1998 (5) TMI 219 - AT - Central Excise

Tribunal overturns decision on notional interest in machinery parts assessable value, emphasizes nexus requirement

The Tribunal set aside the Commissioner's decision to include notional interest in the assessable value of machinery parts manufactured by the appellant. ... Valuation - Notional interest on advances Issues:- Inclusion of notional interest on advances in the assessable value of machinery parts manufactured and cleared by the appellant.Analysis:1. The appeals were against the Order-in-Original passed by the Commissioner of Central Excise, Indore, which held that notional interest on advances collected from buyers of machinery parts should be included in the assessable value. The appellant manufactured tailor-made machinery parts and received advances ranging from Rs. 36,000 to Rs. 29.29 lakhs, which were used as working capital.2. The show cause notice alleged that not paying interest on the advances affected the prices, as interest-free advances would lead to higher contract prices. The lower authorities concluded that the receipt of advance amounts influenced the price, justifying the inclusion of notional interest in the assessable value. The appellant challenged this, citing previous Tribunal decisions emphasizing the need for a nexus between advance receipt and price.3. The Tribunal decisions highlighted that the mere receipt of interest-free advances does not automatically warrant the inclusion of notional interest in the assessable value. The Supreme Court's ruling in Metal Box India Ltd. emphasized establishing a clear nexus between advance receipt, discounts given, and contracted prices. The appellant's case lacked sufficient evidence to establish such a nexus.4. The department relied on the Resistance Alloys (India) Ltd. case, which emphasized the nexus between advances received and goods supplied, especially in manufacturing activities. However, the appellant's situation, manufacturing tailor-made goods, made it challenging to establish a direct nexus between advance receipt and price depression without credible evidence.5. Given the unique nature of tailor-made goods and the absence of concrete evidence establishing a direct nexus between advance receipt and price determination, the Commissioner erred in including notional interest in the assessable value. The Tribunal set aside the order and allowed the appeals, emphasizing the necessity of proving a credible nexus in cases involving tailor-made goods to justify the inclusion of notional interest in the assessable value.