2006 (5) TMI 343 - AT - Central Excise

Summary

Issues Involved:

1. Allegation of non-declaration of true and correct value of motorcycles.
2. Consideration of Rs. 500 deposit as additional consideration affecting assessable value.
3. Use of advances or interest earned thereon in the working capital.
4. Determination of whether the deposits affected the pricing of motorcycles.
5. Validity of duty demand and penalty imposed.

Issue-wise Detailed Analysis:

1. Allegation of Non-Declaration of True and Correct Value of Motorcycles:
The appellant, M/s. Hero Honda Motors Ltd., was accused of not declaring the true and correct value of motorcycles in their price lists, leading to evasion of duty. The show cause notice issued in July 1991 covered the period from 1985-86 to 1990-91. The appellant had filed price lists based on sale prices, which were approved by the Central Excise authorities.

2. Consideration of Rs. 500 Deposit as Additional Consideration Affecting Assessable Value:
The primary ground for alleging short-levy was that the appellant took a deposit of Rs. 500 per motorcycle at the time of booking, which was considered additional consideration. The Commissioner of Central Excise confirmed a duty demand of over Rs. 2 crores and imposed a penalty of Rs. 50 lakhs. The matter was remanded by the Supreme Court to determine if the advances or interest earned thereon were used in the working capital and if they affected the motorcycle prices.

3. Use of Advances or Interest Earned Thereon in the Working Capital:
The Tribunal, following the Supreme Court's direction, had the appellant's accounts verified by a Cost Accountant. The report indicated that while surplus money from advances appeared to be used in the company's working, it was not necessarily used entirely in the working capital. The Cost Accountant concluded that the advances might have been used for long-term assets as well, and thus, it was not appropriate to generalize that the advances were used entirely for working capital.

4. Determination of Whether the Deposits Affected the Pricing of Motorcycles:
The Cost Accountant's report and the analysis of average sales realization and average cost of sales revealed that the sale prices of motorcycles were market-driven and not affected by the Rs. 500 deposit. The report showed significant year-to-year variations in the gap between sales realization and manufacturing costs, indicating that the company did not follow a cost-plus-profit approach in pricing. The Tribunal concluded that the deposits were not a relevant factor in pricing the motorcycles, and the additional gain from the deposit was too insignificant to influence the sale price.

5. Validity of Duty Demand and Penalty Imposed:
The Tribunal found that the revenue's case was based on the presumption that the financial advantage from the deposits would have led to lower sale prices. However, the Tribunal concluded that the deposits did not affect the pricing of motorcycles. Consequently, the duty demand and penalty imposed were deemed unsustainable and were set aside. The appeal was allowed with consequential relief to the appellant.

Conclusion:
The Tribunal concluded that the Rs. 500 deposit did not affect the pricing of motorcycles, and the sale prices were market-determined. The duty demand and penalty imposed were set aside, and the appeal was allowed with consequential relief to the appellant.