2008 (8) TMI 672 - AT - Central Excise

Valuation - includibility - notional interest accrued on advances taken by them from their customers - Held that - The price of the goods should not be influenced by the element of interest accruable on advance taken - Once the assessee accepts that the price is reduced on account of interest income, meaning thereby that such reduction would not be there if no advances are taken, then the only inference that can be drawn is that the price was influenced and in view of this the duty on notional interest as proposed in the show cause notice and confirmed by the Assistant Commissioner was required to be paid - the order of the Assistant Commissioner restored.

Summary

Issues:
1. Demand of duty on notional interest accrued on advances taken by respondents.
2. Imposition of penalty under Rule 25 of Central Excise Rules, 2001.
3. Nexus between advances received and assessable value of goods.
4. Influence of interest element on the price of goods.
5. Adjustment of interest element in determining the price of goods.

Analysis:
1. The appeal filed by the revenue concerned the demand of duty on notional interest accrued on advances taken by the respondents from their customers for tailor-made goods. The Assistant Commissioner confirmed the demand and imposed a penalty under Rule 25. However, the Commissioner (Appeals) set aside the order.

2. The revenue argued that the advances provided working capital to the respondents, and the interest accrued should be included in the assessable value as an additional consideration. They contended that under the new Section 4, the nexus between advances and assessable value is not required to be proved.

3. The respondents' advocate countered by stating that there was no nexus between the advances and the negotiated price of the goods. He argued that the interest element on advances was adjusted by offering a lower price to customers, thus not influencing the final price. The advocate referred to a Tribunal decision supporting this argument.

4. The Tribunal found that the respondents admitted to considering the interest earned on advances while fixing the price of goods, which was then adjusted in the form of a lower price. The Tribunal held that the duty was correctly demanded on the notional interest accrued, as it influenced the final price of the goods.

5. The Tribunal concluded that the price of goods should not be influenced by the interest accruable on advances. Therefore, they set aside the Commissioner (Appeals) order and restored the Assistant Commissioner's decision to demand duty on the notional interest accrued on advances.

This judgment highlights the importance of considering all elements influencing the price of goods and the assessable value in excise duty cases, emphasizing the need for transparency and accuracy in determining duty liabilities based on such considerations.