1992 (5) TMI 122 - AT - Central Excise

Issues Involved:
1. Inclusion of notional interest on advance payments in the assessable value of goods.
2. Determination of "normal price" under Section 4 of the Central Excises and Salt Act, 1944.
3. Applicability of Rule 5 of the Central Excise Valuation Rules, 1975.

Detailed Analysis:

1. Inclusion of Notional Interest on Advance Payments in the Assessable Value of Goods:

The appellants, a public limited company manufacturing transformers, were issued Show Cause Notices proposing to add the interest accrued on advance payments to the price of transformers, thereby re-determining the assessable value and recovering the consequential duty. The Assistant Collector, treating the interest accrued on advance payments as additional consideration, revised the price list, which was confirmed by the Collector on appeal. The Collector relied on the judgment of the Bombay High Court in Britania Industries Ltd. v. Union of India and the Tribunal's Order in Collector of Central Excise, Hyderabad v. Vazir Sultan Tobacco Industries, concluding that notional interest should be added to the price of transformers.

2. Determination of "Normal Price" under Section 4 of the Central Excises and Salt Act, 1944:

The appellants contended that under Section 4 of the Act, the value shall be deemed to be the normal price, which is the price at which the goods are ordinarily sold in wholesale trade. Section 4(1)(a) specifies that the price must be the sole consideration for the sale, and the time of payment (whether in advance or otherwise) is not relevant. The appellants argued that the Excise Act and the Sale of Goods Act do not authorize the enhancement of the price by a notional amount obtained by receiving the price in advance. They emphasized that the price fixed in the Purchase Order was inclusive of all considerations, and no interest was paid on advance payments.

3. Applicability of Rule 5 of the Central Excise Valuation Rules, 1975:

The Department argued that the normal price was not ascertainable because the appellants received additional consideration in the form of interest on advance payments. Rule 5 of the Valuation Rules states that where the price is not the sole consideration, the value shall be based on the aggregate of such price and the amount of any additional consideration. The appellants countered that the advance payments did not influence the price, and the price reduction for delayed delivery was due to other factors, not the advance payments.

Conclusion:

The Tribunal concluded that the case needed a factual assessment to determine whether the advance payments had a nexus with the sale price and whether they depressed the sale price. The Tribunal referred to the judgment of the Madras High Court in Lakshmi Machine Works Ltd. v. U.O.I., which held that the inclusion of notional interest in the assessable value depends on the facts of each case and whether the advance payments constituted additional consideration influencing the sale price. The Tribunal remanded the matter to the Assistant Collector to examine whether the advance payments and the Bank Guarantee executed by the appellants had any nexus with the sale price. If a nexus was found, the interest should be treated as additional consideration under Rule 5; otherwise, the assessable value should be based on the sale price.

The appeals were accordingly remanded to the Assistant Collector for further examination.

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