Notional interest on buyer advances cannot be added to assessable value without proof that the advances depressed the goods' price.

Notional interest on interest-free buyer advances could be included in assessable value only if the department proved a nexus between the advances and depression of the goods' price. In the absence of evidence showing that the advances caused any price reduction, the inference that the assessee avoided commercial borrowing was treated as conjecture and was insufficient to meet the burden of proof. The mere fact that advances were received from buyers who ordered the goods did not establish undervaluation, so the demand was held unsustainable.

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Issues: Whether notional interest on interest-free advances received from buyers could be added to the assessable value of the goods in the absence of evidence showing a nexus between the advances and any depression in price.

Analysis: Addition of notional interest to assessable value is permissible only when it is shown that the receipt of advances depressed the price of the goods. The department failed to produce evidence establishing such a nexus. The inference that advances enabled the assessee to avoid commercial borrowing was treated as conjectural and insufficient to discharge the burden of proof. The fact that advances were taken from buyers who had ordered the goods did not, by itself, prove that the price was reduced because of the advances.

Conclusion: The demand based on inclusion of notional interest in assessable value was not sustainable and the appeal succeeded.

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