Central Excise - Valuation - Inclusion of interest in assessable value - Sale of credit through bill discounting facility - Regarding - Central Excise - 18/88 -CX.1

Central Excise - Valuation - Inclusion of interest in assessable value - Sale of credit through bill discounting facility - Regarding Circular No. 18/88 -CX.1 Dated 4-5-1988 [From F. No. 6/42/87-CX.1] Government of India Ministry of Finance (Department of Revenue) Central Board of Excise and Customs, New Delhi Subject : Central Excise - Valuation - Inclusion of interest in assessable value - Sale of credit through bill discounting facility - Regarding. I am directed to say that instances have been brought to the notice of the Board where some units are selling their goods on credit to the customers by routing their documents through banks and availing of the Bill Discount Facility. 2. Under this arrangement the bankers pay the amount of the bills to the assessee as soon as the bills are presented to them and thereafter the bank recovers the money from the customers and charge interest from the assessee from the date of discounting the bills to the date of their receiving payment from the customers. In all such cases, the assessee is reported to charge interest at the flat rate of 15% of the amount of bill from the customer. The assessee is not including the interest in the price to determine the assessable value. If the payment is delayed by the customers beyond 45 days, the bankers charge the assessee interest at the rate of 19.5% to 20% and the customer is also charged extra 20% interest for the number of days exceeding 45. In case of direct sale without routing the bill through bank, the customer is reported to get a cash discount of 4%. Clarification has been sought as to whether the interest charged at the flat rate of 5% of the amount of the bill can be included in the assessable value. 3. The matter has been examined by the Board. These interest charges are referred to as "delayed payment charges", "interest on receivables", or "credit charges", etc. However, the fact remains that they form part of the price of the goods. They should, therefore, be included in the assessable value of the goods. The Supreme Court in its judgment, dated 20-12-1986 in the case of M/s. MRF Ltd. held that interest on receivables was not to be included in the assessable value. The Department have, however, not accepted this judgment as far as it relates to inter alia, to this aspect and a Review petition has been filed in the Supreme Court which has since been admitted by the court. Therefore, to be in conformity with the stand taken by Department in this Review petition, it has been decided to include such interest charges while determining the assessable value of the goods. 4. The Board desires that assessing officers should raise demands or resort to provisional assessments and keep them pending till the disposal of the Review petition by the Supreme Court. 5. Field formations and trade interests may be informed suitably. 6. The receipt of this circular may be acknowledged.