1998 (3) TMI 214 - AT - Central Excise

Summary

Issues:
1. Inclusion of interest payable on advances in the assessable value of manufactured goods.
2. Imposition of penalty under Section 11AC and Rule 173Q.
3. Recovery of interest under Section 11AB.

Analysis:

Issue 1: Inclusion of interest payable on advances in the assessable value of manufactured goods
The case involved a manufacturer of shaving blades and systems who received advances from dealers before delivering goods. The Department alleged that the interest on these advances should be included in the assessable value of the goods manufactured. The Commissioner upheld the allegation, stating that the manufacturer would have borrowed from banks if not for the advances, resulting in interest costs that would be recovered from customers. The appellant argued that the advances did not affect the price of goods and relied on legal precedents where uniform pricing was maintained regardless of advances taken. The Tribunal found that since every customer gave an advance and there was no evidence of price variation based on advances, the interest should not be included in the assessable value. The Tribunal emphasized that unless advances directly affected pricing, they should not impact the assessable value.

Issue 2: Imposition of penalty under Section 11AC and Rule 173Q
The Commissioner imposed a penalty equal to the duty under Section 11AC, citing the failure of the manufacturer to declare interest income on advances received. The appellant contended that the demand for duty was unsustainable as most deliveries were made within a couple of days of receiving advances, making it impractical to borrow from banks for such short periods. The Tribunal agreed with the appellant, stating that the penalty and interest should not have been ordered since the demand for duty was not justified.

Issue 3: Recovery of interest under Section 11AB
The Department sought recovery of interest under Section 11AB due to the alleged non-inclusion of interest on advances in the assessable value. However, since the Tribunal ruled in favor of the appellant on the main issue of including interest in the assessable value, the demand for interest under Section 11AB was deemed unsustainable. The Tribunal allowed the appeal, set aside the impugned order, and granted consequential relief to the appellant.