to be adduced by the parties or to entitle them to go behind the statements made in the document. The aforesaid judgment has been affirmed by the Hon'ble Supreme Court reported at (1967) 66 ITR 692 (SC). The Hon'ble Gauhati High Court in the case of Bhattacharjee Brothers Vs. Supdt. of Taxes, Dibrugarh - 1986 STC 63 (346) held that where there is written contract between the parties, the issue should be decided based on the contract only. The oral statement of the director in this regard is not relevant and cannot be relied upon.
3.28 The Commissioner in the impugned Order-in-Original has held that appellants have included the discount pertaining to Palio car, which is a traded item, while computing the special discount given to the dealers. The basis of this finding is that the incentive scheme issued by to the dealers also shows the discount in respect of Palio car. The appellants submit that the discount pertaining to the Palio car has been given for sale of Pali car only. There is no evidence on record showing that the discount of Palio car has been taken in to account while computing the special discount given to the dealers. Merely because the scheme refers the discount in respect of discount on Palio car cannot be a ground to hold that the discount of Palio car has been given as a special discount. The incentive scheme refers to discount on Palio car for the only reason that all the discount offers should be at one place. In any case, this ground of the department is beyond the scope of Show Cause Notice as there is no such allegation in the Show Cause Notice and no opportunity was given to the appellants to explain this issue of discount on Palio car. Hence, the impugned Order is liable to be set aside.
3.29 The Commissioner in the impugned Order has denied the deduction of discount on the ground that the said discount is pertaining to the sales made earlier and not pertaining to the sale of goods in which the discount has been given. In other words, the discount is eligible for deduction in the earlier sale. Since no deduction in the earlier sale has been claimed, the appellants have paid higher excise duty in the earlier sale. Having paid the higher excise duty, there cannot be any intention to evade payment of duty. The Commissioner in the impugned Order has held that if the appellants would have followed the provisional assessment procedure, the present issue would not have arisen. Therefore, according to the Commissioner, the only mistake committed by the appellants is that they have not followed the procedure of provisional assessment. In any circumstances, non following of procedure of provisional assessment cannot lead to a conclusion of intention to evade payment of duty.
3.30 The only core issue involved in the present case is that the appellants have given discounts pertaining to sales made in the previous month in the sale made in the next month. This practice of giving discount in the subsequent sale was being followed by the appellants much prior to the period in dispute. The appellants vide letter dated 16.12.2001 and vide letter dated 10.1.2003 categorically informed to the department that they would be passing the discounts computed for the FY 2000-2001 in the sales made in the FY 2001-02. Similarly, the discount computed for the period 2001-02 would be given in the sales made in the FY 2002-03. The appellants had also informed the calculation sheet showing how the discount is computed. The department never objected to these letters. This is the precise objection raised by the department in the present case that the discount pertaining to previous month cannot be given in the sale made in the subsequent month. Hence, there is no suppression on the part of the appellants when specific intimation was given to the department. After 2003, similar intimation could not be given by the appellants for the reason that their sale and finance department was shifted from Pune to Thane. In any circumstances, the department cannot ignore letters given by the appellants to the department in 2001 and 2003 on the ground that subsequent to 2003 no letter was given.
3.31 The Commissioner has held that the scheme prevailing in 2001 and 2003 was different from the scheme prevailing in the present case. The appellants submit that though the scheme of discount was different in the year 2001 and 2003 but the principle of giving discount was the same i.e., the discount pertaining to previous year has been given in the next year. The Appellants submit that the precise case of the department is that the appellants have given discount pertaining to earlier sale in the subsequent sale. This very fact was submitted to the department in the year 2001 and 2003.Hence, the finding of suppression of facts on the part of the appellants is baseless.
3.32 The department had raised an objection that the appellants have passed on the discount which is pertaining to Indica car in the sale of Indigo car. Indica car is chargeable to less rate of excise duty compared to Indigo brand car with effect from 1.3.2006. Due to cross model utilization of discount, there is a short payment of duty on the Indigo brand vehicles. Without prejudice to any other submissions, the appellants had already paid this differential duty amount along with interest and 25% penalty. Hence, any adverse inference drawn based on this ground of cross model utilization is incorrect and not called for.
3.33 The appellants submit that they are following this method of cross model utilization from many years. The department never objected to this method. The change in the rate of duty has resulted in alleged short payment of duty. The appellants submit that they have not changed the method passing on of discount because of change in the rate of duty with effect from 1.3.2006. The appellants were following this method of cross model utilization prior to 1.3.2006 also. The appellants have also produce evidences to support this contention in the form of invoices. Hence, on this count also there is no suppression of facts and much less with willful intention to evade payment of duty.
3.34 The Commissioner in the impugned Order has held that the appellants have submitted false and fabricated documents in the course of investigation to defraud the investigation. This finding has no relevance whatsoever on the merits of the case and therefore the same is liable to be set aside on this count alone. In any case, the appellants submit that no document submitted to the department is false or fabricated. This issue of submitting false documents has arisen only because the nomenclature used by the department while asking for the documents and the nomenclature of the documents used by the appellants in day to day business. The Commissioner has held that the incentive structure circulars issued by the marketing department to the Regional Managers are fabricated documents. The appellants submit that the discount has been passed on in the invoices based on these Circulars only. The amount mentioned in the Circular has only been passed on to the dealer. There is no dispute on the fact and hence the finding that such Circular is fabricated has no basis. The Second document which has been alleged to be false is the documents submitted by Mr. Suhas Kulkarni. The appellants submit that the said documents are not false. The appellants submits that whatever amount of discount mentioned in the document submitted by Mr. Kulkarni has actually been passed on to the dealers. Hence, the allegation of submitting false documents is factually incorrect. The finding of submitting false evidences is also based on the fact that some of the officials of the appellants have denied of having seen any particular document such as incentive structure circular etc. However, the said official who denied of having seen the document has specifically gave reason that since the particular document is not marked to him, he is not aware of that particular document. The department has ignored the reasons given by the officials and held that documents are false and fabricated. The department has relied upon the statement of Mr. Vijay Menon, Regional Manger to allege that the so called incentive structure circular which was addressed to the Regional Manager was not received by him. The appellants submit that during the period in dispute, Mr. Menon was not a Regional Manager. He became Regional Manager only in 2009. Further the question which was asked to him was whether the incentive structure letter was received by him in the capacity of Brand Manager. The said Circular was admittedly not addressed to Brand managers and therefore, he did not receive the said Circulars. Further, Mr. Menon had given a clarification letter to the Commissioner and requested to read his statement along with the clarification letter. The above submission has not at all been considered by the Commissioner in the impugned Order-in-Original. Hence, the impugned Order is liable to be set aside.
3.35 The department further relied upon the statement of Mrs. Sunvanti Ursekar, Assistant Manager, sales and finance department to allege that the incentive structure circular is fabricated document. The appellants submit that Mrs. Ursekar was not the Regional Manager and therefore the said incentive structure circular was not addressed to her. However, the content of the said circular was received by her in the email and accordingly number of vehicles eligible for discount was computed. Further, Mrs. Ursekar has given a clarification letter to the Commissioner and requested to read her statement along with the clarification letter. The above submission has not at all been considered by the Commissioner in the impugned Order-in-Original. Hence, the impugned order is liable to be set aside.
3.36 The department has also alleged that dealers have not received the said incentive structure circular and therefore the said circulars are fabricated. The appellants submit that the said circulars were never addressed to or sent to the dealers in the very form. The appellants never claimed that these circulars are issued to the dealer. It is the presumption of the department that the said circulars are issued to the dealers which is incorrect. In any case, the discount amount mentioned in the invoice issued to the dealer is the same as mentioned in the alleged Circular. Hence, the finding that the said Circular are false or fabricated is incorrect.
3.37 The appellants had appointed Chief Internal Auditor which is the higher Ethical officer of the noticee' company to examine the documents submitted by the officials of the appellants during the course of investigation. The Chief Internal Auditor had given a report dated 7.12.2009. In the report, it has been stated that he had examined all the documents submitted by the officials of the appellants. He has also conducted a meeting of all the concerned officials of the appellants. Chief Internal Auditor has examined each and every documents and authenticity of the documents. After examining all the facts, the Chief Internal Auditor has stated that he documents submitted by the officials are part of the process of giving discount by the appellants to dealers.
3.38 The appellants vide letter dated 20.4.2011 submitted a Circular dated 2.6.2008 issued to all the eastern Region dealers mentioning the Scheme for the month of June 2008. The Circular dated 2.6.2008 specifically provides that "This month Rs. 1,00,000/- (pre excise) per vehicle will be passed on all UV models (except taxi) for the incentive payable to the qualified dealership. Therefore, the department was aware that the discount of Rs. 1,00,000/- has been given per vehicle and to the qualified dealership. Therefore, this letter gives all the information of the documents which the department is alleging to be false or fabricated. Hence, the documentary evidence clearly disproves the aforesaid case of the department regarding submission of fabricated and false documents. The appellants further submit that the aforesaid Circular was submitted to the department in the course of investigation and the same was part of the reply to the Show Cause Notice also. The Commissioner has simply ignored this Circular. Hence, the impugned Order-in-Original is liable to set aside on this count alone.
3.39 The appellants submit that the demand itself is not maintainable and therefore penalty and interest is not imposable. In any case, the appellants submit that there is no suppression of fact and much less with intent to evade payment of duty and therefore no penalty can be imposed on the appellants. Further, the issue involved in the present case is purely a interpretation of definition of transaction value and therefore penalty cannot be imposed on the appellants.
3.40 Penalty imposed on the co-appellant under rule 26 is incorrect as there is no proposal for confiscation of goods and therefore, Rule 26 is not invokable. Rule 26 can only be invoked in cases where the assessee has dealt with the goods which are liable to confiscation. In the instant case, the department itself has not alleged or held that the goods are liable to confiscation under Rule 25. In any case, the issue involved is one of the interpretation of the definition of transaction value and therefore no penalty should be imposable on the co-appellants. Further, the penalty has been imposed on the co-appellants on the ground that they have submitted false or fabricated documents. This allegation is factually incorrect. In any case, it is submitted that Rule 26 cannot be invoked for the alleged submissions of false and fabricated documents. Hence, penalty on co-appellants is not imposable.
4. The Ld. Special Consultant for the Revenue submits the following:
4.1 At the outset, the ld. Sr. Counsel for the appellants made it clear at the hearing that the appellant is neither challenging nor seeking refund of the amounts of Central Excise duty of Rs. 13,65,04,371/- interest of Rs. 5,97,29,128/- and penalty of Rs. 3,41,26,093/- already paid during the investigation. These sums are, therefore, required to be confirmed.
4.2 As a measure of sales promotion and marketing policy, TML issues Car Targets and Schemes to its dealers on a monthly basis. These Car Targets and Schemes specify the quantum of retail sales to the retail customers and the number of Cars of various brands to be lifted by the dealers from TML during a particular month called Off-Take Target. These schemes contain various incentives to be given to the retail customers by the dealers in respect of each brand of Car. The incentives include, inter-alia, cash discount, soft loan with low interest rate, free gift, extended warranty, etc. In the process, the dealers incur certain expenses in granting such incentives to retail customers. However, to compensate the burden of such expenses, TML bears major portion of the burden. Therefore, the Car Target Scheme specifies the extent of TML's contribution and dealer's contribution separately towards the said expenses. Once dealers achieve the target at the end of each month, incentive amounts of TML's contribution are calculated and passed on to the dealers as 'special discount' against the purchases of cars during the subsequent months by reducing the transaction value of certain numbers of Indigo Cars which carry higher rate of duty. At this stage, it is necessary to mention that the incentive amounts are shown as 'receivables' in the Books of Accounts of the dealers. It may also be mentioned here that Car Targets and schemes do not specify or spell out in what form or manner the incentive amounts (TML's contribution) are to be given to the dealers. Incidentally, it was also submitted that each of the dealers have a running account maintained with TML. Therefore, as a matter of accounting, in the normal course, the incentive amounts should have been credited to the dealer's running account maintained with TML. However, TML chose to pass on the incentive amount to the dealer(s) in the guise of 'special discount' by reducing the transaction value of only the Indigo Cars purchased by the dealers during the subsequent months. At this stage, it is also important to note that TML undertakes the job of advertisements on behalf of the dealers and on account of this, TML charges Rs. 500/- per Car and Rs. 1,500/- per Utility Vehicle. These sums are deducted from the incentive amounts and then the balance is passed on to the dealer(s) as'special discount'. Be that as it may, the incentive amounts earned by the dealers by achieving both retail & Off-take Targets cannot be termed as 'special discount' by any stretch of imagination. The so-called 'special discount' has no co-relation to any particular transaction that has already taken place during the last month. The Commissioner's finding that the so-called 'special discount' is nothing but settlement of past claims of the dealers cannot, therefore, be faulted.
4.3 Under Section 4(1)(a) of the Central Excise Act, 1944, transaction value is to be arrived at for each removal of goods. It is the price actually paid or payable for the goods when sold. Although there is no specific provisions for deduction of discount from the transaction value, this can be allowed if it is known prior to removal of the goods. There is no agreement between the dealers and TML permitting such discount from the transaction value. In its clarificatory order in the case of Union of India & Ors. Vs. Bombay Tyres International Pvt. Ltd. - 1984 (17) ELT 329 (S.C.) = 2002-TIOL-33-SC-CX, the Hon'ble Apex Court has held that discounts allowed in the Trade (by whatever name such discount is described) should be allowed to be deducted from the sale price having regard to the nature of the goods, if established under agreement or under terms of sale or by established practice, the allowance and the nature of discount being known at or prior to removal of the goods. Such Trade Discounts shall not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice price. In the present case, there is no agreement between TML and its dealers allowing discount from the sale price of the goods. Terms of sale also do not provide for such discount from the sale price of the goods. There is also no established practice allowing such discount. Moreover, the nature of so-called 'special discount' is also known at or prior to the removal of the goods. Therefore, the Commissioner has rightly relied upon the judgment of the Apex Court.
4.4 It is submitted that the dealer's incentives due for a particular month are paid by way of reduction of transaction value of Indigo Cars & Utility Vehicles purchased by the dealer during the subsequent months. In the present case, there cannot be any doubt that the special discount shown in the invoice is nothing but compensation due to the dealers for the losses incurred by them during the previous months' transaction. Therefore, this 'special discount' is in the nature of a benefit given to the dealers by way of compensation for the loss suffered by them in the previous sale, as held by the Hon'ble Apex Court in the case of Asstt. Commissioner of C.Ex. & Ors. V/s. Madras Rubber Factory Ltd. & Ors. - 1987 (27) ELT 553 (S.C) = 2002-TIOL-382-SC-CX.
4.5 It is also submitted herein before that the so-called 'special discount' is not relatable to any particular transaction. Therefore, this so-called 'special discount' cannot be permitted to be deducted from the transaction value of Indigo Cars & Utility Vehicles. This submission is supported by the Apex Court's judgment in the case of Commissioner of Customs V/s. Bureau Veritas - 2005 (181) ELT 3 (S.C.) = 2005-TIOL-24-SC-CUS-LB. Though the judgment is in the context of Customs Valuation, it is equally applicable to the Central Excise Valuation for the reason that transaction value under the Central Excise Act is similar to that of Customs Valuation.
4.6 A look at the Car Target Schemes would reveal that the majority of the schemes were offered to the end customer by the dealer i.e. the retail discount, free extended warranty, free insurance, soft loan financing etc. were all offered to the end customers by the dealer who purchased the cars from the dealer. The Commissioner in his findings at para 19.6 of the Order has held that the incentive amount is mostly consisting of retail incentives of different models of Indica & Indigo Cars. This was also supported by other relied upon documents submitted by the officials of TML in the investigation. It is also not disputed by TML that majority of the incentive amounts relate to compensation for services offered by the dealer to the retail customers. There are other incentives, such as, dealer's sale person's incentive, loyalty to the retail customers, etc.
4.7 All these schemes cannot be said to be relevant for the determination of value of goods for the purpose of payment of duty by the manufacturer. Since the goods were already sold and marketed by the manufacturer, Excise is concerned with the first entry into the stream of wholesale trade. Excise is not concerned with what happens to the goods thereafter. TML in the sale invoices for the relevant period for sale of Indigo cars and Utility Vehicles for which demand has been made has mentioned that the transaction value is arrived at in terms of Section 4(1)(a) of the Central Excise Act, 1944.
4.8 Section 4 (1)(a) of the Central Excise Act, 1944 envisages the method of collection of tax at the point of first sale effected by the manufacturer. It is the first immediate contact between the manufacturer and the trade that is made decisive for determining the transaction value. It is the measure of value of goods for the purpose of Excise. Any activity undertaken by the dealer is not relevant for the purpose of Excise since the goods have already been sold and marketed to the dealer. This would violate the true nature of Excise duty and also the concept of factory gate sale which is the basis for determination of value of goods for the purpose of Excise.
4.9 At the outset, it may be mentioned that Show Cause notice dtd. 6/5/2011 covers the period of demand from April, 2006 to July 2008. Referring to the appellant's letters dtd. 16/12/2001 & 10/1/2003 addressed to the Range Superintendent of Central Excise, learned Senior Counsel for the appellant contended that the Department was aware of the appellant's discount policy right from 2001 onwards. Therefore, the extended period of limitation is not available to the Department. Perusing these two letters, it is seen that these letters talk about 'assessable value of Indica cars'. In that connection, these two letters mention about the manufacturer's Bonus Scheme for the year 2000-01 and 2001-02 which will be offered to the Dealer in the form, of discount of Rs. 20,000/- per Car. It is needless to say that Bonus is not same as discount. In the present case, the basic allegation is that the appellant had reduced the transaction value of Indigo Cars and Utility Vehicles carrying higher rate of duty in the guise of special discount. During the investigation, Shri S. Krishnan, Senior Vice President-Commercial had stated in his statement dtd. 18/3/2010 that it was he who formulated the policy Scheme in2006 of reduction of transaction value of Indigo Cars & utility Vehicles for adjustment of incentives attributable to Indica Cars. Therefore, the two letters referred to by the learned Senior Counsel for the appellant have no bearing on the present case where duty has been evaded deliberately by reducing the transaction value of Indigo Cars & Utility Vehicles at the rate of Rs. 30,000/- Rs. 45.000/-, Rs. 1,00,000/- at different points of time. Therefore, the Show Cause notice has rightly invoked the extended period of limitation.
4.10 Since it is a case of deliberate evasion of Central Excise duty by reducing the transaction value of Indigo Cars &Utility Vehicles, the Commissioner's order imposing penalty on TML under section 11AC cannot be faulted. The Commissioner has, therefore, rightly imposed penalty on TML under Section 11AC of the said Act.
4.11 Shri S.Krishnan, Sr. Vice President-Commercial, has clearly admitted that he was the person who formulated the policy of reduction of transaction value of Indigo Cars & utility Vehicles for payment of incentives attributable to Indica Cars under the guise of 'special discount'. He was also responsible for fabrication of discount circulars addressed tot eh Regional Managers, West, East, South, North. He has also admitted in his statement dtd. 18/3/2010 that he was aware that Indigo Cars & Utility Vehicles carried higher rate of duty compared to Indica Cars. Therefore, the Commissioner has rightly imposed penalty on him under Rule 26 of the Central Excise Rules, 2002.
4.12 Shri Nitin Seth, General Manager (Car Product Group). He was the person who implemented the policy formulated by Shri S. Krishnan. He was the person who signed the fabricated discount circulars shown to have been issued to the Regional Managers & to all Car Dealers. His action cannot, therefore, be said to be innocent. Having regard to all these facts, imposition of penalty on him under Rule 26 is quite just and fair.
4.13 Shri Rajesh Bagga, Legal Head, though not in employment during the relevant period, was guilty of supporting the stand taken by the appellant that reduction of assessable value of Indigo Cars under the guise of special discount was to encourage the ale of Indigo Cars. Therefore, he cannot escape from the liability to penalty under Rule 26 of the Central Excise Rules, 2002.
In view of the foregoing premises, the impugned order passed by the Commissioner deserves to be confirmed and the appeals are required to be dismissed.
5. We have considered the submission made by both the sides, very carefully. Our findings and conclusions are enumerated in the succeeding paragraphs.
5.1 Both in their appeal memorandum and during the course of arguments by the ld. Counsel for the appellant, it has been categorically admitted that the appellant does not dispute duty demand to the extent of Rs. 13,65,04,371/- being the duty on discounts on the Indica cars sold by the appellant but passed on to the dealers by reducing the price of Indigo cars which attracted a higher rate of duty than that on Indica car. In his letter to the investigating agencies vide PYG-416 dated 20-4-2011, the Sr. Vice President (Corp. Finance) had submitted that "the company had adopted the method of passing of discounts through sale of Indigo/UVs on a purely commercial consideration without any intent to evade payment of duty. According to us, it would not be out of place to state that had the company passed on the discounts as applicable to the respective vehicles, this controversy would not have arisen at all." It is further on record that they had also paid interest on the said duty amount apart from 25% thereof being the penalty payable on the said amount of duty short paid. In the said letter, it is further mentioned that this has been done to put an end to co-ercive investigation and the factum of payment should not construed as an admission of any offence in any manner of whatsoever. In view of the above factual position and considering the voluntary nature of payment made, the duty demand to the above extent along with interest has to be clearly upheld and we do so.
5.2 However, what emerges from the above letter is the clear admission by the appellant of the facts that discounts to be granted in respect of the sale of Indica cars were not given by reducing the sale prices of such cars but by reduction of sale prices of Indigo cars of Utility vehicles to which the discounts did not pertain to. The question is whether the law permits such method of passing of discounts. It would be useful at this juncture to peruse the provisions of section 4 of the Central Excise Act which deals with the valuation of goods leviable to ad valorem duties. The relevant extracts of the said section 4 is reproduced below:
"Section 4 - Valuation of Excisable goods for purposes of charging of duty of excise.-(1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to their value, then, on each removal of the goods, such value shall.a. in a case where the goods are sold by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of the goods are not related and the price is the sole consideration for the sale, be the transaction value;b. in any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed.Explanation. - For the removal of doubts, it is hereby declared that the price-cum-duty of the excisable goods sold by the assessee shall be the price actually paid to him for the goods sold and the money value of the additional consideration, if any, flowing directly or indirectly from the buyer to the assessee in connection with the sale of such goods, and such price-cum-duty, excluding sales tax and other taxes, if any, actually paid, shall be deemed to include the duty payable on such goods.(2)……………………………………………………………………………………(3) For the purpose of this Section, -a. "assessee" means the person who is liable to pay the duty of excise under this Act and includes his agent;b. persons shall be deemed to be "related" if.(c) " place of removal" means.(i) a factory or any other place or premises of production or manufacture of the excisable goods;(ii). a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty;(iii) depot, premises of a consignment agent or any other place or premises from where the excisable goods are to be sold after their clearance from the factory;from where such goods are removed;(cc) "time of removal", in respect of the excisable goods removed from the place of removal referred to in sub-clause (iii) of clause (c), shall be deemed to be the time at which such goods are cleared from the factory;(d) "transaction value" means the price actually paid or payable for the goods, when sold, and includes in addition to the amount charged as price, any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including, but not limited to, any amount charged for, or to make provision for, advertising or publicity, marketing and selling organization expenses, storage, outward handling, servicing, warranty, commission or any other matter but does not include the amount of duty of excise, sales tax and other taxes, if any, actually paid or actually payable on such goods."
5.3 From a plain reading of the above provisions, it can be seen that the article preceding the expression "goods" and "price" in the said section 4 is the definite article "the" and not an indefinite article. The use of the definite article implies that section 4 envisages determination of value in respect of the goods under removal for each removal of the goods. Therefore, if the valuation has to be done in respect of Indica cars which are removed and on which discounts are being offered on sale, the benefit of such reduction has to be made by reducing the price of Indica cars and determination of value has to be made for each removal of Indica cars. It is an admitted fact in the case before us that this has not been done. The price reduction has been effected not on the goods to which it applies but by reducing the price of some other goods (other models of cars) which were cleared at a subsequent point of time. Thus the provisions of section 4 have not been adhered to or complies with on the transactions with which we are concerned with in this appeal. If for some reason, the appellant was not able to determine the value at the time of removal of goods, the appellant could have and should have opted for provisional assessment of the goods under removal as it provided for in Rule 7 of the Central Excise Rules, 2002. Thus the appellant did not choose to comply with the provisions mandated by law but chose to adopt a practice which was not provided for in the law. IN our considered opinion, the benefit provided under the law cannot be claimed when the conditions prescribed are not complied with or adhered to. It is a well-settled statutory principle that if a statute provides for a thing to be done in a particular manner, then it has to be done in that manner and no other. Hon'ble Apex Court's decision inChandra Kishor Jha vs. Mahabir Prassad & Ors. [(1999) 8 SCC 266] refers.
5.4 A similar issue came up for consideration in the context of old section 4 in the case ofAuto Lamps Ltd. vs. Collector of Central Excise [1986 (10) ECC 170). The question was what is the meaning of the term "the price" referred to in section 4 and the Tribunal held as follows:-
"40. Firstly, this would find support, from the language of the section itself. The relevant part of this section read as under:-"Where under this Act, any article is chargeable with duty at a rate dependant on the value of the articles, such value shall be deemed to be-(a) the wholesale cash price for which an article for the like kind and quality is sold or is capable of being sold…"It will be seen that what constitutes the value is "the wholesale cash price". It is not "any price" but "the price". The use of the definite article "the" would by common usage, indicate that the reference is to a single price and not ot a multiplicity of prices, such as would have been implied if the wording had been "any wholesale cash price". Again, in the alternative clause(b) the reference is to "the price" (emphasis supplied).41. Secondly, and more important, acceptance of a multiplicity of assessable values under the same conditions would cut at the very basis of the Self Removal Procedure, which is set out in Chapter VIIA of the rules made under the Act. The core of the Self Removal Procedure is that an assessee can assess his goods himself, pay duty and remove them, on the basis of the value and rate of duty approved by the proper officer. Rule 173C provides for the filing of a price list and its approval by the proper officer "after making such modifications as he may consider necessary so as to bring the value shown in the said price list to be the correct value for the purpose of assesement as provided oin section 4 of the Act" (emphasis has been added to stress the definite article and the singular number). Thereafter, in terms of Rule 173F, the assessee can remove his goods after paying duty on the basis of the approved classification and value. The whole rationale of the Self Removal Procedure is that there shall not be an enquiry or clearance at the time of every individual removal of goods. However, initially and whenever required thereafter, there has to be an approval by the proper officer of the rate of duty and value claimed by the assessee. There is also a post clearances check and assessment, on the basis of the R.T. 1.2 returns. The entire procedure of prior approval of a price list and subsequent clearances on the basis of self-assessement would become largely meaningless if ti was open to an assessee to clear his consignments on the basis of varying assesseable values, accordingly to his wishes." (emphasis supplied)
The above decision in the Tribunal was upheld by the hon'ble Apex Court in the same case reported in [1997 (94) ELT A160 (SC)]. If we apply the ratio of the above decisions to the facts of the case before us, it can be seen that in view of the expression "the goods" employed in section 4, the discount given on Indica cars should be considered for determination of assessable value of Indica cars only and such discount should be passed on as a price reduction on Indica cars and not by reduction in value of other models of cars cleared subsequently. Therefore, passing of discounts in respect of sale of Indica cars has to be reflected by reduction in the price of Indica cars to which the discounts relate to. In the case before us, from the documents available on records and those relied upon by the appellant during the course of hearing, the fact of having passed on the discounts in respect of Indica cars by reduction in the price of said cars is not at all evident. Therefore, the appellant's contention in this regard has to be rejected.
5.5 The next question for consideration is whether the so called 'special discount' claimed to have been passed on by the appellant to its dealers can be treated as a permissible trade discount or not. According to the appellant, as a measure of sales promotion and marketing policy, they issue Car Targets and Schemes to its dealers on a monthly basis. One such Car Targets and Schemes for August, 2007 issued to M/s Auto Point, Surat is taken up for consideration. Perusal of this Car Targets and schemes for August, 2007 shows that it has been issued to Mr. Inderjit Singh Ghura of M/s. Auto Point., Surat and it is dealer-specific. It contains retail targets and off-take targets to be achieved by the dealer during the month. Retail target means the number of vehicles to be sold by the dealer to its customers, while the off-take target means the number of vehicles to be purchased by the dealer from M/s. TML. The scheme also shows various incentives to be offered to the retail customers. The incentive includes, inter-alia, cash discounts, soft loan with low interest rate, free gift, extended warranty, etc. It will be worthwhile to note that the benefits to the retail customer will accrue only if the dealer achieves both the off-take and retail targets set for him. Otherwise, no benefit will accrue to the retail customer, In other words, the benefits are subject to satisfaction of conditions stipulated for the dealer, over which the ultimate buyer, the purchaser of the car, has no control.
5.6 From the above scheme it is seen that the incentives are to be given to the retail customers by the dealers in respect of each brand of cars. In the process, the dealers would incur certain expenses in granting such incentives to the retail customers. In order to compensate and to reduce the burden of such expense on the part of the dealers, M/s. TML bears major portion of burden. Therefore, the Car Target Scheme specifies the extent of TML's contribution separately towards the said expenses. Once the dealer achieves the target at the end of each month, incentive amount of M/s. TML's contributions are calculated and passed on to the dealers as 'Special Discount' against the purchases of cars during the subsequent month by reducing the transaction value of certain numbers of Indigo Cars which carry a higher rate of duty.
5.7 From the car target and schemes described above, it can be seen that the incentives to the dealers are dependent on achieving both the off take target and the retail target fixed for each dealer. The incentives to the customers are cash discount, extended warranty, free insurance, loyalty bonus (to the existing Tata car owners), low interest rate scheme (interest subventions), and exchange bonus. As per the said circular, extended warranty offer is the warranty package worth Rs. 3300/- to the customers. The cost to the TML for the same is Rs. 2600/- and the dealer margin is Rs. 350/-. Free insurance is also provided for the cars sold to the customer. Similarly the loyalty bonus is an incentive to be given to the existing Tata Motor Car owner to purchase a new vehicle of specified Tata brand. The interest subvention is the amount payable to the financiers @ Rs.1500/- per vehicle. The exchange bonus is reduction in the price of the new vehicle if an old vehicle of the same brand or a different brand of the TML is exchanged with the new one. Thus the nature of the so called 'special discount' is for the various services rendered by the dealers by way of warranty services, insurance services, financial services and so on or certain special discounts given to certain types of customers (loyalty schemes & exchange schemes). It would be worthwhile to note that such special discounts are not uniformly given in respect of all vehicles or to all the customers. The special discount is dealer specific and is conditional on achieving the off take target and the retail target fixed for the dealer. The scheme does not reveal the basis for fixing the off-take and retail targets and whether the basis was uniform or not.
5.8 It can be seen that the Car Target Schemes do not specify or spell out in what form and in what manner the incentive amounts will be given to the dealers. It is on record that each dealer has a running account maintained with M/s. TML. Therefore, as a matter of accounting, in the normal course, the incentive amounts should have been credited to the dealer's running account maintained with M/s. TML. However, instead of doing so, M/s. TML chose to pass on the incentive amounts to the dealers in the guise of 'Special Discount' by reducing the transaction value of only the Indigo Cars purchased by the dealers during the subsequent months. These incentive amounts earned by the dealers by achieving the targets fixed by M/s. TML cannot be termed as a 'Special Discount' for the following reasons. The so-called 'Special Discount' has no relation to the goods under assessment and has not been passed on by reducing the price of the goods under assessment. Further, it has not been shown by M/s. TML that this is the normal prevalent trade practice. M/s. TML is not the only assessee engaged in the business of manufacture and sale of Passenger Cars. There are many other manufacturers of Passenger Cars in the country. It has not been shown that similar practice is being followed by other manufacturers as well.
5.9 During the investigation, statements of some of the authorized dealers of M/s. TML were recorded. All of them had, inter alia, stated that the Car Target Schemes submitted by them were the only discount and sales policies circulated by M/s. TML. It will be worthwhile to see a few of these statements to understand how the dealers perceived this scheme.
Statements of Dealers:
5.9.1 From the statements dated 20/08/2009, 16/11/2009, 13/11/2009, 27/10/2009, 21/10/2009, 5/11/2009, 23/11/2009 and 14/10/2009 respectively of Shri S.C. Vartak, Vice President of M/s. Pandit Automotive Pvt. Ltd., authorized dealer from Pune, Shri Suraj Dada, Managing Director of M/s. Dada Motors Pvt. Ltd., and Shri Ravleen Singh Grewal, Director of M/s. Garyson Motors Pvt. Ltd., authorized dealers for Ludhiana, Shri Gautamchand Jain, Managing Director of M/s. Autofin Ltd., authorized dealer for Secunderabad, Shri. P. Sree Kumar, Dy. General Manger, M/s. R.F. Motors Pvt. Ltd., authorized dealer for Kochi, Shri Suman Kapoor, General Manager, M/s. Society Motors Ltd., authorized dealer for Kanpur, Shri S. Shanmugasundaram, General Manager (Finance), M/s. VST Motors Ltd., authorized dealer for Chennai, Shri P. Chandra Motors Ltd., authorized dealer for Chennai, Shri P. Chandra Sekar, Sr. Manager- Finance & Corporate Affairs, M/s. Prerana Motors (P) Ltd.,authorized dealer for Bangalore, the following picture emerges,-
(1) The marketing department of M/s. TML issues Car Target and Schemes on a monthly basis to each dealer and that these are the only discount policies/circulars given to them by M/s. TML;(2) The said car target scheme does not contain any discount to the tune of Rs.30,000/-, 45,000/- or 1,00,000/-, as the case may be, on the off take of Indigo Cars from the factory of TML.(3) The car target scheme is totally distinct and separate from the so called discount circulars submitted by Shri Kulkarni, AGM of Tata Motors Ltd. along with his statement dtd. 12/08/2009 and claimed to have been circulated to the dealers;(4) The working of car target scheme, in brief, is that the said scheme gives targets (both offtake and retail) to the dealer and there are retail schemes under which discounts and other incentives can be offered by the dealer to the retail customers.(5) These discounts/incentives are partly borne by the dealer and partly by M/s. TML and TML's contribution is given to the dealer by reducing the values of cars sold in the subsequent month from TML's factory to the dealer by showing it as discount(6) All the incentives available to the dealers were adjusted in Indigo cars only and the discount of Rs.1,00,000/- as reflected in the invoices of Indigo cars was on account of accumulation of incentives/TML contribution accrued for Indica and Indigo models of cars sold by the dealers during the previous month.(7) No other communication in any form other than the car target scheme was received by the dealers from TML.(8) On achieving the target for a particular month, the discount admissible to the dealers on different models i.e. Indica, Indigo, etc. will be worked out by M/s. Tata Motors Ltd. and adjusted/paid by Tata Motors as per Tata Motor's wish.(9) Though the dealers have been issued invoices by Tata Motors showing a discount of Rs.1,00,000/- on purchase of Indigo cars, they have not been communicated any such schemes allowing discount of Rs.1,00,000/-.(10) From December, 2007, Tata Motors were undertaking advertisement of cars, a portion of which is borne by the dealers and an amount @ Rs.500/- per car (for Indica and Indigo cars) and rs.1500/- per (Sumo & Safari) is adjusted towards the same and the remaining amount is paid as discount on the invoices of Indigo cars.
5.9.2 From the above, it clearly emerges that the dealers did not receive any communication whatsoever from TML nor did they know that they would be receiving discounts of Rs.30,000/-, Rs.45,000/- or Rs.1,00,000/-, as the case may be, by means of reduction in prices of Indigo cars (for a certain number of vehicles) cleared by them from the factory of TML in the subsequent month. Thus, though the dealers knew that they would be receiving some discount on achieving the targets for both off-take and retail, they had no knowledge whatsoever about the quantum of the discount or how such discounts would be passed on and in what manner. This finding which arises from the statements of the dealers has a significant bearing as to the valuation of the goods to be discussed in the subsequent paragraphs.
5.10 Statements of Regional Managers of M/s. TML
5.10 Shri Deepankar Tiwari, Regional Manager of M/s. TML, Mumbai in his statement dtd. 5/11/2009, had inter alia, stated that the Regional managers of TML issue car target and schemes to the dealers which are the only policies issued to the dealers and apart from the incentive pattern shown in the car target schemes, there are no other incentive patterns given to the dealers. They are also issuing separate utility vehicles (UV) target schemes to the dealers on a monthly basis. He further stated that these car target schemes are based on monthly circulars issued by their sales head quarters at Mumbai and they were prepared at the material time by Shri Vijay Menon and Shri Gaurav Mishra. These circular details the targets for the region and schemes to be offered to the retail customer along with incentives to the dealer if he achieves the performance and based on these circulars the monthly car target schemes are prepared and sent to the dealers. These circulars are completely different from the incentives structure submitted by Shri Krishnan in his statement dtd. 26/08/2009.
5.10.2 Shri K. Vijay Menon, Regional Manager, South-2, Passenger Car Business Unit in his statement dtd. 04/12/2009 has reiterated the same facts as stated by Shri Deepankar Tiwari. He had stated that the circulars issued by the Sales Headquarters consist of targets for the off take and retail for the whole region and the second part of the circular contains the proposed incentives on achieving the targets - retail and off-take - for the respective cars. These incentive schemes were issued at the beginning of the month and also show the retail discount to be given by the dealer to the retail customer in the said month and the compensation promised by M/s. TML. He further stated that some of the retail schemes offered were in the form of free extended warranty, loyalty and free insurance to be given by the dealers to retail customers, a part of which is to be borne by M/s. TML. The Regional Manager only decides about the targets for the individual dealer and the monthly car target schemes are issued to the dealers. He admitted that no other circulars were sent by the State Headquarters of TML to the Regional Managers. Shri Vijay Menon who was brand manager for Indigo at the sales headquarters of TML also categorically admitted that none of the circulars issued during the period April, 06 to July, 08 contained the clause that Indigo Cars would be given discount of Rs.30,000/-, Rs.45,000/- or Rs.1,00,000/- as the case may be, on its off-take from the factory of TML to the dealer. Shri Vijay Menon also admitted that in his capacity as Brand Manager for Indigo at Sales Headquarters, he had not come across the so called circulars/incentive structures as submitted by Shri S.Krishnan in his statement dtd. 26/08/2009.
5.10.3 The statements of the two Regional Managers, as discussed above also corroborate the version of the dealers that they were never informed about the quantum of the discount (earned by them during a given month) which were to be passed on to them in respect of certain specified numbers of Indigo cars to be lifted by them in the subsequent month.
5.11 Statements of senior officials of M/s. TML
Statements of some of the senior officials of M/s TML were also recorded as part of the investigation and relevant extracts from these statements are reproduced below.
(a) Statement dtd. 20/08/2009 of Shri Nitin Seth, General Manager - Car, Tata Motors.Q.No.8 What is the difference between incentive and discount given to the dealer?Ans: Incentive is for dealers to achieve the target. Discount is what dealers give to end customers.(b) Statement dtd. 02/03/2010 of Shri C. Ramakrishnan, Chief Financial Officer, TMLQ No.10 Please go through some of the Car target schemes issued by M/s. TML to the dealers. Do you accept that the incentive amount paid to the dealers by way of reducing the value of Indigo Cars by giving a special discount, contains-1) Incentive offered to the dealer on offtake from M/s. TML.2) M/s. TML contribution towards discount offered by dealer to retail customers.3) M/s. TML contribution towards free extended warranty given by dealers to the retail customers.4) M/s. TML contribution towards free insurance given by dealers to the retail customers.Ans: YesQ. No.11 Please state as to how the dealers are making payments to M/s. TML for purchase of Cars?Ans: Every dealer has got a running credit account with M/s. TML, wherein he has got to maintain sufficient balance so as to cover its latest purchaseQ.No.12 If M/s. TML has got to make any payments to the dealers, how are they making such payments?Ans: Such payments are made by M/s. TML into the running credit accounts of the dealers.Q.No.13 What is the general practice in automobile industry for account settlement between the manufacture & the dealers?Ans: I do not want to comment.Q.No.14 What was the reason behind the move to pay to the dealer the amount due to them by way of reducing the value of subsequent sale?Ans: It is a marketing policy decided by Marketing Department and for details, you may ask the Marketing Department.Que No.15 At what level this policy was authorized at M/s. TML?Ans: This policy was authorized by the President (Marketing), M/s. TML.Q.No. 16 Whether the policy of paying to the dealers the amount/incentives due to them, by way of reducing the value of subsequent sale of cars, was in the knowledge of the then Managing Director of M/s. TML?Ans: This is a matter within the authority of President (Passenger Car Marketing).Q.No. 17 Who was the president (Passenger Car Marketing) in 2006?Ans: Shri Rajeev Dube was the President (Passenger Car Marketing) in 2006.Q.No.18 Why the incentives earned for Indica vehicles was paid by way of reducing the transaction value of Indigo vehicles only and not on Indica vehicles?Ans: This policy was decided by the Marketing Department.Q.No.19 Who authorized this policy at your Company?Ans: The President (Passenger Car Marketing) authorized this policy.Q.No. 20 Are you aware that the Indigo cars attract higher rate of Central Excise duty than Indica Cars?Ans: Yes, I am aware that the Indigo Cars attract higher rate of Central Excise duty than Indica Cars.Q.No. 21 Please go through the car target schemes issued by M/s. TML to the dealers. Does it anywhere state that the transaction value of Indigo cars would be reduced by Rs. 1 Lakh?Ans: The Car Target Schemes does not state that the transaction value of Indigo cars would be reduced by Rs. 1 lakh.Q. No. 22 Why it does not state so?Ans: I can't answer. The marketing department would be able to answer the same.Q.No. 23 Do you accept that the only reason this incentive earned by the dealer on Indica Cars were paid by way of reducing the value of Indigo Cars was that the Indigo Cars attracted higher rate of Central Excise duty?Ans: I can not comment on this.Q. No. 24 Please comment as to how the figure of Rs. 1 Lakh was arrived at to reduce the value of Indigo Cars?Ans: I do not know.(c) Statement dtd. 18/03/2010 of Shri S. Krishnan, Sr. Vice President - Commercial, Passegner Car Business UnitQ.No. 1 During the period Apri, 06 to July, 08 the incentive amount attributable on Indica and Indigo Cars to the dealers, based on the performance of the dealer as per the monthly car targets scheme issued by M/s. TML, was paid to the dealer by way of reducing the value of Indigo cars (except Indigo 'CS'), under the head of special discount, @ of Rs.30,000/45,000/1,00,000 (at different points of time) sold from the factory of M/s. TML to the same dealer in the succeeding month. Do you accept the same?Ans: YesQ. No. 2 Do you accept that the reduction of Rs.30,000/45,000/1,00,000 in the transaction value of Indigo Cars (except Indigo 'CS') in the invoice covering its sale from the factory of M/s. TML to the dealer, was on account of incentives amount payable by M/s. TML to the dealer for earlier purchases in the earlier month of Indica and Indigo cars by the said dealer?Ans: Yes.Q.No. 3 Please state as to how the dealers are making payments to M/s. TML for purchase of cars?Ans: Every dealer has sufficient balance to cover his purchase of cars and in case of any short fall in the running account, he makes payment by cheques or through his financier.Q. No. 4 Does the dealer maintain a separate running credit account for Indica, Indigo and UV cars?Ans: He maintains separate running account for cars (Indica, Indigo) and UV.Q. No. 5 If M/s. TML has to make any payment to the dealer, how are they making such payments?Ans: Payments are made by crediting to the running dealer account.Q. No. 6 Why the incentives earned on Indica vehicles was paid by way of reducing the transaction value of Indigo Vehicles (except Indigo 'CS') only and not on Indica vehicles during the said period?Ans: The incentives earned by the dealer for both the brands i.e. Indica and Indigo were given to the dealer by way of reducing the transaction value on Indigo vehicles (except Indigo 'CS') only. I would not comment on why it was done so.Q. No. 8 Who authorized this policy at your Company?Ans: In April, 2006, I was the Head of Car Marketing of M/s. TML, I am responsible from Marketing to have authorized this policy.Q. NO. 9. Please submit the copy of policy authorized by you stating that the incentives earned on Indica vehicles should be paid by way of reducing the transaction value of Indigo Vehicles?Ans: In our company policy is by way of written documents or verbal instructions. In this case it was by verbal instruction originating from me to all concerned.Q. No. 10 Was the President PCBU informed about his decision of yours?Ans: YesQ. No. 11 Who was the President PCBU during that period?Ans: Mr. Rajeev Dube.Q.No. 12 Are you aware that Indigo Cars (except Indigo 'CS') attract higher rate of Central Excise Duty than Indica Cars?Ans: Yes.Q. NO. 16 Please go through the Car Target Schemes issued by M/s. TML to the dealers in the said period. Does it any where state that the transaction value of Indigo Cars would be reduced by Rs.30,000/45,000/1,00,000 for passing of incentives?Ans: No, as long as the dealer gets the amount eligible to him the method of its payment is not his concern.Q.No. 17 Why is it that the transaction value of all Indigo Cars (except Indigo 'CS') sold from the factory of M/s. TML to the dealers was not reduced by Rs.30,000/45,000/1,00,000 for passing of the incentives?Ans: As already stated the reason for reduction of the transaction value of Indigo's was for passing of incentives earned by the dealers in the previous month. Thus, the number of Indigo vehicle whose transaction value was reduced was determined by the total incentives earned in the previous month divided by Rs.30,000/45,000/1,00,000. Therefore, only on a limited number of Indigo's in the said month, the transaction value was reduced.Q. No. 18 Please comment as to how the figure of Rs.30,000/45,000/1,00,000 was arrived at to reduce the value of Indigo cars?Ans: These were arbitrary figures to pass on the total incentivesQ.No. 19 Please state as to whether during the period Apr, 06 to July, 08 some parts of incentives attributable on Indica/Indigo cars as per the offtake/retail target achieved by the dealer, based on the car target schemes issued by M/s. TML, was paid to the dealer by way of reducing value of UV (Sumo, Safari) @ Rs. 1,00,000 sold in the succeeding month from the factory of M/s. TML to the dealers?Ans: Yes, we have paid the incentive of Indigo/Indica in MUV (Sumo, Safari) for the months of Mar, 08 to May, 08.Q. No. 20 What is the reason behind this payment of incentives attributable to Indica/Indigo on the sale of UV's during Mar, 08 to May, 08?Ans: It is quite possible that adequate Indigo's were not available during those months to cover the incentives.Q. No. 21 Why these incentives were not passed on by reducing the value of Indigo 'CS' Cars?Ans: I will not comment on this.Q. NO. 22 Please state as to whether Indigos (except Indigo 'CS') and UV's attract higher rate of Central Excise duty than Indica's?Ans: YesQ. No. 23 Please state as to whether Indigo 'CS' attract same rate of duty as that of Indica's.Ans: Yes(d) Statement dtd. 29/08/2010 of Shri Rajiv Dube, President, Passenger Car Business Unit, TML.Q. No. 8 Were you aware that during the period April, 2006 to July, 2008 the incentive amounts attributable on Indica and Indigo cars to the dealers, based on performance of the dealers as per the Monthly Car Target Scheme issued by M/s. TML, was paid to the dealers by way of reducing the assessable value of Indigo Cars (except Indigo CS) @ Rs.30,000/45,000/1,00,000 (at different points of time) sold from M/s. TML, Pimpri to the same dealers in the succeeding month.Ans: I was not aware of the operational details of the transactions at that time. However, during the investigations I have been made aware by the officials of M/s. TML and investigating officers, that during the period April 2006 to July, 2008 the incentive amounts attributable on Indica and Indigo cars to the dealers, based on performance of the dealers as per the Monthly Car Target Scheme issued by M/s. TML, was paid to the dealer by way of reducing the assessable value of Indigo cars (except Indigo CS) @ Rs. 30,000/45,000/1,00,000 (at different points of time) sold from M/s. TML, Pimpri to the same dealers in the succeeding month.Q. No. 11 You are now being shown the statement dtd. 02/03/2010 of Mr. C. Ramkrishnan, CFO, M/s. TML, wherein, he has stated that, 'Shri Rajiv Dube had authorized this policy in his capacity as President-Passenger Car Marketing'. Further, vide summons dtd. 22/03/2010, you have been asked to submit copy of such policy. Please produce the same.Ans: I have put my dated signature on the statement dtd. 02/03/2010 of Mr. C. Ramakrishnan, CFO, M/s. TML. Foremost, I would like to clarify that there has never existed the post of 'President-Passenger Car Marketing' within M/s. TML. As I have mentioned earlier, at the point of time in question, I was overall incharge of the business as President-Passenger Cars. I can only conjecture that perhaps Mr. C. Ramkrishnan may have carried a mistaken impression form memory as I believe he jointed M/s. TML as CFO in mid or late 2007. No such policy exits, which I can produce. This subject is quite operational and within the purview of Commercial Department, headed by Mr. Krishnan, Sr. VP (Commercial-PCBU), who has taken this decision.Q.No. 13 You are now being shown the statement, dated 02/03/2010 of Mr. C. Ramkrishnan, CFO, M/s. TML, wherein, he has stated that, Shri Rajiv Dube, President, Passenger Car Marketing has authorized the policy of payment of incentives earned by the dealers on Indica vehicles, by way of reducing the value of Indigo vehicles only'. Further, vide summons dtd. 22/03/2010, you have been asked to submit copy of such policy. Please produce the same.Ans: I can only say that the impression that any such policy was authorized by me is perhaps a mistaken one by Mr. Ramkrishnan, CFO, M/s. TML, as he joined the company later in 2007. I have already stated that I am not aware of any such formal policy sanction at my level and therefore, am not in a position to produce the same.Q.No. 14 You are now being shown statement dtd. 18/03/2010 of Shri S. Krishnan, Senior Vice President (Commercial) of M/s. TML has in his statement accepted that the incentives earned by the dealer for both the brand were given to the dealer by way of reducing the transaction value on Indigo vehicles (except Indigo CS) only. He has also accepted that he was the person responsible for having authorized this policy. He has further accepted that the President PCBU was informed about this decision. However, he has refused to elaborate the reason behind the policy to pay to the dealer the incentives earned by them on Indica vehicles, by way of reducing the value of Indigo vehicles (except Indigo CS) only and not on Indica vehicles during the said period, please state the same?Ans: Shri S. Krishnan may have spoken to me although I do not specifically remember the instance as it was way in the past. In any such instance, I would have gone by his judgment as long as he has run it past the concerned departments of Legal and Finance Department and also the fact that the incentives passing is an operational issue within the purview of Shri S. Krishnan, Shri Krishnan would be the correct person to answer the reason behind the methodology followed of the incentives earned by the dealer for both the brand being given to the dealer by way of reducing the transaction value on Indigo vehicles (except Indigo CS) only.Q.NO. 16 You are now being shown sample scheme letters-SHQ to Regions April, 2007 to March, 2008, bearing pages 1 to 12, issued by Shri Nitin Seth (Head-Car Product) and Mr. S.G. Saksena- Head VC Product giving the incentive structure for the respective months. This states that 'All Indigo, Marina & XL have an incentive structure of Rs. 30,000/- for April 2007, May 2007, June 2007, Rs. 45,000/- for July, 2007, August 2007, Rs. 1,00,000/- for the period September, 2007 to March 2008. Please state whether you have come across these circulars and whether you are involved in issue of these circulars?Ans: I have seen these circulars today. I have come across these circulars, neither am I require to be involved in issuance of these circulars, as it is a very operational issue within the purview of the Commercial Department.(e) Statement dtd. 05/03/2011 of Shri Prakash Manjanath Telang, Managing Director (India Operations) TML.Q.NO. 4 Shri C. Ramkrishnan, CEO of M/s. TML, in his statements dtd. 02/03/2010 has stated that 'this policy of paying the incentives earned on Indica vehicles to the dealers by reducing the transaction value of Indigo vehicles was authorized by the President-Passenger Car Marketing'. However Shri Rajiv Dube, in his statements dtd. 29/04/2010 has stated that, 'he has carried a mistaken impression and no such policy exists. As Managing Director of the company, please clarify the stand of M/s. TML on this issue.Ans: Shri S. Krishnan, as Head of Commercial Operations is responsible for taking such decisions and I shall go by his statement dtd. 18/03/2010.Q. No. 5 Shri S. Krishnan, Sr. Vice President - Commercial of M/s. TML in his statements dtd. 18/03/2010 has stated that the incentives earned by the dealers on both the brands, i.e. Indica and Indigo were given to the dealers by way of reducing the 'transaction value' of Indigo vehicles (except INDIGO CS) only. However, he has refused to answer as to why it was done so. Please state the official stand of M/s. TML on the reason for the above.Ans: Since Shri S. Krishnan is the person closest to this matter, I shall go by the statement dated 18/03/2010 of Shri S. Krishnan.Q. No. 7 Are you aware that the price reduction of Rs. 1.00 lakh on Indigo cars (except Indigo CS) was never passed on to the ultimate consumer of the cars?Ans: Since this is operational matter, I am not aware about the same.Q. No. 13 You are now being shown the discount circular dated 07/05/2008 issued by the General Manager - Car Product Group of said circular, a discount of Rs. 1.00 lakh is to be given on Indigo car to the respective dealers as prescribed in annexure attached to the said discount-circular dated 07/05/2008. The said circular was submitted to the DGCEI authorities during investigations by Shri. Suhas Kulkarni, Assistant General Manager (Finance) of Ms. TML under his statements dated 12/08/2009. Please go through the said circular and state whether the said circular has been issued to all the dealers?Ans: I have put my dated signature on the said discount circular. I have been given to understand by Shri. Pinge that this document existed on the records of M/s. TML. At this moment, I am not aware whether this discount circular was sent to all dealers of M/s. TML. I shall check up about the same and inform to you within ten days.
5.11.1 From the above statements extracted above, the following picture emerges. The amount paid to the dealers are by way of incentives to achieve the target. The incentives given were TML's contribution to warranty services, insurance services and so on. In spite of the dealers maintaining a running account with TML through which payments to and from were adjusted, as regards the "special discount', the same was passed on not by adjusting the running account but by reducing the price of Indigo cars cleared during the subsequent month. While the Chief Financial Officer (CFO) thought that this policy was authorized by the President (Marketing) of the Passenger Car Business Unit, the latter has completely denied the same and has admitted that there was no such formal policy for grant of incentives/discounts. The President also the CFO also did not know that the incentives were passed on by reduction in prices by Rs. 30000/- Rs.45000/- Rs. 100000 on Indigo cars and they became aware of this only when the investigations started. Both the President of the car business unit and the Managing Director in their statements have admitted that the entire scheme was conceived and operationalised by Sri. Krishnan who was the Sr. Vice President (Commercial) and they were not a party to such important decisions, Shri Krishnan in his statement before the Investigating officer has admitted that the policy of passing on the incentives by way reduction in the transaction value of Indigo cars was as per his verbal instructions and the figures of price reduction of Rs. 30000/45000/100000 were arbitrary figures arrived at by him to pass on the incentives. Thus the top management of TML, barring Mr. Krishnan, were completely ignorant or unaware of how the discounts were determined and passed on to the dealers. If that be so, it is unimaginable how the dealers could have come to know about the quantum of discount or its delivery mechanism. From these evidences on record, it is clearly established that the so called discount circulars claimed to have been circulated to the dealers as submitted by Sri. Krishnan and Sri. Kulkarni were false and fabricated documents just to hoodwink/mislead the investigation. The appellant has relied on their Chief Internal Auditor's report wherein certain internal enquiry was conducted after the investigation started. It is claimed that it is part of their ethics programme of good governance and as per the said report, the entire scheme of special discount was in accordance with the company policy. The documents available on record and the statements of the top managers of the company reveal a totally different picture. Thus the so called "ethics report" is nothing but a brazen attempt to cover up the mis-deeds and we do not find any reason to consider or accept such "concocted or stage managed" reports.
5.12 The fact that the so-called 'special discount' is not a discount at all is established by the fact that it was never passed on to the ultimate customers of cars. This is quite evident from the following transactions:
(1) Vide Invoice No. 988827449 dt 29/5/2008, M/s. TML has sold one Tata Indigo Diesel LX Version Car (Chassis No. 607145ERZP62940) to M/s. Pandit Automotive Pvt. Ltd., Pune showing the unit price as Rs. 3,58,479/- and after deducting the so-called 'Special Discount', the net price as per Section 4(1)(a) has been shown as Rs. 2,58,479/- on which Central Excise duty has been paid and thereafter net amount has been arrived at Rs. 3,66,041/-. This vehicle has been sold by M/s. Pandit Automotive Pvt. Ltd. to a retail customer M/s. Syntel Ltd. under Invoice NO. Pandit Ltd - 0809-00910 dtd. 31/05/2008 showing the unit price as Rs. 4,67,498.89.(2) Vide Invoice NO. 988829286 dtd. 16/2/2008, M/s. TML has sold one Tata Indigo Diesel LS Version Car (Chassis No. 607144BRZP25518) to M/s. Pandit Automotive Pvt. Ltd., PUne showing the unit price4 as Rs. 3,28,435/- and after deducting the so-called 'Special Discount', the net price as per Section 4(1)(a) has been shown as Rs. 2,38,435/- on which Central Excise duty has been paid and thereafter net amount has been arrived at Rs. 3,23,495.01. This vehicle has been sold by Ms/. Pandit Automotive Pvt. Ltd. to a retail customer Mr. Harishchandra Laxman Kasabe under Invoice No. PanditLtd-0708-05168 dtd. 29/02/2008 showing the unit price as Rs. 4,28,679.87/-.
5.12.1 From the above two transactions, it is quite clear that the so-called 'special discount' given to the dealer(s) by M/s. TML has not been passed on to the ultimate customers. It would, therefore, follow that the so-called 'special discount' is not a discount at all. Had it been so, it would have been passed on to the ultimate customers. It is just a compensation given by M/s. TML to its dealers, who have given certain incentives/benefits to their customers as a measure of sales promotion under the Car Targets & schemes of M/s. TML.
5.13 At the time of hearing, it was claimed that the dealers of TML were aware well in advance of the discount structure before removal of the goods. In support of this claim, attention of the Bench was invited to certain Monthly Circulars claimed to have been issued to the dealers. As seen, these circulars are addressed to the Regional Managers of TML with advice to inform the dealers of the incentive structure for the month. One such circular is reproduced below for ease of reference:
5.13.1 According to the revenue, these circulars are false & fabricated. These were created only to tell the investigation that the dealers were aware of the discount structure before removal of the goods. According to the revenue even the senior officials of TML were not aware of these circulars. Perusing the relevant record, particularly, the statements of some of the Dealers, Regional Managers and Senior Officials of M/s. TML as noted in the foregoing paragraphs, it does not appear that TML was issuing any Monthly Discount Circulars to its dealers. On the contrary, each of the deponents whose statements were recorded has categorically stated that they were not aware of any such circulars other than the Monthly Car Targets and Schemes. In light of these facts, TML's claim that its dealers were aware of the Discount circulars well in advance cannot be accepted.
5.14 DEALERSHIP AGREEMENT
M/S. TML has submitted on record one Representative Dealership Agreement dtd. 15/11/2007 with M/s. Concorde Motors India Limited. On a perusal of this agreement, it is seen that it does not provide for any kind of discount to the dealer(s) on sale of its cars, namely, Tata Indica, Tata Indigo etc. From this, it is evident that there was no policy/established practice for grant of discount on sale of its cars in the agreement entered into with the dealers. This fact is also corroborated by the Statement of Shri. Rajiv Dube, President of the Passenger Car Business Unit of the appellant.
5.15 From the discussions made in paragraphs 5.5 to 5.14 above, the following conclusions emerge.
(1) The special discounts under the Car Target and Schemes were passed on to the dealers not as reduction in the prices of the goods to which they related to but as a reduction in the prices of some other goods cleared in the subsequent month.(2) The discount was a conditional one subject to achieving certain off-take and retail targets and basis for fixing these targets were not made known to the dealers.(3) The so called discounts were dealers specific and there is no evidence on record that these were uniform within the same class of buyers.(4) Most of the discounts were reimbursements/compensation to the dealers by the appellant for the various services rendered by the dealers to the customers such as warranty services, insurance services, financial services (interest subventions), loyalty and exchange bonuses.(5) The quantum and method of reimbursement of the discounts were not made known to the dealers at or before the sale of cars. The same was also not known to the top management of the appellant firm and there was no company policy for giving such discounts.(6) The entire scheme was conceived and operationalized by only one person and the quantum and form adopted for passing on the discounts were arbitrary.(7) There is no evidence brought out by the appellant that the novel discount scheme adopted by them was an industry/trade practice and the dealership agreement did not also envisage any such scheme.(8) There is also no evidence on record to show that the goods on which the discounts were given (by price reduction of cars) while effecting sales to the dealers were passed on to the customer, that is, buyers of the cars. In fact the evidences available on record prove the contrary.(9) An attempt, was made to mis-lead the investigation by submission of false/fabricated circulars claimed to have been issued to the dealers the receipt of which has been denied by all the dealers. Even the Regional Sales Managers who were directed to circulate the same were not aware of their existence as also the top management who were directly concerned with the business operations of the appellant firm.
6. It would be useful at this juncture to look at the settled position in law with respect to admissibility of discounts. Though the new section 4 effective from 1-7-2000 and the transaction value do not specifically refer to any trade discount, the transaction value, being the net amount received after giving the discount, would be influenced by the discount. Thus it would not be unreasonable to say that the concept of trade discount is in-built or implied in the transaction value concept.
6.1 In Bombay Tyres International case, the Apex Court clarified as follows:-
"Trade Discounts. - Discounts allowed in the Trade (by whatever name such discount is described) should be allowed to be deducted from the sale pricehaving regard to the nature of the goods, if established under agreements or under terms of sale or by established practice, the allowance of such discount being known at or prior to the removal of the goods. Such Trade Discounts shall not be disallowed only because they are not payable at the time of each invoice or deducted from the invoice price" (emphasis supplied).
6.2 In Madras Rubber Factory Ltd. case in judgment dated 20-12-1986, the apex Court, while considering the eligibility of Warranty discount and Special Year-end Bonus held as follows:
"Even though the giving of TAC/Warranty is established by practice or capable of being decided, what is really relevant is the nature of the transaction. The warranty is not a discount on the tyre already sold, but relate to the goods which are subsequently sold to the same customers. It cannot be strictly called as discount on the tyre being sold. It is in the nature of a benefit given to the customers by way of compensation for the los suffered by them in the previous sale."
As regards special year-end bonus, the Apex Court held that-
"The calculations are made at the end of the year and the Bonus at the said rate is granted to a particular class of dealers, …. It is not in the nature of a discount but is in the nature of a bonus or an incentive much after the invoice is raised and the removal of the goods complete. In the circumstances, we are of the opinion that MRF is not entitled to deduction under this head."
The said view was re-affirmed by the hon'ble apex Court in its subsequent judgment delivered in May, 1995.
6.3 In the Auto Lamps Limited Case, this Tribunal considered a question whether varying assessable values to different customers within one and the same class of buyers would be acceptable and came to the conclusion that acceptance of a multiplicity of assessable values under the same conditions would cut at the very basis of the Self-Removal procedure and therefore, for the same goods under the same conditions (which would include the same class of buyers), only one assessable value would be acceptable. The said decision of the Tribunal was affirmed by the Hon'ble Apex Court.
6.4 A Larger Bench of this Tribunal in the case of Maruti Suzuki India Ltd. [2010 (257) ELT 226 (Tri-LB)] = 2010-TIOL-1127-CESTAT-DEL-LB had an occasion to examine the scope of "transaction value" as defined in section 4 of the Act (after its amendment with effect from 1-7-2000) and held as follows:-
"15. The definition of the expression "transaction value" undoubtedly uses the expression any amount that the buyer is liable to pay to, or on behalf of, the assessee, by reason of, or in connection with the sale, whether payable at the time of the sale or at any other time, including.......... servicing, warranty, commission or any other matter,........"Apparently, the transaction value does not merely include the amount paid to the assessee towards price but also includes any amount a buyer is liable to pay by reason of or in connection with the sale of the goods, including any amount paid on behalf of assessee to the dealer or the person selling the vehicles. Measure of levying is expanded and its composition is broad based to bring all that a buyer is liable to pay or incur by reason of sale or in connection on therewith. Clearance of goods subject to fulfilment of sales conditions contribute to the assessable value by the amended definition of transaction value. The transaction value, therefore, is not confined to the amount actually paid and is not restricted to flow back of consideration or part thereof to the assessee directly but even for discharge of sales obligations both in present and future. It would include even the amount paid by the buyer to the dealer or the persons selling vehicles in pursuance of the contract between the dealer or the seller and the assessee in relation to or connection with the sale of the vehicles and such payment may be in the course of sale or even after sale. Thus all deferred and future considerations add to assessable value. The theory of "flow back of consideration or part thereof" is not confined to direct monetary benefit to the assessee in connection with the sale of vehicles but rejuvenated to include consideration integrally connected with post sale obligations also and indirect benefit received in the course of or on account of sale as well as subsequent to the sale pursuant to any service rendered by the person who sells the vehicles under the contract with the manufacturer relating to the sale of the vehicles in view of meaning of transaction value as incorporated in to the provisions of section 4(3) (d) of the Act w.e.f. 01.07.2002. Sales in such type of contracts is conceived by both parties to be complete if post sales obligation are dischargeable by settled terms known to each other making performance of contract certain."
The application for stay against the said decision was rejected by the Apex Court as reported in 2013 (291) ELT A81 (SC)].
6.5 When we apply the ratio of the above judgments to the facts of the present case, as detailed in paragraph 5.15 above, it can be easily seen that the so-called "special discount" offered by the appellant does not conform to any of the requirements of the trade discount. That is, it is not known at or prior to the removal of the goods; it is not in accordance with any established trade practice; it is not in accordance with any established trade practice; it is uniform within the same class of buyers; it is purely arbitrary; it is a compensation for the services rendered by the dealers on behalf of the manufacturer, masqueraded as a discount; it is not passed on to the end customers; and it is not passed on as a price reduction of the goods to which it pertains to. Thus 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 and accordingly, we uphold the demand for differential duty confirmed in the impugned order, Arguments to the contrary made by the appellant in this regard merits total rejection. The appellant has relied on a number of judicial pronouncements in support of their claim that the special discount is a permissible trade discount. We have already given our reasons, both factual and legal, why this contention is not acceptable. Therefore, we do not find it necessary to discuss each individual decision and give a finding as to why it is not relevant or acceptable. Once the demand for differential duty is upheld, the liability to pay interest thereon is automatic and consequential. Therefore, the demand for interest on the differential duty liability is also upheld.
6.6 An argument has also been advanced by the appellant that in the present case, as there is no flow back from the dealer to the appellant, the discount given by the appellant to the dealer cannot be added to the assessable value. This argument is not acceptable for the following reason. We have to see for what purpose the discount was given, that is, whether it is a genuine trade discount or a compensation for the services rendered. By definition, transaction value includes the amounts charged for or to make provision for advertising or publicity, servicing, warranty, commission, or any other matter, by reason of, or in connection with the sale and what is excluded is only the taxes actually paid or payable on such goods. In other words, the transaction value does not exclude from its scope the compensation paid for the services rendered. In the present case, the dealers were required to render services on behalf of the appellant by way of warranty services, insurance services, financial services and so on to the customers. For rendering such services, the appellant was required to compensate the dealers which was done not by making direct payments but by reducing the prices of goods sold later by way of special discounts. There is no evidence led before us that these discounts were passed on to the customers (except for an affidavit filed by Sri. Krishnan). But evidence to the contrary exists. In view of the above position, it is difficult to accept the plea made in this regard.
7. The next question for consideration is whether the extended period of time could have been invoked to confirm the duty demand or not in the present case. The appellant has claimed that vide letters dated 16/12/2001 and 10/1/2003 the appellant had informed the jurisdictional excise authorities about the discount policy followed by them and the principle governing the discount scheme of 2001/2003 and the present car targets and retails schemes were the same and the fact of cross model utilization of discounts was known to the department and the department had never objected to the same. Therefore, extended period of time could not have been invoked to confirm the duty demands. We do not find any merit in this contention for the following reasons. The scheme which was in existence in 2001/2003 related to "performance bonus" granted to the dealers by way of a flat discount of Rs.20000/- per car based on the number of vehicles purchased by the dealers in 2001-02 and thereafter. The criteria governing the said scheme was sales performance, spare parts performance, performance of receivables and so on. The criteria governing the car target and retail schemes include services rendered by the dealers to the customers on behalf of the appellant manufacturer such as warranty services, insurance services, financial services, loyalty and exchange bonuses and the quantum of discounts vary from month to month and year to year. Thus the schemes were significantly different, both in form and content. Further as discussed in the preceding paragraphs, we have concluded that the quantum of discount and the method of its dispersal were not known to the dealers. Further, Sri. Krishnan in his statement dated 18/3/2010 had admitted that it was he who formulated the new scheme in 2006 to meet the fierce competition faced by them. It is not in dispute that the appellant did not declare or inform the department about the new incentive scheme at any point of time either through letters or by way of declaration in the statutory returns filed with the department. In these circumstances, the contention of the appellant that the demands are hit by limitation cannot be accepted. The decision of the hon'ble High Court of Gujarat in the case ofNeminath Fabrics - 2011-TIOL-10-HC-AHM-CX is relevant and extracts therefrom are reproduced below:
"14. Thus the scheme that unfolds is that in case of non levy where there is no fraud, collusion, etc., it is open to the Central Excise Officer to issue a show cause notice for recovery of duty of excise which has not been levied, etc. The show cause notice for recovery has to be served within one year from the relevant date. However, where fraud, collusion, etc., stands established the period within which the show cause notice has to be served stands enlarged by substitution of the words one year by the words five years. In other words the show cause notice for recovery of such duty of excise not levied etc., can be served within five years from the relevant date.15. To put it differently, the proviso merely provides for a situation whereunder the provisions of sub-section (1) are recast by the legislature itself extending the period within which the show cause notice for recovery of duty of excise not levied etc. gets enlarged. This position becomes clear when one reads the Explanation in the said sub-section which only says that the period stated as to service of notice shall be excluded in computing the aforesaid period of one year or five yearsas the case may be.16. The termini from which the period of one year or five yearshas to be computed is the relevant date which has been defined in sub-section (3)(ii) of section 11A of the Act. A plain reading of the said definition shows that the concept of knowledge by the departmental authority is entirely absent. Hence, if one imports such concept in sub-section (1) of section 11A of the Act or the proviso thereunder it would tantamount to rewriting the statutory provision and no canon of interpretation permits such an exercise by any Court. If it is not open to the superior court to either add or substitute words in a statute such right cannot be available to a statutory Tribunal.17. The proviso cannot be read to mean that because there is knowledge the suppression which stands established disappears. Similarly the concept of reasonable period of limitation which is sought to be read into the provision by some of the orders of the Tribunal also cannot be permitted in law when the statute itself has provided for a fixed period of limitation. It is equally well settled that it is not open to the Court while reading a provision to either rewrite the period of limitation or curtail the prescribed period of limitation.
7.1 It is also on record that the appellants themselves had admitted to part of the duty liability and had paid the same along with interest and 25% of the penalty during the investigation stage which is a clear pointer to the admission of guilt on the part of the appellant. Further, the appellant resorted to subterfuge by fabricating false documents to mis-lead the investigation. This conduct of the appellants also clearly establishes both suppression and willful mis-statement on their part to evade excise duty.
7.2 It is worth out while to remember the ratio laid down by the hon'ble Apex Court in theMcdowell And Co. Ltd. vs. Commercial Tax Officer [AIR 1986 SC 649] = 2002-TIOL-40-SC-CT-CB,wherein it was held as follows:-
"…….In our view, the proper way to construe a taxing statute, while considering a device to avoid tax, is not to ask whether the provisions should be construed literally or liberally, nor whether the transaction is not unreal and not prohibited by the statute, but whether the transaction is a device to avoid tax, and whether the transaction is such that the judicial process may accord its approval to it. ……………..It is neither fair nor desirable to expect the legislature to intervene and take care of every device and scheme to avoid taxation. It is up to the Court to take stock to determine the nature of the new and sophisticated legal devices to avoid tax and consider whether the situation created by the devices could be related to the existing legislation with the aid of 'emerging' techniques of interpretation as done in Ramsay [1982 AC 300], to expose the devices for what they really are and to refuse to give judicial benediction."
Respectfully following the above decisions, we hold that the extended period of time has been rightly invoked to confirm the duty demands.
7.3 The next issue for consideration is with regard to the penalty imposed on the main appellant under section 11AC. Once the demand for differential duty and interest by invoking the extended period of time is upheld, mandatory penalty under section 11AC is imposable. The decision of the hon'ble Apex Court in the Rajasthan Spinning and Weaving Mills Ltd. case refers. Accordingly we uphold the penalty imposed under section 11AC. However, we observe that since part of the differential duty of Rs. 13,65,04,371/- along with interest thereon and 25% of the duty as penalty has been paid by the appellant before the issue of show cause notice, the mandatory penalty imposable under section 11AC would be only Rs.45,34,89,642/-, as abatement of penalty to the extent of 75% is available if duty, interest and penalty is paid within 30 days of the date of the order confirming the duty demand. Therefore, in respect of differential duty of Rs.13,65,04,371/-, only 25% of the said amount (which has already been paid) is liable to be paid as penalty.
7.4 As regards the penalties imposed on the co-appellants, Mr.Krishnan, Mr. Rajesh Bagga and Mr. Nitin Seth, officials of the appellant firm, the said penalty is sought to be imposed under the provisions of Rule 26 of the Central Excise Rules, 2002. The said penalty is imposable only when the goods, on which differential duty is confirmed, are held liable to confiscation under Rule 25 of the said Rules and the persons concerned are aware that the goods are liable to confiscation. Neither in the show cause notice nor in the impugned order, is there any proposal to hold the goods liable to confiscation nor any finding to that effect. In the absence of such a finding, imposition of penalties on the said officials of the appellant firm cannot be sustained in law. Accordingly, we set aside the penalties imposed on the co-appellants.
8. To sum up, we uphold the confirmation of duty demand of Rs.59,00,94,013/- on M/s Tata Motors Ltd. under section 11A of the Central Excise Act, 1944, invoking the extended period of time along with interest thereon under section 11AB of the said Act. We also uphold the imposition of penalty under section 11AC on M/s Tata Motors Ltd. However, the penalty payable shall be only Rs.45,34,89,642/- after considering the payment of penalty of Rs.3,41,26,093/- [being 25% of the duty amount of Rs.13,65,04,371/- paid by the appellant along with interest thereon before the issue of show cause notice]. We set aside the penalties imposed on the co-appellants Mr. S. Krishnan, Mr. Rajesh Bagga and Mr. Nitin Seth, officials of the appellant firm as unsustainable in law.
(Pronounced in Court on 25/03/2014)
2014-TIOL-631-CESTAT-BANG
IN THE CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, BANGALORE
SOUTH ZONAL BENCH, BANGALORE
Application No.E/COD/25546/2013, E/Stay/25547/2013
Appeal No.E/25430/2013
Appeal No.E/25430/2013
M/s MOLEX (INDIA) PVT LTD
Vs
COMMISSIONER OF CENTRAL EXCISE, BANGALORE
Date of Hearing: 19.6.2013
Date of Decision: 19.6.2013
Date of Decision: 19.6.2013
Appellant Rep by: Mr Shailendra Suklecha, CA
Respondent Rep by: Shri A K Nigam, Addl. Commissioner (AR)
Respondent Rep by: Shri A K Nigam, Addl. Commissioner (AR)
CORAM: B S V Murthy, Member (T)
D M Misra, Member (J)
D M Misra, Member (J)
Central Excise - Stay/dispensation of pre-deposit - CENVAT Credit - 100% EOU - Statute itself provides that duty payable by 100% EOU is excise duty only and the quantum is required to be worked out based on customs duty leviable on the goods - Question of denial of benefit of CENVAT Credit does not arise - Waiver of pre-deposit and stay of recovery ordered - Section 3 of the Central Excise Act 1944.
Stay granted
MISC ORDER NOS.26289/2013
Per: B S V Murthy:
The appellants are seeking condonation of delay of 83 days in filing the appeal. The learned Chartered Accountant submits that there were two Orders-in-Original which were covered by a single Order-in-Appeal and realizing that appellants should have filed two appeals, second appeal was filed subsequently. Hence the delay. Since the second appeal can be considered as supplementary appeal, the application for condonation of delay is allowed.
2. Coming to the issue involved, the learned Chartered Accountant submits that the appellant had taken CENVAT credit of duty paid by a 100% EOU supplied to a DTA unit. Revenue has taken a view that entire amount should not have been taken as credit and credit should have been limited to the amount attributable to excise duty (CVD) portion of the total duty paid by 100% EOU. He submits that what is paid by a 100% EOU is nothing but an excise duty and therefore the credit taken is in order. Learned AR supports the Order-in-Appeal wherein a view has been taken that the duty paid by a 100% EOU comprises of elements of customs duty also and also credit should be limited to only the amount attributable to additional customs duty which is equal to CVD.
3. We have considered the submissions. According to Section 3 of Central Excise Act 1944, the duty payable by a 100% EOU is excise duty only and the quantum is required to be worked out based on the customs duty leviable on the goods. When the statute itself provides that what is being paid by a 100% EOU is excise duty, the question of denial of benefit of Notification or the CENVAT Credit Rules does not arise. In this view of the matter, we consider that the appellant has made out prima facie case for complete waiver. Accordingly, there shall be complete waiver and stay against recovery of the dues during the pendency of the appeal.
(Pronounced & dictated in open Court)
Conveyance allowance received by LIC employee to develop insurance business is exempt from tax
June 10, 2014[2014] 45 taxmann.com 301 (Rajasthan)
IT: Conveyance allowed paid by LIC to its Development Officer for performance of his duties and development of insurance business is to be allowed as exempt under section 10(14)
TRO can't prohibit transfer of a property unless 'NOC' has been obtained from AO by fraud or misrepresentation
June 10, 2014[2014] 45 taxmann.com 280 (Gujarat)
IT : Unless department was able to put forth a case of connivance or fraud or misrepresentation on part of assessee, NOC for selling property could not be ignored by TRO
IT : On prepayment of loans, income of financial corporation by way of penal interest and pre-closure charges on prepayment of loan are to be treated as eligible profit for purpose of deduction under section 36(1)(viii)
IT : For purpose of computation of book profit under section 115JB, assessee should add back lease equalization reserve and provision for contingencies
■■■
[2014] 45 taxmann.com 279 (Karnataka)
HIGH COURT OF KARNATAKA
Commissioner of Income-tax, Central Circle
v.
Weizmann Homes Ltd.*
DILIP B. BHOSALE AND B. MANOHAR, JJ.
IT APPEAL NO. 538 OF 2007†
OCTOBER 9, 2013
I. Section 36(1)(viii) of the Income-tax Act, 1961 - Financial corporation, reserve created by (Computation of deduction) - Assessment year 2002-03 - Whether where assessee was receiving income from providing long term finance being eligible business, miscellaneous income derived from penal interest and pre-closure charges on prepayment of loan are to be treated as eligible profit for purpose of deduction under section 36(1)(vii) - Held, yes [Para 5] [In favour of assessee]
II. Section 115JB of the Income-tax Act, 1961 - Minimum alternate tax (Lease equalization reserve) - Assessment year 2002-03 - Whether while computing book profit under section 115JB, assessee should add back lease equalization reserve (reserve for doubtful income) and provisions of contingencies (unascertained liability) - Held, yes [Para 5] [In favour of revenue]
CASE REVIEW
CIT v. Weismann Homes Ltd. [2013] 215 Taxman 264/33 taxmann.com 171 (Kar.) (para 5) followed.
CASES REFERRED TO
CIT v. Weizmann homes Ltd. [2013] 215 Taxman 264/33 taxmann.com 171 (Kar.) (para 3).
K.V. Aravind for the Appellant. Ganesh R. Ghale for the Respondent.
JUDGMENT
Dilip B. Bhosale, J. - This appeal is directed against the order dated 6-12-2006 rendered by the Income Tax Appellate Tribunal, Bangalore Bench "B" in ITA No.275/Bang/2005 whereby, the revenue's appeal came to be dismissed.
2. This appeal was admitted to consider the following substantial questions of law:
| "(i) | Whether the Appellate Authorities were correct in holding that the miscellaneous income derived from penal interest and pre-closure charges can also be treated as eligible profit for the purpose of deduction under section 36(1)(vii) of the Act when receiving income from providing long term finance being the eligible business. | |
| (ii) | Whether the Appellate Authorities were correct in holding that when computing the Book Profit u/s.115JB of the Act the assessee need not add back lease equalization reserve (reserve for doubtful income) and provisions for contingencies (unascertained liability)?" |
3. Mr. K.V. Aravind, learned counsel for the revenue invited our attention to the judgment and order dated 4th March 2013 rendered by the Division Bench of this Court in CIT v. Weizmann Homes Ltd. [2013] 215 Taxman 264/33 taxmann.com 171 submitted that by this judgment both the questions raised in the present appeal stand answered. In other words, he submitted that in view of the said judgment the first question of law will have to be answered in favour of assessee and against the respondent- revenue and the second question will have to be answered in favour of the revenue and against the assessee in terms of the said judgment.
4. The learned counsel for the respondent-assessee, does not dispute the submissions made by Mr. Aravind and consented for disposal of the instant appeal in terms of the judgment dated 4.3.2013.
5. In the circumstances, we dispose of this appeal, by the following order:
| (i) | The first substantial question of law is answered in favour of the assessee and against the revenue in terms of the judgment dated 4th March 2013 passed by this Court in Weizmann Homes Ltd.case (supra) and the connected appeals. | |
| (ii) | The second question is answered in favour of the revenue and against the assessee in terms of the very same judgment dated 4th March 2013 of this Court. |
The appeal is accordingly disposed of. No costs.
SB*Partly in favour of assessee.
†Arising out of order of High Court in IT Appeal No. 275 (Bang.) of 2005, dated 6-12-2006.
COMPANIES (ACCEPTANCE OF DEPOSITS) AMENDMENT RULES, 2014 - AMENDMENT IN RULE 5
NOTIFICATION NO. GSR 386(E) [F.NO.1/8/2013-CL-V], DATED 6-6-2014
In exercise of the powers conferred by sections 73 and 76 read with sub-section (1) of Section 469 of the Companies Act, 2013 (18 of 2013), the Central Government hereby makes the following rules to amend the Companies (Acceptance of Deposits) Rules, 2014, namely:—
1. (1) These rules may be called the Companies (Acceptance of Deposits) Amendment Rules, 2014.
(2) They shall come into force from the date of their publication in the Official Gazette.
2. In the Companies (Acceptance of Deposits) Rules, 2014, in rule 5, in sub-rule (1), the following proviso shall be inserted, namely:—
"Provided that the companies may accept the deposits without deposit insurance contract till the 31st March, 2015."
Posted: 10 Jun 2014 08:39 AM PDT
NOTIFICATION NO. SO 1459(E) [F.NO.1/8/2013-CL-V], DATED 6-6-2014
In exercise of the powers conferred by sub-section (3) of section 1 of the Companies Act, 2013 (18 of 2013), the Central Government hereby appoints the 6th day of June, 2014 as the date on which the provisions of sub-sections (2) and (3) of section 74 of the said Act shall come into force.
Sacred Cow! No revocation of registration of trust working for welfare of cows if it made profit from sale of milk
June 9, 2014[2014] 45 taxmann.com 220 (Mumbai - Trib.)/[2014] 148 ITD 343 (Mumbai - Trib.)
IT : Where assessee-trust was established for purpose of cow breeding and protection of cows and oxen, incidental income earned by it from sale of milk could not be regarded as carrying on activity of trade or commerce within meaning of proviso to section 2(15)
IT : Where purpose of a trust or institution is relief of poor, education or medical relief, it would constitute charitable purpose, even if it incidentally involves carrying on of commercial activity
IT: Once income from sale purchase of shares was treated as capital gain after verification of all relevant details, reassessment could not be allowed to treat same as business income
■■■
[2014] 45 taxmann.com 207 (Gujarat)
HIGH COURT OF GUJARAT
Navdeep Investment (P.) Ltd.
v.
Assistant Commissioner of Income-tax*
AKIL KURESHI AND MS. SONIA GOKANI, JJ.
SPECIAL CIVIL APPLICATION NO. 294 OF 2014
FEBRUARY 25, 2014
Section 45, read with section 147, of the Income-tax Act, 1961 - Capital gains - Chargeable as (Business income v. Capital gains - Share dealing) - Assessment year 2008-09 - Assessee showed capital gains from sale purchase of shares - During original assessment Assessing Officer directed assessee-bank to furnish scrip wise details of purchases and sales which assessee complied with - In assessment order, Assessing Officer accepted capital gain - Whether Assessing Officer could be said to have already formed opinion during assessment that income arose was capital gains and, thus, notice of reassessment on ground that income arose was to be treated as business income, was mere change of opinion - Held, yes - Whether, therefore, reassessment proceeding was to be quashed - Held, yes [Para 13] [In favour of assessee]
FACTS
| ■ | The assessee, a non-banking financial company filed its return. The case was selected for scrutiny and the assessee was asked for details of investment and workings of capital gain through a notice issued under section 142(1). | |
| ■ | The assessee furnished its reply giving the entire details scrip wise and claimed its status as investment-company. The assessee submitted that it was not engaged in share trading and in earlier years also all such purchases and sales had been held as short-term capital gain which had been accepted by the the the the department. | |
| ■ | Subsequently, the assessment order was passed and the Assessing Officer noted the fact that the assessee was a non-banking financial company engaged in the financial activities of granting and borrowing loans, investment in shares and derivatives etc. and, hence, allowed the claim of the assessee. | |
| ■ | Later on, the assessment was reopened under section 147 on the basis that the assessee was carrying out trading activities of shares and mutual funds, derivatives etc. in good volume and frequency of which could not be termed as investment. It was contended that transactions were done to earn quick profits rather than to earn periodic dividends. Therefore, the Assessing Officer contended that the income was to be treated as income from business. | |
| ■ | The assessee argued that the issue had already been scrutinized in the original assessment and the company was registered with RBI as non-banking financial company whose main activity is investment in shares yielding dividend income, interest income and capital gains. The assessee contended that a detailed explanation had been furnished which was duly verified by the Assessing Officer during assessment proceedings. The Assessing Officer then concluded that the income was to be taxed under capital gain. Thus, the assessee's case was that having forming an opinion during assessment, now seeking to tax the impugned income as business income, was mere change of opinion, which could not be allowed. | |
| ■ | The Assessing Officer did not uphold the version of the assessee citing reason that the assessee had not submitted any explanation why such income would not be treated as business income instead of capital gain. The Assessing Officer further contended that it was not a case of change of opinion as no opinion was formed in the original assessment. | |
| ■ | On appeal: |
HELD
| ■ | The Court held that in a situation where Assessing Officer during the scrutiny assessment, notices a claim of exemption made by the assessee and having entertained prima facie doubts raises queries and asks the assessee to satisfy him with respect to such claim and, thereafter does not make any addition in final order of assessment can be said to have formed an opinion and of making or for not making any addition. [Para 12] | |
| ■ | In the original assessment, the Assessing Officer had directed the assessee to furnish the scrip-wise details of the purchases and sales under the heading of long-term and short-term capital gain. The assessee had complied with the same and gave the entire details by furnishing of such details scrip-wise. Final assessment order was passed. It was noticed that in the assessment order after having raised the queries, no reasons are given by the Assessing Officer for not making any addition nor has he said as to why the income is not to be treated as a business income. However, in computation of income the same has been accepted as long-term capital gain and short-term capital gain. This being the case, in the light of the ratio laid down in the Gujarat Power Corporation Ltd. v. Asstt. CIT [2013] 350 ITR 266/[2012] 211 Taxman 63/26 taxmann.com 51 (Guj.), the Assessing Officer can be said to have formed the opinion and, therefore, even in case of issuance of notice of reopening within the period of four years, when the very issue has been duly examined by the Assessing Officer, this notice on the very issue is nothing but change of opinion. Therefore this Court requires to interfere at this stage and quash the very notice and all consequential proceedings for having exercised the jurisdiction under section 148 wrongly. [Para 13] |
CASE REVIEW
Gujarat Power Corporation Ltd. v. Asstt. CIT [2013] 350 ITR 266/[2012] 211 Taxman 63/26 taxmann.com 51 (Guj.) (para 13) followed.
CASES REFERRED TO
Gujarat Power Corporation Ltd. v. Asstt. CIT [2013] 350 ITR 266/[2012] 211 Taxman 63/26 taxmann.com 51 (Guj.) (para 11).
Tej Shah for the Petitioner. Nitin K. Mehta for the Respondent.
ORDER
Ms. Sonia Gokani, J.- In this Special Civil Application preferred under Article 226 of the Constitution of India challenge is made to the notice of reopening issued under section 148 of the Income Tax Act, 1961 ("the Act" for short) dated 13.3.2013 issued by the respondent for the Assessment Year 2008-09.
2. This petition has arisen in the following background:-
2.1 Petitioner before the concerned Assessing Officer had declared his total income at Rs.96.92 lakhs (rounded off) . His case was selected for scrutiny. Notice under section 142(1) was issued calling for the details of investment and working of the long term and short term capital gain. Such details were furnished by the assessee vide its reply dated July 22, 2010 giving the entire details scrip-wise. It was the say of the assessee that the company is an investment company and is not dealing at all in share trading and all purchases and sales had been held as short term capital gain in earlier years, which had been accepted by department and the department had not filed appeal against the same.
2.2 In the assessment order passed on 21.10.2010 Assessing Officer noted the fact that the assessee is a non-banking finance company engaged in the financial activities of granting and borrowing loans, investment in shares and trading in derivatives etc. and thereafter computed total income under the head of capital gains. As per the statement of income, it had allowed the claim of the assessee.
3. It could be noticed that in the reasons recorded for reopening of the assessment under section 147, the reasons are recorded as follows:—
"It is noticed that the assessee was engaged in the line of share trading, speculation business, mutual funds etc. in large scale. During the P.Y. relevant to A.Y.2008-09, the assessee had shown income of Rs.1,78,64,836/-. The income derived was mainly from Long Term Capital Gain (Rs.55,11,544/- which was claimed and allowed as exempt u/s. 10(38)), Short Term Capital Gain (Rs.44,73,296/-) & income from derivatives (Rs.42,18,463/-). Income from other sources was Misc. income: Rs.6,27,797/-, dividend from equity shares: Rs.2,14,503/-, Dividend on Mutual Fund: Rs.33,853/- and rent income of Rs.480,521/- which constitute only a small portion (7.59%).
It is evident from the above that the assessee was carrying out trading activities of shares & mutual funds, derivatives etc. in good volumes and frequency which cannot be termed as investment. The details of transactions filed by the assessee show that there was 248STCG transactions under STCG involving sale of equity shares amounting to Rs.8,36,98,306/-, 53LTCG transactions involving sale of equity shares amounting to Rs.1,48,18,903/-. Besides this there were several transactions of sale of mutual funds & derivative transactions. This shows that the assessee was carrying out business to earn profit as soon as he can. The number and volume of transactions indicate that the assessee was carrying out his activities not to earn dividends periodically.
In the light of the above, the entire income of the assessee has to be treated as 'income from business' and the benefit of Capital Gain cannot be allowed to the assessee. The assessee's income was to be computed as under:—
| Income from House Property as per statement of income | | 3,36,365/- | |
| Profit & Gains of business LTCG to be treated as business income STCG to be treated as business income | 52,65,596/- 55,11,544/- 40,23,169/- | 1,48,00,309/- | |
| Less; Disallowance of depreciation on car as per A.O | 3,01,945/- | 1,54,38,619/- | |
| Net Taxable total income (rounded off) | | 1,54,38,619/- |
Misclassification of income resulted in short levy of tax of Rs.37,02,646/-."
5. The assessee had raised its objection to the reasons recorded vide its communication dated 18.7.2013 contending inter alia that the very issue had been scrutinized in the original assessment. It reiterated that the company is non-banking finance company duly registered with the R.B.I whose main activity is investment in shares yielding dividend income, interest income and capital gain. It was also contended that in scrutiny assessment a detailed notice was given pointing out requirement of furnishing details of purchase and sale of shares and statement showing details including its quantity etc. which had been duly furnished. On examination of all these details and on complete verification of the facts, the Assessing Officer had concluded that the income from purchase and sale of the shares need to be taxed as capital gain. Therefore, it urged to drop the proceedings.
6. The Assessing Officer, having taken note of the objections of the assessee, passed an order dated 11.12.2013 and did not uphold the version of the assessee. It also opined that despite the volume, frequency and magnitude of the transactions in the shares and securities, no explanation has come forth from the assessee as to why such income be not treated as business income instead of capital gain. In the original assessment, no opinion was formed at all, and therefore, it is not a case of change of opinion. Accordingly, it did not hold "the objections sustainable. Resultantly, the present petition challenging the action of the respondent seeking following prayers:—
"8. PRAYER
The petitioner accordingly prays that this Hon'ble Court may kindly be pleased to issue:
| (a) | A writ of Certiorari or any other Writ, order or direction in the nature of Certiorari quashing the impugned notice under section 148 of the Act dated 13-03-2013 issued by the Respondent for the assessment year 2008-09. | |
| (b) | A Writ of Certiorari or any other Writ, order or direction in the nature of Certiorari quashing the impugned order passed by the Respondent herein dated 11-12-2013 rejecting the objections to assumption of jurisdiction under section 148 for the assessment year 2008-09; | |
| (c) | Pending the admission and final disposal of this petition; restrain the Respondent from proceeding with reassessment for the assessment year 2008-09 pursuant to the impugned notice dt.13-03-2013 and the order dt. 11-12-2013; | |
| (d) | Provide for cost of this petition; | |
| (e) | Pass any other order (s) as this Hon'ble Court may deem to be fit and more appropriate in order to grant interim relief to the Petitioner;" |
7-8 On issuance of the notice an affidavit-in-reply has been filed by the respondent, wherein it is contended, as has been done while disposing of the objections, that this is not a change of opinion. It is contended that notice issued under section 148 of the Act deserves no indulgence at this stage as there are other avenues open for preferring the appeal against the reassessment. It is also contended that the very issue has not been examined and there is no opinion formed by the Assessing Officer in the original assessment that the petitioner has wrongly claimed deduction from capital gain, which was in fact his business income.
9. We have heard learned counsel Mr. Shah for the petitioner, who has, in his elaborate submissions, urged that the very issue had been raised in the original assessment and had been duly answered by the assessee. The Assessing Officer had accepted the version of the assessee in the computation of income that this initiation of proceedings is nothing but a change of opinion. He has urged that though this is notice for reopening within the period of 4 years from the end of the relevant assessment years, the very issue has been gone into by the Assessing Officer at the time of scrutiny assessment as is apparent from the reasons recorded by him.
10. Learned counsel Mr. Nitin Mehta for the Revenue has defended the action of the respondent.
11. Having thus heard learned counsel for both the sides and having examined the material on record, at the outset, law laid down by this Court in the case of Gujarat Power Corporation Ltd. v. Asstt. CIT[2013]350 ITR 266/[2012] 211 Taxman 63/26 taxmann.com 51 requires to be profitably reproduced:—
'25. From the statutory provisions contained in section 147 of the Act, as interpreted by the decisions noted above, it would emerge that an assessment previously framed can be reopened within the period of four years if the Assessing Officer has some tangible material at his command on which he has reason to believe that income chargeable to tax has escaped assessment. The additional requirement that such escapement of income is due to failure on the part of the assessee to disclose truly and fully all material facts is not there. When the Assessing Officer frames an assessment, but does not visit a certain claim put-forth by the assessee, neither accepts nor rejects such claim, in the final order of assessment, it can hardly be stated that the Assessing Officer had formed an opinion with respect to such a claim. It is of course true that such reopening even within a period four years from the end of relevant assessment year would not be permissible on a mere change of opinion.
| ** | ** | ** |
30. In the result, we are of the opinion that reopening of an assessment within a period four years from the end of relevant assessment year after 1.4.1989 could be made as long as the same is not based on mere change of opinion. Merely because a certain material which is otherwise tangible and enables the Assessing Officer to form a belief that income chargeable to tax has escaped assessment, formed part of original assessment record, per se would not bar the Assessing Officer from reopening the assessment on the basis of such material. Expression "tangible material" does not mean material alien to the original record."
12. The Court held that in a situation where Assessing Officer during the scrutiny assessment, notices a claim of exemption made by the assessee and having entertained prima facie doubts raises queries and asks the assessee to satisfy him with respect to such claim and, thereafter does not make any addition in final order of assessment can be said to have formed an opinion and of making or for not making any addition.
"43. We are, therefore, of the opinion that in a situation where the Assessing Officer during scrutiny assessment, notices a claim of exemption, deduction or such like made by the assessee, having someprima facie doubt raises queries, asking the assessee to satisfy him with respect to such a claim and thereafter, does not make any addition in the final order of assessment, he can be stated to have formed an opinion whether or not in the final order he gives his reasons for not making the addition.
44. At this stage, we may examine the decision of the Division Bench of this Court in the case of Praful Chunilal Patel v. M.J. Makwana, Assistant Commissioner of Income Tax, (supra) more closely. This was a case wherein assessment previously framed under section 143(3) of the Act was sought to be reopened within a period of four years from the end of the relevant assessment year. The case concerned assessment year 1993-94 and therefore, the amended section 147 of the Act was applicable. On certain claims of the assessee which were not rejected by the Assessing Officer in the scrutiny assessment, the court held that in cases where the Assessing Officer has not made an assessment of any item of income chargeable to tax while passing the assessment order, it cannot be said that such income was subjected to an assessment. The court was of the opinion that in the original assessment, the Assessing Officer never really formed an opinion on a particular contentious issue. It was in this background that the Court was of the opinion that since no opinion was formed in this regard, consequently there would be no question of a mere change of opinion. The Court also expressed an opinion that in view of the Explanation 2 to section 147 of the Act, power to make assessment or reassessment within four years would be attracted even in cases where there has been complete disclosure of all material facts.
45. The decision of this Court in case of Praful Chunilal Patel v. M.J. Makwana, Assistant Commissioner of Income Tax (supra) came up for consideration in case of Garden Silk Mills (P.) Ltd. v. Deputy Commissioner of Income Tax, reported in (1999) 237 ITR 668. To the extent the decision in case of Praful Chunilal Patel v. M. J. Makwana, Assistant Commissioner of Income Tax (supra) drew a distinction between change of opinion and finding erroneous nature of earlier assessment on detection of mistake on an issue which was not earlier considered by the Assessing Officer, the Bench found itself in complete agreement. We may notice the relevant portion of this decision of this Court in case of Garden Silk Mills Pvt. Ltd. v. Deputy Commissioner of Income Tax (supra), which reads as under :
"The question was again discussed at some length by another Division Bench of this Court in Praful Chunilal Patel v. M.J. Makwana, Asstt. CIT. It was a case in which notice under s. 147 had been issued. Recording of reasons disclosed that a part of item of income though disclosed as per information submitted by the assessee, had remained to be considered for assessment and, therefore, the income has been underassessed. It was submitted on behalf of the assessee that all facts were correctly disclosed and were on record during the assessment proceedings relevant to asst. yr. 1991-92 and the order was made by the AO after seeking details. It should be assumed that he has consciously not taxed the income which is now sought to be looked into by him. It was emphasised that it should be assumed that the AO had formed an opinion that there was no transfer and hence, no capital gains accrued ....
The first premise which the Court took into consideration is that the cases of underassessment or excessive relief which are deemed cases of escapement of income leave no scope for an argument that they are not the cases of income having escaped assessment. There cannot be any doubt about this proposition. It arises in every case where an assessment results in lesser collection of revenue than what it ought to be. But, as it is noticed, reason to believe that there has been escapement of assessment must not be a pretence or change of opinion but must be founded on material having reasonable nexus to the formation of opinion about escapement of income. The sufficiency or adequacy of such material, so far it exists, some nexus between the material and the formation of opinion, is" not subject-matter of judicial scrutiny nor holding of such belief on that basis can be challenged which is subjective in nature, giving jurisdiction to issue notice and initiate proceedings for reassessment. However, the Court while considering the contention about change of opinion observed, "while considering the cases referred to above change of opinion would mean where, if there is conscious application of mind on the earlier occasion and the assessment is result of such conscious application of mind to the issue which is sought to be reopened. That there has been no conscious application of mind, in the first instance, question of change of opinion would not arise. It would be then formation of opinion for the first time about the erroneous nature of assessment resulting in escapement.
| ** | ** | ** |
We are in respectful agreement with the aforesaid enunciation of distinction between change of opinion and finding erroneous nature of earlier assessment on detection of mistake on an issue which was not earlier considered by the Assessing Officer.".'
13. At this stage to revert back to the facts in the original assessment as noted above, the Assessing Officer had directed the assessee to furnish the scrip-wise details of the purchases and sales under the heading of long term and short term capital gain. The assessee had complied with the same and gave the entire details by furnishing of such details scrip-wise. Final assessment order was passed on 21.10.2010. We could notice that in the assessment order after having raised the queries, no reasons are given by the Assessing Officer for not making any addition nor has he said as to why the income is not to be treated as a business income. However, in computation of income the same has been accepted as long term capital gain and short term capital gain. This being the case, in the light of the ratio laid down in the Gujarat Power Corporation Ltd.(supra), the Assessing Officer can be said to have formed the opinion and therefore even in case of issuance of notice of reopening within the period of four years, when the very issue has been duly examined by the Assessing Officer, this notice on the very issue is nothing but change of opinion. Therefore, this Court requires to interfere at this stage and quash the very notice and all consequential proceedings for having exercised the jurisdiction under section 14 8 of the Income Tax Act wrongly. Petition succeeds. Notice issued under section 148 dated 13.3.2013 is hereby quashed with all consequential proceedings. Petition stands disposed of in above terms.
SBRegards,
Pawan Singla , LLB
State of U. P. vs. S. K. Garg (Allahabad High Court)
High Court's order on complaint of contempt by Judicial Member of ITAT against CA reveals sorry state of inter-se in-fighting between Hon'ble Members of the ITAT and members of the Bar
The Lucknow Income Tax Tribunal Bar Association passed a resolution, and addressed a letter to the President of the ITAT, stating that they had resolved not to appear before the Bench in which Sri B.R. Jain, Accountant Member, is one of the members. It was requested that the appeals be adjourned till such time a decision is taken by the President of the ITAT. The senior Member of the Bench, Hon'ble Sunil Kumar Yadav adjourned the matters. However, the other Member of the Bench, Shri. B. R. Jain, passed a separate order stating that certain practitioners had joined hands in "forum shopping" and that the allegations against him were "motivated, false, frivolous" and unacceptable. He also stated that being a junior member of the Bench, he was not objecting to the adjournment granted by the Sr. Member. Thereafter, one Mr. S. K. Garg, Advocate, filed a representation to the President in which he denounced the resolution passed by the Bar against Hon'ble B. R. Jain and claimed that B. R. Jain was "judicious". At the same time, S. K. Garg made a complaint against Hon'ble S.K. Yadav and cited instances which according to him showed impropriety and judicial indiscipline by Hon'ble S.K. Yadav. Hon'ble S.K. Yadav took the view that the representation of S. K. Gard contained "scandalous and scurrilous allegations" with the object of "scandalizing" the Lucknow Bench and "intention to create fear/terror in the mind of members of the ITAT". Though Hon'ble Sunil Kumar Yadav proposed an order for making reference for initiation of criminal contempt proceedings against the opposite parties u/s 15(2) of the Contempt of Court Act, Hon'ble B.R. Jain did not concur with the proposed order though he also did not pass any dissent thereon. Accordingly, Hon'ble Sunil Kumar Yadav filed a contempt petition in the High Court against S. K. Garg in his individual capacity. Hon'ble S. K. Yadav also passed an order stating that "in order to maintain the dignity of the institution" no appeal would be heard "unless and until Bar Association passes a resolution condemning this act of a particular advocate and reposing confidence in the bench …." However, Hon'ble B.R.Jain passed a separate order disassociate and disagreeing with the view of Sunil Kumar Yadav. HELD by the Court on the said contempt petition:
(i) The reference made by Hon'ble Sunil Kumar Yadav singly is not a reference by a subordinate court within the meaning of s. 15(2) of the Contempt of Courts Act for the reason that the other member of the division bench has not concurred with it. While this does preclude the Court from taking suo motu cognizance of alleged criminal contempt, the facts and circumstances do not make out a case for criminal contempt against the opposite parties. Certain startling facts are noted. One Bar Association passes a resolution against the conduct of one member of the ITAT whereas members of another Bar Association condemn the same and lodge the complaint against the other member of the ITAT. Both the members of the Tribunal did not concur in their views on various occasions. The complainant who is the Judicial Member of the ITAT has gone even to the extent of saying in his order that the Tribunal will not hear any appeal unless and until Bar Association passes the resolution condemning the particular act of an Advocate of moving the representation against him. The complainant has even observed in the said order that Bar Association should pass the resolution in a particular manner giving assurance that in case of decision in the any case, no such type of representation or complaint will be made to the President of ITAT and further that the protection be given from President of the ITAT with the assurance that such type of complaint/representation would not be entertained and erring Advocate will be dealt with severely. The said view expressed by the complainant-S.K. Yadav, who is Judicial Member of the ITAT, though was not agreed to by the other member, namely, B.R. Jain, Accountant Member, however, such observations, as the one made by the complainant in a judicial order are unacceptable. Further, the instructions issued by the complainant, in his capacity as senior member of the Tribunal to the Assistant Registrar, ITAT, Lucknow to obtain consent of the individual assessees in respect of the application moved by the opposite party No.1 regarding transfer of cases from Lucknow Bench to some other Bench, also does not appear to be a sound act on his part, if measured or judged on acceptable judicial standards;
(ii) The language used in the representation dated 28.08.2012 also cannot be said to be in good taste, which we also do not appreciate, as the words like "deeper evil", "conspiracy" and "ill motivated" have been used but the same in itself may not amount to criminal contempt. The emphasis of the representation made by the opposite party No.1, prima facie, appears to be on "judicial precedences" not allegedly being followed by the complainant and on the alleged "judicial indiscipline" and "impropriety". It is well settled that proceedings under the Contempt of Courts Act are quasi-criminal in nature and hence, no action under the Act can be taken unless a clear case of criminal contempt is made out;
(iii) The lawyers and other representatives of the litigants in the subordinate courts and Tribunals are expected to conduct themselves in a manner which protects the dignity and decorum of the judicial proceedings. Use of words, as narrated above, by the opposite party No.1 in his representation is not worthy of approval. We express our hope that lawyers will always be guided by the following observations of Supreme Court in Hargovind Dayal Srivastava vs. G.N. Verma AIR 1977 SC 1334 "It is the duty of lawyers to protect the dignity and decorum of the judiciary. If lawyers fail in their duty, the faith of the people in the judiciary will be undermined to a large extent. It is said that lawyers are the custodians of civilization. Lawyers have to discharge their duty with dignity, decorum and discipline".
See also Pradeep Kumar Kapoor vs. ITAT (All) where in the same matter Hon'ble S. K. Yadav had filed a complaint before the ICAI and also imposed a fine__._,_.___
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