Valuation (Central Excise) - Interest accrued on security deposit/advance deposit taken by manufacturing units includible in assessable value - Central Excise - 18/90-CX.1

Valuation (Central Excise) - Interest accrued on security deposit/advance deposit taken by manufacturing units includible in assessable value Circular No. 18/90-CX.1 Dated 13-6-1990 [From F.No. 6/1/90-CX.1] Government of India Central Board of Excise Customs New Delhi Subject : Central Excise - Valuation - Liability of duty on the interest accruing out of security deposit/ advance deposit taken by manufacturing units - Regarding. I am directed to say that a doubt has been expressed whether the interest accrued on security deposits or advance deposits taken as a percentage of the price of goods by the assessees from their customers, is required to be included while determining the assessable value. 2. It has been reported that a few manufacturers, who generally take considerable time from the date of actual placement of the order for purchase of the products and date of delivery thereof, collect a uniform advance deposit from their prospective buyers. 3. In Board's letter F.No. 2/2/86-CX.1 (Circular No. 6/86-CX.1), dated 20-10-1986 enclosing the Law Ministry's opinion on valuation in cases where advance security deposits are taken, it has been opined that the security deposit made by the whole sale buyer might constitute an additional consideration for sale of goods and it will be for the Department to establish that such additional consideration has a nexus with the sale price of the excisable goods. The Department also should be in a additional consideration. If there is no such nexus with the sale price of the excisable goods. The Department also should be in a position to determine the amount of the money value of such additional consideration. If there is no such nexus or if the Department is not in a position to determine the money value of the additional consideration, the provisions of Rule 5 of the Central Excise (Valuation) Rules 1975 would not be applicable. 4. A doubt has been expressed that Ministry's above said instruction has taken a view that the question of addition of interest charges as additional consideration to the assessable value would arise only when there is a clear evidence that the deposits have led to a depression in the sale price of the excisable goods. In case, where the deposits are uniformly taken from all buyers it is not clearly possible to establish a nexus between the deposits and the sale price. It can only be a deductive evidence or inference to hold that the deposits would have led to a natural depression in the sale price of the excisable goods. 5. The matter was discussed in the South Zone Tariff Conference held at Hyderabad on 11th and 12th January, 1990 in which it was decided that the matter may be further examined by the Board in view of the fact that many a time deposits to the extent of 10% of the price were compulsorily taken for accepting or executing the purchase order by the assessee. 6. The issue was further examined in the Board in the light of Bombay High Court decision in the case of M/s. Britannia Industries Limited v. Union of India [1989 (44) E.L.T. 630 (Bom.)] In that case the court held that the interest payable/paid by the manufacturer on the deposits made by customers, is includible in the value and is not deductible from the price to determine value, because the manufacturer would have incurred the said interest had he borrowed or taken loans from Banks. The deposits are similar to Bank loans or money borrowed from Banks. Hence interest on such advance or security deposits is not exclusible from the value, the Court held. 7. In view of the above, it has been decided by the board that the interest accrued on such deposits are includible in the assessable value and in view of the High Court decision cited above, there is no need to establish separately the nexus between the deposit and the price. The Board's earlier Circular No. 6/86-CX.1 from F.No. 2/2/86-CX.1 dated the 20th October, 1986 is modified to the extent discussed above. 8. This may be brought to the notice of the field formations for their guidance.