1990 (8) TMI 268 - AT - Central Excise

Summary

Issues Involved:
1. Whether the notional interest on the deposits received by the Respondents should be taken into consideration for calculating the excise duty.
2. Whether the extra realization should be added to the assessable value or to the wholesale price.

Summary:

Issue 1: Notional Interest on Deposits
The Department argued that the interest on the deposit should form an additional element of value for the assessment of the cigarettes cleared by the respondents. The Asstt. Collector confirmed a demand for over 2.23 crores of differential duty, reasoning that the security deposit scheme was an additional commercial consideration and influenced the price of cigarettes. The Collector (Appeals) allowed the appeal regarding interest on deposits, stating that the deposits were not uniformly taken from all buyers and did not constitute financial returns to the Respondents. However, the Tribunal found that the deposits were primarily for collecting capital and not merely for security, thus forming part of the assessable value. The Tribunal restored the Asstt. Collector's order, concluding that the interest charges on capital formed part of the wholesale price.

Issue 2: Addition to Assessable Value or Wholesale Price
The Tribunal examined whether the notional interest should be added to the assessable value or the wholesale price. The Revenue cited several judgments to support adding the extra consideration to the assessable value. However, the Tribunal interpreted that the extra accrual should be added to the wholesale price and the assessable value worked back after allowing admissible deductions. This interpretation aligns with the Supreme Court's judgment in Hindustan Polymers, emphasizing that the measure of excise duty is price and not value. The Tribunal concluded that adding extra accruals directly to the assessable value would distort the meaning of Section 4 of the Act. Therefore, the extra accruals should be added to the wholesale price, not the assessable value.

Conclusion:
The Tribunal set aside the Collector (Appeals) order regarding notional interest on deposits and restored the Asstt. Collector's order. The Tribunal directed that the extra accruals should be added to the wholesale price, not the assessable value, thus resolving the second issue in favor of the Respondents. The orders apply to all three Respondents, and the Cross-Objections filed by each of them are disposed of accordingly.