2004 (9) TMI 183 - AT - Central Excise

Summary

Issues: Duty demand on notional interest earned from security deposits, inclusion in assessable value, penalty imposition, appeal to Tribunal.

In this case, the issue revolved around a duty demand raised on the notional interest earned from security deposits taken by a manufacturing company from its customers. The company, engaged in the manufacture of welding electrodes, flux, drawn wire, and steel scrap, availed the benefit of small-scale exemption during the period 1995 to 1998. The company sold goods to customers in Meerut and other parts of the country, with prices for Meerut customers being lower due to additional costs for outstation customers. The central issue was whether the advances/deposits received from two customers were utilized in investments earning notional interest, which was alleged to be additional consideration and includible in the assessable value under Section 4 of the Central Excise Act, 1944. The duty demand of Rs. 1,95,733/- was confirmed by the Additional Commissioner, who also imposed penalties under Section 11AC of the Act and Rule 173Q, along with personal penalties on the partners of the company. The Commissioner (Appeals) dismissed the appeal, leading to an appeal to the Tribunal, which remanded the case back to the Commissioner for a fresh decision based on additional evidence provided by the appellants, including a certificate from a Chartered Accountant and invoices from other Meerut customers.

Regarding the inclusion of notional interest in the assessable value, the Tribunal found that there was no evidence to support the claim that the advances/deposits resulted in additional consideration. The Commissioner's assertion that other buyers in Meerut were created to deceive the authorities lacked evidentiary support. It was highlighted that taking advances/deposits alone does not establish a nexus between the price and the deposits or that it led to a decrease in sale prices. Citing the precedent set by the Supreme Court in VST Industries Ltd. v. CCE, Hyderabad, the Tribunal concluded that the Revenue failed to prove a connection between the deposits and the pricing strategy. As a result, the impugned order was set aside, and the appeals were allowed, emphasizing the importance of establishing a clear nexus between the deposits and the assessable value of goods manufactured and cleared by the company.