Case Law Details
Mahanagar Gas Ltd Vs Commissioner of Central Excise (CESTAT Mumbai)
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Mumbai, heard an appeal against an Order-in-Appeal dated 11.07.2016 passed by the Commissioner (Appeals), Central Excise, Mumbai. The Commissioner (Appeals) had partly allowed the assessee’s appeal by setting aside the penalty but had upheld the demand of excise duty along with interest.
The appellant, engaged in the manufacture and supply of Compressed Natural Gas (CNG), had entered into an agreement with Navi Mumbai Municipal Transport (NMMT) for supply of CNG through dispensing units installed at NMMT depot premises. Under the arrangement, the appellant granted a trade discount of Rs. 0.17 per kg. to NMMT, resulting in a lower sale price compared to prices charged to other customers at different outlets.
The department alleged that the trade discount was not genuine and instead constituted “additional consideration” because NMMT had allegedly provided depot premises and civil infrastructure free of cost for establishing the CNG dispensing facility. On this basis, the department invoked Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000 and issued a show cause notice dated 20.04.2015 seeking recovery of differential duty of Rs. 75,959 for the period from April 2014 to January 2015, along with interest and penalty. The adjudicating authority confirmed the demand, interest, and penalty. In appeal, the Commissioner (Appeals) removed the penalty but sustained the duty demand and interest.
The Tribunal examined whether the trade discount granted to NMMT could be treated as “additional consideration” under Rule 6 of the Valuation Rules and therefore included in the assessable value. The Tribunal observed that the department’s case was entirely based on the assumption that NMMT had provided land and infrastructure free of cost to the appellant. The Commissioner (Appeals) had also recorded findings that NMMT incurred expenditure for maintaining the premises, paying taxes, and providing facilities such as water, which were treated as additional consideration to the appellant.
However, the Tribunal found from the records that this assumption was factually incorrect. It noted that the appellant had entered into a sub-lease agreement dated 11.03.2009 with NMMT for use of the land and was paying monthly lease rent of Rs. 59,584 as specified in the agreement. The Tribunal further recorded that the appellant itself had incurred the expenditure towards installation of plant, machinery, and dispensing infrastructure.
The Tribunal held that the department had failed to produce any evidence to rebut these factual claims. In the absence of material showing that any facilities were provided free of cost, the basis for invoking Rule 6 of the Valuation Rules did not survive. It reiterated that for treating any benefit as “additional consideration,” there must be a clear and demonstrable flow of consideration, direct or indirect, from the buyer to the assessee having nexus with the price of excisable goods. According to the Tribunal, no such flow of consideration had been established in the present case.
The Tribunal also observed that the price charged to NMMT was a negotiated commercial price and the discount was in the nature of a trade discount. It held that merely charging a lower price to a bulk buyer could not automatically lead to the conclusion that the differential amount represented additional consideration. The Tribunal further noted that similar trade discounts had been extended to other bulk consumers such as BEST and TMT, and in those cases also the Tribunal had held that such discounts were admissible and could not be added to the assessable value without evidence of additional consideration.
The Tribunal relied upon its earlier decision in the appellant’s own case dated 16.10.2024 involving identical facts and supply of CNG to NMMT. In that decision, it had been held that where lease rent was separately paid for use of land and no additional benefit flowed from the buyer, the trade discount could not be treated as additional consideration. The Tribunal also referred to the Supreme Court decision affirming the principle that trade discounts are permissible where there is no evidence of flow of additional consideration.
Holding that the allegation of additional consideration was based on incorrect facts and unsupported by evidence, the Tribunal concluded that the trade discount extended by the appellant was a legitimate commercial discount. Consequently, the order upholding the demand of duty and interest was set aside and the appeal was allowed with consequential relief in accordance with law.
FULL TEXT OF THE CESTAT MUMBAI ORDER
The present appeal is directed against the Order-in-Appeal dated 11.07.2016 passed by the Commissioner (Appeals), Central Excise, Mumbai, whereby the learned Commissioner (Appeals) has partly allowed the appeal by setting aside the penalty, while upholding the demand of duty along with interest.
2. The facts leading to the filing of the Appeal are stated in brief as follows. The appellant-M/s. Mahanagar Gas Ltd., is engaged in the manufacture and supply of CNG (Compressed Natural Gas). The appellant entered into an agreement with Navi Mumbai Municipal Transport (hereinafter referred to as “NMMT”) for supply of CNG through dispensing units installed at the depot premises of NMMT. Under the said arrangement, a trade discount of Rs. 0.17 per kg. was extended to NMMT, resulting in a lower sale price as compared to the price charged to other customers for selling CNG through appellant’s other outlets.
3. The department formed a view that the said trade discount was not a genuine discount but an “additional consideration” for the appellant, on the premise that NMMT had provided depot premises and other civil infrastructure free of cost to the appellant for setting up the CNG dispensing facility and the same has to be added in the assessable value. Invoking Rule 6 of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000, a show cause notice dated 20.04.2015 was issued proposing recovery of differential duty amounting to Rs. 75,959/- for the period April 2014 to January 2015, along with interest and penalty. The said demand alongwith interest and penalty was confirmed by the adjudicating authority. In Appeal, learned Commissioner (Appeals) set aside the penalty but upheld the duty demand, leading to the filing of this Appeal.
4. We have carefully considered the rival submissions, perused the records including the synopsis/written submissions and the case laws placed on record. The core issue that arises for determination is whether the trade discount extended by the appellant to NMMT can be treated as an “additional consideration” in terms of Rule 6 of the Valuation Rules, thereby warranting inclusion in the assessable value?
5. The entire case of the department rests on the assumption that NMMT provided its premises and infrastructure free of cost to the appellant, which is an additional consideration to the appellant. The assumption carried by the department becomes more clear from the finding recorded by the learned Commissioner while upholding the duty demand, which is as under:-
“8. ….. .In the instant case, it is the NMMT which is paying all the taxes for maintaining th premises where CNG filling station is set up; it is the NMMT which is incurring expenditure for providing water and other facilities. NMMT is incurring all this expenditure in connection with buying CNG from MGL. The cost of these facilities is nothing but additional consideration to MGL in the guise of facilities. Hence the cost of these facilities has to be added in the price being charged by MGL….”
6. However, from the records placed before us, it emerges that this foundational assumption is factually incorrect. The appellant has categorically demonstrated that the land in question was not provided free of cost, but was taken on sublease from NMMT under a sub-lease agreement dated 11.03.2009, for setting up its outlet for a consideration of monthly lease rent of Rs. 59,584/-as mentioned in clause 2.1 of the sub-lease agreement. Further, the appellant has incurred the entire expenditure towards installation of plant, machinery, and dispensing infrastructure.
7. The department has not brought on record any cogent evidence to rebut these factual assertions. In the absence of any material to establish that any facility was provided free of cost, the very basis for invoking Rule 6 collapses resultantly the demand raised and confirmed by the authorities below fails.
8. It is a settled position of law that for invoking the concept of “additional consideration”, there must be a clear and demonstrable flow of consideration, whether direct or indirect, from the buyer to the assessee, which has a nexus with the price of the excisable goods. In the present case, no such flow has been established.
9. On the contrary, the price charged to NMMT is a negotiated commercial price, and the discount extended is in the nature of a trade discount. Merely because a lower price is charged to a bulk buyer cannot, by itself, lead to the conclusion that the differential represents additional consideration.
10. We also find that similar trade discounts were extended by the appellant to other bulk consumers such as BEST and TMT, and in those cases also, on identical issue the Tribunal has held that such discounts are admissible and cannot be loaded onto the assessable value in the absence of any additional consideration.
11. Significantly, in the appellant’s own case, on identical facts involving supply of CNG to NMMT, this Tribunal in Mahanagar Gas Ltd. vs. CCE, Mumbai-II vide Final Order No. 86221- 86222/2024 dated 16.10.2024, while allowing the appeal filed by Mahanagar Gas Ltd. has categorically held that where lease rent is being paid separately for use of land and no additional benefit flows from the buyer, the discount cannot be treated as additional consideration. The relevant paragraph of the said decision are as under:-
“xxx xxx xxx
5. We have carefully gone through the records of the case, submissions made and the case laws relied upon by the appellant. We find that the main dispute in the present case is whether the trade discount of Rs.01.7 per kg. or Rs.0.26 per kg. offered by the appellant to Navi Mumbai Municipal Transport qualifies to be additional consideration flowing from purchaser to the appellant in view of the fact that the appellant has established their dispensing unit in the land belonging to the said purchaser. We note that before the original authority, the appellant had submitted that for the purpose of setting up of outlets, the appellant had entered into a sublease agreement with the purchaser on 11.03.2009 and as per clause 2.1 of the said sublease agreement, the appellant was required to pay monthly lease rent of Rs.59,584/- to the purchaser of the goods dispensed by the appellant. Therefore, in our opinion, both the transactions are independent of each other. For clarity we wish to reiterate our finding that for use of land, appellant is paying lease rent and, therefore, use of land by the appellant is not influencing the terms of sale between the appellant and the purchaser Navi Mumbai Municipal Transport. We wish to examine this factual position in the light of the ruling of Hon’ble Supreme Court relied upon by learned counsel for the appellant, in the case of Commissioner vs. Mahanagar Gas Ltd. reported at 2018 (360) ELT A187 (SC). For the sake of ready reference, we reproduce below the said citation:-
“The Supreme Court Bench comprising Hon’ble Mr. Justice Ranjan Gogoi and Hon’ble Mr. Justice Navin Sinha on 3-11- 2017 after condoning the delay dismissed the Civil Appeal Diary No. 29175 of 2017 with I.A. Nos. 105002-105004 of 2017 filed by Commissioner of Central Excise, Mumbai-II against the CESTAT Final Order Nos. A/89319-89329/2016-WZB/EB, dated 24-8-2016 as reported in 2017 (348) E.L.T. 175 (Tri.- Mumbai) (Mahanagar Gas Ltd. v. Commissioner). While dismissing the appeals, the Supreme Court passed the following order :
“1. Delay condoned.
2. We have heard the Learned Counsel for the appellant and perused the relevant material.
3. We find no merit in the present appeals. Admission is refused and the civil appeals are, accordingly, dismissed.”
The Appellate Tribunal in its impugned order had held that since Compressed Natural Gas (CNG) supplied to Oil Marketing Companies (OMCs) on ‘principal to principal’ basis and there being no mutuality of interest between them, trade discount/commission given to such OMCs was not indudible in the assessable value especially when there was no evidence of flow of additional consideration from OMCs to the assessee. The contention of the Department that the price charged on sale of CNG through the assessee’s own outlets or through the outlets of their agents, should be taken into consideration for valuation of goods supplied to OMCs, was not acceptable in view of the provisions of Section 4(1)(a) of the Central Excise Act, 1944 which permits different transaction value for assessment purposes so long as those are based on purely commercial consideration and there is no mutuality of interest between the buyer and seller.”
We note from the above stated ruling by Hon’ble Supreme Court that when there is no evidence of flow of additional consideration, the assessable value arrived at after allowing trade discount is as per the provisions of Section 4(1)(a) of Central Excise Act, 1944. In the present case, for use of land appellant is separately paying lease rent. Therefore, there is no additional consideration flowing to the appellant from the purchaser of the goods. We, therefore, following the ruling by Hon’ble Supreme Court in the case of Commissioner vs. Mahanagar Gas Ltd. (supra), hold that the discount offered by the appellant to Navi Mumbai Municipal Transport cannot be treated as additional consideration and cannot be added to arrive at assessable value.
6. We, therefore, set aside the impugned order and allow both the appeals.”
12. In view of the above binding precedent on identical facts, the issue involved herein is no longer res integra and is squarely covered in favour of the appellant.
13. In light of the foregoing discussion, we find that the allegation of additional consideration is founded on incorrect facts and there is no evidence of any flow of additional consideration from NMMT to the appellant. The trade discount extended by the appellant is a legitimate commercial discount. Accordingly, the impugned order upholding the demand of duty and interest is not sustainable in law and is hereby set aside. The appeal filed by the appellant is allowed with consequential relief, if any, in accordance with law.
(Pronounced in the open court on 30.04.2026)
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