2003 (4) TMI 99 - SC - Central Excise

Court rules notional interest not assessable value unless advance influenced price

COMMISSIONER OF CENTRAL EXCISE, MUMBAI-III Versus ISPL. INDUSTRIES LTD.

The Court dismissed the appeals, ruling that notional interest on interest-free advances should not be included in the assessable value of goods unless ... Whether the price is affected by the fact of interest free advance or remains uniform for all? Held that:- The mere fact of making an interest free advance by a buyer to the manufacturer, by itself will not be a sufficient ground to reload the assessable value with notional interest. It would be necessary for the revenue to show that such advance has influenced in the lowering of the price and that it is not depicting the normal price of the goods. In the present appeals, neither there is any evidence or proof on the record nor it is the case of the appellant on facts, that the interest free advance has influenced the price and the price lower than the normal price had been charged by the respondents. We do not think it necessary to deal with facts of each case separately since it is not in dispute that interest free advances were made by the buyers but at the same time it is also not in dispute that such advances had never influenced the price charged by the manufacturers from buyers. Appeal dismissed. Issues Involved:1. Inclusion of notional interest on interest-free advances in the assessable value of goods.2. Time-barred demand.Issue-wise Detailed Analysis:1. Inclusion of Notional Interest on Interest-Free Advances in the Assessable Value of Goods:The primary issue in these appeals was whether the notional interest on interest-free advances taken by the assessees from buyers should be included in the assessable value of goods under Section 4 of the Central Excise and Salt Act, 1944, read with Rule 5 of the Central Excise (Valuation) Rules, 1975.The Revenue argued that the interest-free advances were akin to bank loans, and the notional interest on such advances should be added to the assessable value because the manufacturers would otherwise incur interest expenses if they borrowed from banks. This argument was based on the premise that the benefit accrued to the manufacturer from not paying interest constituted a profit, which should be included in the assessable value.The assessing authorities and the appellate authority initially accepted this view, adding the notional interest to the assessable value. However, the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT) set aside these orders, holding that the notional interest was not liable to be included in the assessable value.The respondents contended that the advances were often taken as security for the due performance of contracts, especially for tailor-made goods. They also argued that the advances did not necessarily influence the price of the goods, as the price remained uniform regardless of whether an advance was taken.The Court examined Section 4 of the Central Excise Act and Rule 5 of the Central Excise (Valuation) Rules, 1975. It noted that the normal price should be the sole consideration for the sale, and any additional consideration, if it influenced the price, should be added to the assessable value.The Court referred to the case of Metal Box India Ltd. v. Collector of Central Excise, where the notional interest was added to the assessable value because the interest-free advance influenced the price by allowing a 50% discount to a favored buyer. In contrast, in VST Industries Ltd. v. Collector of Central Excise, the notional interest was not added because the price remained uniform for all buyers, regardless of the advance.The Court also considered a circular from the Ministry of Finance dated 22-6-1998, which clarified that notional interest should only be included if the advance influenced the price by offering a discount or charging a lesser price. The circular emphasized that if the price remained uniform, the notional interest should not be added.The Court further noted an amendment to the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2003, which reinforced the principle that notional interest should not be added unless there was evidence that the advance influenced the price.In conclusion, the Court held that the mere fact of making an interest-free advance was insufficient to add notional interest to the assessable value. The Revenue needed to provide evidence that the advance influenced the price. Since there was no such evidence in the appeals, the Court dismissed the appeals.2. Time-Barred Demand:In Appeal No. 410 of 2000, the respondent indicated that a major part of the demand had become time-barred. However, this issue was not elaborated upon or pressed by either party during the proceedings. Therefore, the Court did not find it necessary to address this issue specifically.Conclusion:The appeals were dismissed with costs, as the Court found no force in the Revenue's arguments. The notional interest on interest-free advances was not to be included in the assessable value unless there was evidence that the advance influenced the price.