2009 (3) TMI 760 - AT - Central Excise

Summary

Issues Involved:
1. Whether the notional interest accruable on the advances taken from customers is to be added to the assessable value of the goods.
2. Whether the advances obviated the need for borrowals from other sources, resulting in pecuniary advantage to the respondents.
3. Whether the notional interest is an additional consideration flowing from the buyer to the respondents.
4. Whether the case laws rendered on the valuation law existing prior to 1-7-2000 can be applied to the removals made after the introduction of new law.

Summary:

Issue 1: Notional Interest on Advances and Assessable Value
The primary issue in this case is whether the notional interest accruable on advances taken from customers should be added to the assessable value of the goods. The Tribunal examined the definition of "transaction value" and concluded that notional interest is not part of the transaction value. The definition of transaction value includes the price actually paid or payable for the goods and any amount the buyer is liable to pay to or on behalf of the assessee by reason of or in connection with the sale. The Tribunal found that the notional interest is not an amount paid by the buyer to the respondents or on behalf of the respondents and is not a payment received by reason of or in connection with the sale.

Issue 2: Advances and Pecuniary Advantage
The Revenue argued that advances obviated the need for borrowals from other sources, resulting in pecuniary advantage to the respondents. The Tribunal noted that the initial proposal in the Finance Bill, 2000, to include financing charges in the assessable value was subsequently deleted, indicating that the legislature did not intend to include financing charges in the assessable value. Therefore, even if advances amounted to financing the manufacturer, the notional interest would not be includible in the transaction value.

Issue 3: Notional Interest as Additional Consideration
The Tribunal examined whether notional interest is an additional consideration. It concluded that notional interest is not an additional consideration as it is not an amount paid by the buyer to the respondents or on behalf of the respondents. The Tribunal also referred to Explanation 2 to Rule 6 of the Central Excise Valuation Rules, 2000, which clarifies that notional interest on advances shall not be added to the value unless there is evidence that the advance received has influenced the fixation of the price of the goods.

Issue 4: Applicability of Case Laws Prior to 1-7-2000
The Revenue contended that case laws rendered on the valuation law existing prior to 1-7-2000 cannot be applied to removals made after the introduction of the new law. The Tribunal referred to the Hon'ble Supreme Court's judgment in the case of CCE, Mumbai-III v. ISPL Industries Ltd., which held that the mere fact of making an interest-free advance by a buyer to the manufacturer is not sufficient to reload the assessable value with notional interest. The Revenue must show that such advance has influenced the lowering of the price. The Tribunal also noted that the explanation inserted in Rule 6 of the Central Excise Valuation Rules, 2000, by Notification 11/2003-C.E. (N.T.), dated 1-3-2003, clarified that the burden to establish the nexus between advance and price lies on the Revenue.

Conclusion:
The Tribunal held that the impugned order passed by the Commissioner (Appeals) is sustainable and dismissed the appeal filed by the Revenue, finding it devoid of any merits.