Notional interest on buyer security deposits cannot be added to excise assessable value absent proof of price impact.

Notional interest on security deposits from wholesale buyers was held not includible in the assessable value for central excise duty because the department showed no allegation or proof that the deposits affected or depressed the sale price. The mere fact that the deposits may have served as working capital, or that equivalent funds could have been borrowed from banks, was insufficient to justify adding a hypothetical interest component to valuation. The demand for differential excise duty based on inclusion of such notional interest was rejected.

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Issues: Whether notional interest on security deposits received from wholesale buyers was liable to be included in the assessable value for central excise duty.

Analysis: The respondent collected security deposits from wholesale buyers and paid interest on such deposits. The department sought to add notional interest at 18% on the footing that the respondent would otherwise have borrowed equivalent funds from commercial banks. The record did not show that receipt of the security deposits had any effect on the price or that the price was depressed because of such deposits. In the absence of allegation or proof of price impact, the mere use of the deposits as working capital did not justify adding notional interest to the assessable value.

Conclusion: Notional interest on the security deposits was not includible in the assessable value, and the appeal failed.

Final Conclusion: The demand for differential excise duty based on inclusion of notional interest on security deposits was rejected.

Ratio Decidendi: Notional interest on security deposits cannot be added to assessable value unless it is shown that the deposit arrangement depressed or affected the price.

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