1991 (4) TMI 131 - HC - Central Excise

Valuation (Central Excise) - Notional interest on deposits - Departmental clarifications - Adjudication proceedings

Issues Involved:
1. Inclusion of notional interest on deposits/advances in the assessable value.
2. Requirement to establish a nexus between additional consideration and sale price.
3. Legality of the memorandum and trade notice dispensing with the need to establish a nexus.
4. Jurisdiction of authorities to issue circulars binding quasi-judicial authorities.

Detailed Analysis:

1. Inclusion of Notional Interest on Deposits/Advances in the Assessable Value:
The petitioner, a public limited company manufacturing tailor-made textile machineries, challenges the inclusion of notional interest on customer deposits in the assessable value of goods under the Central Excise Act. The petitioner argues that such inclusion is contrary to Section 4 of the Act. The respondents contend that interest-free deposits provide an indirect consideration that should be included in the assessable value. The court examines precedents, including the Supreme Court's rulings in A.K. Roy v. Voltas Ltd. and Atic Industries Ltd. v. H.H. Dave, which emphasize that the wholesale price should reflect the actual price received by the manufacturer. The court concludes that the inclusion of notional interest depends on the specific facts of each case and whether the deposits influence the sale price as additional consideration.

2. Requirement to Establish a Nexus Between Additional Consideration and Sale Price:
The petitioner argues that the earlier circular dated 20-10-1986 correctly required establishing a nexus between additional consideration and the sale price. The respondents' memorandum dated 13-6-1990 and Trade Notice dated 26-10-1990, which state that establishing a nexus is unnecessary, are challenged as illegal. The court agrees with the petitioner, holding that the requirement to establish a nexus is valid and necessary for determining assessable value, as per Section 4 of the Act and Rule 5 of the Valuation Rules. The court finds the memorandum and trade notice contrary to these provisions and invalid.

3. Legality of the Memorandum and Trade Notice Dispensing with the Need to Establish a Nexus:
The court holds that the impugned memorandum and trade notice, which dispense with the need to establish a nexus between deposits and sale price, are illegal. The court emphasizes that the factual assessment of whether deposits influence the sale price must be made by quasi-judicial authorities. The earlier circular's requirement to establish a nexus aligns with the statutory provisions and should be implemented in all cases.

4. Jurisdiction of Authorities to Issue Circulars Binding Quasi-Judicial Authorities:
The petitioner challenges the jurisdiction of the first and third respondents to issue circulars that bind quasi-judicial authorities. The court examines Section 37(B) of the Central Excise Act and relevant case law, including Rajagopal Naidu v. The State Transport Appellate Tribunal and Orient Paper Mills Ltd. v. Union of India. The court concludes that Section 37(B) does not empower authorities to issue directions that bind quasi-judicial authorities in their decision-making. Circulars under Section 37(B) cannot interfere with the quasi-judicial authorities' application of statutory provisions. The court finds the impugned circulars and trade notice invalid for attempting to bind quasi-judicial authorities with general directions.

Conclusion:
The court allows the writ petition, quashing the government memorandum dated 13-6-1990, the Trade Notice dated 26-10-1990, and the show cause notice dated 30-10-1990. The respondents are granted liberty to issue a fresh show cause notice in accordance with the findings of the judgment, without reference to the quashed orders.

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