Notional interest on security deposits was excluded from excise valuation where factory-gate price stayed uniform and no price benefit was shown.

Notional interest on interest-free security deposits taken from some wholesale dealers was held not includible in the assessable value of cigarettes for excise duty. The factory-gate price was uniform for cash and credit buyers, and the deposits were used only to secure credit risk. There was no evidence that the deposits affected the sale price or that any reduced price, discount, or special consideration was granted to depositing dealers. On those facts, the price paid remained the sole consideration, Rule 5 valuation did not apply, and precedents involving large advances and differential pricing were treated as inapplicable.

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Issues: Whether notional interest on interest-free security deposits taken from some wholesale dealers could be added to the assessable value of cigarettes for excise duty purposes.

Analysis: The price charged at the factory gate was uniform for all wholesale dealers, whether they purchased on cash terms or on credit against a security deposit. The deposits were taken only from dealers who sought credit facilities and were intended to safeguard against credit risk. There was no material to show that the deposits affected the sale price or that any reduced price, discount, or special consideration was extended to the depositing dealers. On the facts, the price paid remained the sole consideration, so the case did not attract valuation under Rule 5. The authorities' reliance on precedents involving large advances and differential pricing was held inapplicable on account of the materially different factual setting.

Conclusion: Notional interest on the interest-free security deposits was not includible in the assessable value, and the demand based on such addition was unsustainable.

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