Quantity discount can be claimed as deduction by seller

CHATROOM

If you take credit against the duty paying document and the seller has not claimed any refund of the duty, it is not essential to reverse the credit taken

We have been receiving quantity discount from our Supplier. This discount they are issuing in the form of credit note, on monthly basis. During our excise audit, the Officer is asking us to reverse the credit to the extent of discount that we have received. Do we need to do that?

For the purpose of valuation of excisable goods, quantity discount can be claimed as a deduction by the seller. The Circular M.F. (D.R.) F. No. 354/81/2000-TRU, dated June 30, 2006, clarified that “Quantity discount for goods purchased or cash discount for the prompt payment etc. will not form part of the transaction value. It must be 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 can not be objected to and different actual prices paid or payable for various transactions are to be accepted for working assessable value. Where the assessee claims that the discount of any description for a transaction is not readily known but would be known only subsequently — as for example, year end discount - the assessment for such transactions may be made on a provisional basis. However, the assessee has to disclose the intention of all wing such discount to the department and make a request for provisional assessment.”

In your case, it appears that the seller has not sought provisional assessment but has paid duty on full value without considering the discount and on the basis of the duty paying document you have taken the credit. Also, it appears that although the seller has given you a credit note for quantity discount, he has not sought any refund of the duty paid. You may ascertain the correct position from the seller.

So long as you have taken credit against the duty paying document and the seller has not claimed any refund of the duty from the government, there is no warrant to demand that you must reverse the credit taken, merely on the basis of credit note. In this connection you may refer your authorities to the cases of Tirumala Fine Texturises Pvt. Ltd [2007(217) ELT 85 (Tri-Ahmd.)], Rane Brake Linings Ltd [2007 (215) ELT 0466 (Tri.-Mad.)]

Can the goods on which central excise invoice is raised, debit entry made in RG - 1 register be retained in the factory for any reason such as awaiting confirmation from customer about the consignee details or for any other reasons ? Is the relevance of earlier rule 51A CER, 1944 still there? What is the remedy for delayed removal of goods necessitated by business circumstance?

Although this eventuality is not specifically dealt with in the Central Excise Rules, 2002, I see no harm in your retaining the duty goods in your factory, in exceptional circumstances. This is as good as return of duty paid goods, which is allowed under Rule 16 of the said Rules.