1999 (8) TMI 352 - AT - Central Excise

Summary

Issues:
- Recovery of duty on advances received for custom-made machinery
- Inclusion of notional interest in assessable value
- Claim of advances as security deposits
- Barred demand by limitation
- Knowledge of department regarding advances
- Nexus between advances and price construction
- Applicability of previous judgments

Recovery of Duty on Advances Received for Custom-Made Machinery:
The appellants manufactured custom-made machinery and received advances ranging from 10% to 30% of the order value, which were adjusted at the time of final billing. Three show cause notices sought to recover duty calculated on the quantum of the advances, claiming that notional interest should be part of the assessable value. The appellants argued that the advances were security deposits to ensure buyer acceptance of goods. The Commissioner considered the deposit as additional consideration, but it was contended that the demand was not sustainable due to the custom-made nature of the goods.

Inclusion of Notional Interest in Assessable Value:
The Commissioner held that notional interest should be added to the assessable value based on the advances received. However, it was observed that there was no evidence of price depression due to the advances. The law required establishing a nexus between the advances and price construction. Previous judgments highlighted that for custom-made goods, advances could be seen as security deposits, and the department needed to prove the nexus between advances and prices.

Claim of Advances as Security Deposits:
The appellants argued that the advances were security deposits to safeguard against buyer default and were reflected in the invoices filed along with RT 12 returns. The Tribunal noted that for tailor-made goods, advances could serve as security against buyer failure to accept goods, and there was no evidence of price depression due to advances.

Barred Demand by Limitation:
The Collector dismissed the plea on limitation, stating that the department required separate communication about the advances. However, the Tribunal found that if the invoices were part of the monthly returns scrutinized by officers, the department's knowledge of the advances was established, and the demand was indeed barred by limitation.

Knowledge of Department Regarding Advances:
The Tribunal disagreed with the Collector's view that separate communication was necessary regarding the advances. It was held that if the invoices indicating advances were part of the monthly returns, the department's knowledge was deemed established without additional communication from the assessees.

Nexus Between Advances and Price Construction:
The law required establishing a nexus between advances received and price construction. Previous judgments emphasized the need to prove the connection between advances and prices, especially for custom-made goods where advances could be considered security deposits.

Applicability of Previous Judgments:
The Tribunal considered previous judgments, including those related to custom-made goods, to support the appellants' arguments. It was noted that the law laid down in these judgments applied to the facts of the case, and the issues were covered in a similar manner in previous decisions.

In conclusion, the appeal was allowed on both merits and the ground of limitation, providing relief to the appellants in accordance with the applicable law and previous judgments.