2019 (10) TMI 531 - AT - Central Excise

Valuation - charges recovered from the customer for the delayed payment by issuance of debit note - inclusion in the assessable value - it is alleged that Appellant had allowed cash discounts from the price, but later recovered a part of this discount so passed on - nature of additional consideration or not - HELD THAT - If the customers delay in making payment beyond specified period, interest is charged, which is the financial cost to the Company for late receipt of payment and accordingly debit notes were issued to the Appellant for recovery of said financial charges separately. This issue of inclusion of financial charges in the value has been considered by this Tribunal in the case of ARHAM SPINNING MILLS VERSUS COMMISSIONER OF CENTRAL EXCISE, JAIPUR 2005 (9) TMI 463 - CESTAT, NEW DELHI where it was held that there is no justification for including financial cost in the assessable value. The objection of the Revenue is that the Appellant had collected extra amount by not passing the cash discount and in the guise of financial charges, hence, being an additional consideration, hence to be included in the value of the goods. Rebutting the said argument, the Appellant had referred to their price policy, disclosing there under the slab-wise cash discount admissible on the sale price slab-wise; also in the said policy, they disclosed interest for delayed payment depending upon the number of days delay, for which rate of interest also varies. There are merit in the contention of the learned Advocate for the Appellant. It could be a coincidence that in certain cases the financial charges recovered from the customers may be equal to the cash discount, but reading their credit policy structure as a whole annexed to the appeal memo, it is clear that no recovery is made in excess of cash discount passed on as alleged by the Revenue other than recovery of the financial charges, for delay payment than the prescribed period. Appeal allowed - decided in favor of appellant.

Summary

Issues:
Whether charges recovered from the customer for delayed payment should be added to the assessable value as additional consideration.

Analysis:
The case involved two appeals against an order passed by the CCE (Appeals), Mumbai-II, regarding the demand of differential duty for the period from October 2003 to June 2009. The dispute arose from the recovery of financial charges by issuing debit notes for delayed payments, which the Revenue contended should be included in the assessable value. The Appellant argued that the financial charges were not additional consideration but were for delayed payment beyond the specified period, distinct from cash discounts. The Appellant cited various judgments supporting their position, emphasizing that financial charges were part of credit terms and not additional consideration.

The Tribunal analyzed previous decisions, including the case of Arham Spinning Mills Vs CCE Jaipur, which clarified that financial costs for delayed payments are not part of the assessable value as they are subsequent costs post-removal of goods. The Tribunal also referenced the Supreme Court's decision in CCE v. Vikram Detergent Ltd., highlighting that interest on receivables due to time lapse between delivery and payment is deductible from the assessable value. Both parties agreed that financial charges should not be included in the assessable value, and cash discounts were admissible as per the Supreme Court's ruling in Purolator India Ltd.

The Appellant demonstrated through their pricing policy that financial charges were levied only for delayed payments exceeding a specified period, aiming to discourage late payments and compensate for financial costs incurred. The recovery of financial charges was reflected in the balance sheet as such. The Tribunal found merit in the Appellant's arguments, noting that the financial charges were not in excess of cash discounts and were specifically for delayed payments beyond the agreed period. Consequently, the impugned orders were set aside, and the appeals were allowed with any consequential relief as per law.