2007 (11) TMI 220 - AT - Central Excise

Tribunal sets aside order including notional interest on deposits in assessable value

The Tribunal allowed the appeal, setting aside the Commissioner (Appeals) order. It held that the inclusion of notional interest on deposits in the ... Notional interest on the deposits taken by the appellant in respect of goods manufactured by them– revenue failed to establish any nexus between taking of advances and the price of the goods - amount taken as deposit was kept by them in the current account & no interest was earned on such deposit & therefore the price can’t be said to have been influenced by amount of deposit - held that price in such a case can’t be considered as been influenced by notional interest earned on the deposit Issues:1. Inclusion of notional interest on deposits in the assessable value of goods manufactured.2. Burden of proof on the nexus between deposits and price of goods.3. Interpretation of previous Tribunal and Supreme Court decisions regarding influence of interest on price determination.4. Assessment of whether interest earned on security deposit influenced the price of goods.Analysis:1. The issue in the appeal concerns the inclusion of notional interest on deposits in the assessable value of goods manufactured by the appellant. The appellant argues that there was no nexus between the deposits taken and the price of the goods. They rely on previous Tribunal decisions and the Apex Court ruling in CCE v. ISPL Industries Ltd., emphasizing the lack of evidence establishing a connection between notional interest earned on advances and the price of goods.2. The Revenue contends that in cases where goods are tailor-made and a single price is set, the burden to prove no nexus lies with the assessee. Referring to the Tribunal's decision in CCE v. Hafa Hoists & Cranes and the Supreme Court judgment in CCE v. Hero Honda Motors Ltd., they argue that if interest earned is not paid to the buyer, the price can be deemed influenced by the unpaid interest. The Revenue seeks a remand to determine whether the price was affected by the interest earned.3. Upon review, the Tribunal notes the Commissioner (Appeals) concluded that the appellant must have earned interest on the security deposit, influencing the price of goods. However, the appellant asserts that no interest was earned as the deposit was kept in a current account, a claim not refuted by the Revenue. As there is no evidence to support the presumption of interest earned, the Tribunal holds that the price was not influenced by any notional interest. Consequently, the appeal is allowed, and the Commissioner (Appeals) order is set aside.4. The Tribunal's decision underscores the importance of substantiated evidence in determining the influence of interest on the price of goods. In this case, the lack of proof of interest earned on the deposit led to the rejection of including notional interest in the assessable value. The judgment highlights the significance of factual assertions and burden of proof in establishing the impact of financial transactions on pricing determinations, ensuring a fair and evidence-based assessment in such matters.