Notional interest on customer advances can enter assessable value when advances influence price; excessive rate must be re-quantified.

Notional interest on advances received from customers could be added to assessable value only where the advances had a nexus with the price and influenced or depressed the price of the goods; on the facts, that nexus was established, so the addition was sustainable in principle. For quantification, the notional interest rate applied was excessive because it was not fixed with reference to prevailing commercial lending and deposit rates for the relevant period; the rate was therefore reduced and the demand was directed to be re-computed. The matter was remanded for fresh adjudication after hearing, with relief granted only on the quantification aspect.

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Issues: (i) Whether notional interest on advances received from customers could be added to the assessable value on the footing that the advances influenced the price of the goods; (ii) Whether the notional interest rate adopted for quantification required reduction and fresh re-computation.

Issue (i): Whether notional interest on advances received from customers could be added to the assessable value on the footing that the advances influenced the price of the goods.

Analysis: The receipt of advance amounts must be shown to have a nexus with the price and to have influenced or depressed the price before notional interest can be brought into the assessable value. On the facts, the advances were received under the contracts and the material before the adjudicating authority supported the inference that the advances affected the pricing of the equipment.

Conclusion: The addition of notional interest on advances was sustainable in principle.

Issue (ii): Whether the notional interest rate adopted for quantification required reduction and fresh re-computation.

Analysis: The rate applied for notional interest was found to be excessive for the relevant period. The appropriate rate had to be determined with reference to commercial lending and deposit rates prevailing during the period in question, and the adjudicating authority had not undertaken that exercise.

Conclusion: The notional interest rate was reduced and the demand was directed to be re-quantified.

Final Conclusion: The matter was partly accepted for the assessee on quantification, and the case was sent back for fresh adjudication after hearing.

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