1996 (3) TMI 279 - AT - Central Excise

Issues Involved:
1. Assessable value of T.V. sets including additional considerations.
2. Cost of packing materials supplied by the buyer.
3. Advertisement cost incurred by the buyer.
4. Inclusion of excise duty paid on input picture tube.
5. Service cost during the warranty period.
6. Interest on security deposit.
7. Method of determining assessable value for duty purposes.
8. Invocation of the extended period of limitation under Section 11A of the Act.
9. Imposition of penalty on the assessee and the Director.

Detailed Analysis:

1. Assessable Value of T.V. Sets Including Additional Considerations:
The Collector concluded that the declared prices did not reflect the sole consideration for the sale of T.V. sets and included costs such as packing materials, advertisement, excise duty on picture tubes, service costs during the warranty period, and differential interest on security deposits to determine the assessable value. The assessable values for the three models exceeded Rs. 5,000/- and attracted a higher rate of duty.

2. Cost of Packing Materials Supplied by the Buyer:
The primary packing materials were supplied free of cost by Arvind. The Tribunal, following precedents, held that the cost of packing materials supplied by the buyer free of cost is not to be included in the assessable value of the goods. This is based on the settled law that the cost of packing not incurred by the manufacturer should not be part of the assessable value.

3. Advertisement Cost Incurred by the Buyer:
The T.V. sets were advertised by Arvind, who bore the costs. The agreements did not require Arvind to advertise, nor did the advertisements directly promote the appellant's interests. The Tribunal concluded that advertisement costs incurred by Arvind should not be considered additional consideration and should not be added to the assessable value.

4. Inclusion of Excise Duty Paid on Input Picture Tube:
The appellant availed Modvat credit on the excise duty paid on picture tubes. The Tribunal, following the decision in Dai Ichi Karkaria Ltd., held that excise duty paid on inputs, for which Modvat credit was taken, should not be included in the assessable value of the final product.

5. Service Cost During the Warranty Period:
Under the agreement, the appellant was to supply free components for replacement during the warranty period, with Arvind meeting the service costs. The Tribunal, considering various precedents, concluded that the service cost element should not be included in the assessable value, as the transactions were on a principal-to-principal basis and the declared price was the normal price.

6. Interest on Security Deposit:
For the period covered by the agreement dated 1-12-1986, no interest was payable on the security amount. For the period covered by the agreement dated 1-9-1988, the interest stipulated at 15% per annum was considered reasonable. The Tribunal held that notional interest at the rate of 18% on the security amount for the earlier period and differential interest of 3% for the later period should be added to the price to arrive at the assessable value.

7. Method of Determining Assessable Value for Duty Purposes:
The Tribunal agreed with the appellant's contention that to determine whether the value exceeds Rs. 5,000/-, the higher rate of duty must be deducted, and if the net value is less than Rs. 5,000/-, the lesser rate of duty should be imposed. This impacts the quantum of differential duty.

8. Invocation of the Extended Period of Limitation under Section 11A of the Act:
The show cause notice was issued within the extended period of five years. The Tribunal found that there was wilful suppression of material facts affecting valuation, justifying the invocation of the extended period of limitation.

9. Imposition of Penalty on the Assessee and the Director:
The Tribunal set aside the penalty imposed on the Director under Rule 209A, stating that the Collector should reassess the value to determine if any differential duty is payable. If no differential duty is required, the question of penalty does not arise. If differential duty is demanded, the question of penalty should be considered afresh.

Conclusion:
The Tribunal set aside the impugned order and remanded the case to the jurisdictional Commissioner to pass a fresh order in accordance with the law and the findings recorded. The appeals were allowed accordingly.

← Previous Next →