2014 (1) TMI 113 - AT - Central Excise

Advance secured by way of loan - Interest Rate to be 10% OR 18 % - Held that - Notional interest on the advances taken by an assessee from its customers is liable to be added in the assessable value of the final product only when the same influences the price of the goods Following CC, Mumbai -III vs. ISPL Industries Ltd. 2003 (4) TMI 99 - SUPREME COURT OF INDIA - no presumption can be drawn by mere fact of interest free advance by the buyer to the manufacturer and such depression in prices on account of advances, is required to be proved by the Revenue - even the advance is not interest free and attracts interest of 10% - Decided in favour of Assessee.

Summary

Issues:
1. Addition of differential interest amount to assessable value of goods.
2. Allegation of suppression of assessable value.
3. Notional interest on advances taken by assessee.
4. Influence of advance interest on price of goods.
5. Requirement of proof by Revenue for depression in prices due to advances.

Analysis:
1. The judgment deals with the issue of adding a differential interest amount to the assessable value of goods manufactured by the appellants. The Revenue contended that the ongoing market rate was 18%, and the appellants, by securing an advance from customers at 10%, should have paid 18% interest if procured from an independent source. The Revenue added the differential amount of 8% interest to the assessable value, resulting in a duty demand and penalty imposition.

2. Upon reviewing the impugned order of the Commissioner (Appeals), it was observed that the differential interest amount was added without any allegation or finding of suppression of the assessable value due to the interest rate difference. The Tribunal highlighted the principle that notional interest on advances should only be added to the assessable value if it influences the price of the final product. Citing the Hon'ble Supreme Court's decision in a relevant case, it was emphasized that the Revenue must prove any depression in prices due to interest-free advances.

3. In the present case, the Tribunal noted that the advance secured by the appellants was not interest-free but attracted a 10% interest rate. Therefore, the Tribunal found no merit in the Revenue's argument and set aside the impugned order, allowing the appeal with consequential relief to the appellant. The judgment underscores the importance of establishing a direct link between advance interest rates and the pricing of goods to justify adding notional interest to the assessable value.

4. The decision serves as a reminder of the legal requirement for the Revenue to substantiate any claims of price depression arising from advance interest rates, rather than presuming such impacts based solely on the existence of interest-bearing advances. By emphasizing the need for concrete evidence of the influence of advance interest on pricing, the judgment provides clarity on the criteria for including notional interest in the assessable value of goods.