1998 (2) TMI 425 - AT - Central Excise

Tribunal overturns inclusion of notional interest on advances in assessable value of Overhead Cranes

The Appellate Tribunal CEGAT, Mumbai-III allowed the appeal challenging the inclusion of notional interest on advances in the assessable value of Overhead ... Valuation Issues:1. Inclusion of notional interest on advances in the assessable value of goods for central excise valuation.Detailed Analysis:The appeal before the Appellate Tribunal CEGAT, Mumbai-III challenged the Order passed by the Commissioner of Central Excise, Mumbai-III, regarding the inclusion of notional interest on advances in the assessable value of Overhead Cranes manufactured by the appellant. The appellant's cranes were tailor-made against specific orders from customers, with advance deposits taken against the price. The Commissioner relied on Rule 5 of the Central Excise Valuation Rules to justify including notional interest in the assessable value. The Commissioner reasoned that if the appellant had borrowed the advance amounts, interest costs would have been incurred, affecting the cost of manufacture and sale price of the goods. Citing the Metal Box India Ltd. case, the Commissioner confirmed a demand and imposed a penalty.Upon hearing arguments, the Tribunal considered the purpose of the advances taken by the appellant for manufacturing tailor-made items. The Tribunal referred to the Flex Industries Ltd. case and the Metal Box India Ltd. judgment, emphasizing the need for evidence to show that the advance affected the price charged. The Tribunal highlighted the Madras High Court's decision in Union of India v. Lakshmi Machine Works Ltd., which required demonstrating the benefit obtained by the assessee from interest-free loans. The Tribunal noted Circular No. 215/45/96-CX issued by the Central Board of Excise and Customs, directing a costing exercise under Section 14A of the Central Excise Act to determine the benefit obtained by the assessee. In the absence of evidence showing a direct impact on the price due to the advances, the Tribunal held that the addition of notional interest to the assessable value was not justified.Consequently, the Tribunal allowed the appeal, setting aside the Commissioner's order. The decision was based on the lack of evidence demonstrating a direct impact on the price due to the advances taken by the appellant. The Tribunal relied on established legal principles from previous judgments and circulars to conclude that the inclusion of notional interest in the assessable value was not sustainable in this case.