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. 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.

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.

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 sales 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 TML 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.

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.

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/-.

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.

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.

The demand was confirmed along with interest and imposition of equal penalty. Personal penalties were also imposed on the various co-noticees.
The appellants have filed appeals before the Tribunal.

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.
A plethora of case laws were cited and extensive arguments were made by both sides.

The Member (Technical) writing for the Bench in a marathon order dated 25/03/2014 running into 78 pages and containing more than twenty thousand words upheld the duty demand of more than Rs.59 crores and at the same time gave complete relief to the Vice President’s and the General Manager of the appellant company from the personal penalties imposed on them by the adjudicating authority.

Notable observations of the Bench are culled here for appreciation -
++ 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.

++ 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 or Utility vehicles to which the discounts did not pertain to. The question is whether the law permits such method of passing of discounts.

++ 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. 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. 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. [ Chandra Kishor Jha vs. MahabirPrassad&Ors. [(1999) 8 SCC 266] refers.

++ 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.

++ 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’ . 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. 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.

++ 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.

++ From the discussions made, 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. 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.

++ 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.

++ 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. 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. But evidence to the contrary exists. In view of the above position, it is difficult to accept the plea made in this regard.

++ 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 is relevant.

++ 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.

++ We hold that the extended period of time has been rightly invoked to confirm the duty demand (of Rs.59,00,94,013/-).

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:
++ As regards the penalties imposed on 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.
The appeals were disposed of accordingly.