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TMI Blog1992 (5) TMI 122X X X X Extracts X X X X X X X X Extracts X X X X ..... terms and conditions of the Purchase Order. The price of the transformer is fixed in the Purchase Order itself well in advance taking into consideration all the relevant aspects. The part payments are made by the purchasers only thereafter and such part payments have no influence in the price originally fixed. No interest is also paid by the appellant to the purchasers on such part payments. Show Cause Notices were issued proposing to add the interest accrued on advance payments to the price and re-determining the assessable value and recover the consequential duty. On receipt of reply, the Assistant Collector treating the interest accrued on advance payment as additional consideration revised the price list. On appeal, the Collector confirmed the Order of the Assistant Collector. Hence the appeal before us. 2. The Collector held that the appellant collected advance amounts from 10% to 20% of the contract price from all the customers and these advance amounts are utilised in connection with the manufacturing operation. He also stated that the appellants have confirmed that all their contracts required mobilisation of funds by way of payment of part of the price as advance. There ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... If the seller receives the whole or part of the price in advance, it is advantageous to him whereas where there is a delay in the payment of price, it is prejudicial. The Acts and Rules do not permit valuation of every advantage or disadvantage to the seller and consequent adjustment of the price upwards or downwards. Rule 5 postulates a situation where goods are sold in circumstances specified in Section 4(l)(a) except that the price is not the sole consideration. The word sole is used in contradistinction with multi . To attract Rule 5 there must be other consideration. Not merely recent of part of the price in advance. 7. Time and manner of payment of price is a matter of contract, there being no provision in the applicable statutes prescribing that price is payable at any specific point of time in a contract for sale of goods. In contracts for manufacture and supply of made to order machinery it is common for the seller to receive an advance by way of earnest money or part payment. 8. Assuming, without admitting, that the department can, in a given case, enhance the price, on an inference that the price has been artificially depressed by advance payment:- (a) The onus of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other provisions of this Section, be deemed to be- (a) the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale: - xxxxxxxxxx (b) where the normal price of such goods is not ascertainable for the reason that such goods are not sold or for any other reasons, the nearest ascertainable equivalent thereof determined in such manner as may be prescribed." 13. It follows from the above that for the purpose of determining the assessable value the relevant criteria is the normal price i.e. price at which the goods are ordinarily sold in the course of wholesale trade and the price is the sole consideration for sale. The emphasis is that the price must be sole consideration for the sale. If the price cannot be ascertained under clause (a) of Section 4(1) then it should be ascertained in accordance with rules. 14. The Department s case is that normal price is not ascertainable as the appellants are getting additional consideration in the form of inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers for delayed supply: From To Amount 24-2-1990 01-03-1990 Rs. 246 lakhs 02-03-1990 08-03-1990 Rs. 242 lakhs 09-03-1990 15-03-1990 Rs. 238 lakhs 16-03-1990 22-03-1990 Rs. 234 lakhs 23-03-1990 29-03-1990 Rs. 230 lakhs 30-03-1990 05-04-1990 Rs. 226 lakhs 06-04-1990 12-04-1990 Rs. 222 lakhs 13-04-1990 16-04-1990 Rs. 220 lakhs However, the testing charges as indicated in para 1.2, 1.3 and 1.4 shall be payable in full. 12.0 Terms of Payment 12.1 10% of the value of this purchase order excluding testing and safe delivery charges will be released as advance against acceptance of Telex of Intent and on contractors submitting a bank guarantee for equivalent amount valid till the delivery period. This part of the payment had been released to the contractor on 16-10-1989. 12.2 10% of the value of this Purchase Order excluding testing and safe delivery charges will be released against submission of all relevant drawings and on receipt of following documents: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Order is released against submission of relevant documents and Bank Guarantee for equivalent amount valid till the delivery period is furnished. Another 20% of the order value will be released on receipt of proof of placing the order for raw materials etc. and on furnishing Bank Guarantee for equivalent amount valid till the delivery period. The balance 60% of the order will be released against proof of the despatch of the goods and other relevant documents. The contractor is also to furnish the Bank Guarantee for 10% of the contract value towards performance bond valid till the entire guarantee period. 17. In other words, the contractor is furnishing Bank Guarantee as against advance of 40% of the value of the Purchase Order released by purchaser. From a reading of the Purchase Order, it is clear that it provides that if there is delay in delivery of the goods price is reduced. The basis for the reduction perhaps is not only the delay in supplying the goods but may also be due to the appellants having advance with him and earning the interest on it. It may also be to expedite the delivery of goods having regard to the nature of the goods or it may be in the nature of damages fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs is fixed taking into account all the relevant factors involved in the contract such as, the time stipulated for supply, the terms of payment etc. etc. The price so fixed represents the net value of the transformers after taking into account all the factors. Therefore, when the contract stipulates delivery urgently, payment of part price on completion of various stages, furnishing of Bank Guarantee (on which we have to incur bank charges) and such other terms and conditions, the price is fixed taking into account all these facts. The fact that certain contracts, as referred to in the show cause notice, there is provision for payment of interest as a specific term of the contract, will amply prove this contention. In the present case, it was a specific stipulation that on account of the fact that the customer wants the transformers on an emergency basis, 10% of the total order value shall be paid in advance subject to receipt of Bank Guarantee for the like amount. The absence of stipulation for payment of interest on the advance paid unlike in other contracts and the stipulation that since the customer requires the transformers urgently they shall pay part of the price in advance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extile machinery and they take advance security deposit from the customers. The amount of security deposit is 10% of the value of orders. The question before the learned Judge was that whether notional interest on deposits/advances made by the customers in respect of industries which manufacture tailor made machinery on specific order is includible in the assessable value of the machinery or not. Learned Judge held But the basic question is the same, namely whether the assessee receiving advances from his customers or distributors and consequently utilising the advances in the working of his industry is bound to show the interest element or price of the goods. In my opinion this will definitely depend upon the facts of each case. In every case, one has to ultimately apply Rule 5 of the Central Excise Valuation Rules, 1975 and see whether the deposits and advances constituted an additional consideration flowing directly or indirectly from the buyer and whether such additional consideration could be computed in terms of money, Ultimately, the authorities can only go by Section 4 read with Rule 5 of the Valuation Rules. The primary part of Section 4 says that the value shall be the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Oxygen. - 1989 (41) E.L.T. 610; Lily Foam Industries (P) Ltd. v. Collector of Central Excise -1990 (46) E.L.T, 462; and Kerala Electric Lamp Works Ltd. v. Collector of Central Excise, Cochin - 1988 (33) E.L.T. 771. 21. In other words, according to the learned Judge there should be nexus between the additional consideration and the sale price of the excisable goods. He also pointed out that additional consideration may not influence the sale price in certain cases and in certain cases it may influence the sale price. 22. We may also point out that under Section 4 it is the price which the manufacturer gets for the goods sold in the course of wholesale trade. In other words, only price for assessment of value of the goods for the purpose of excise in such cases would be the wholesale cash price which manufacturer receives from sale to the first wholesale dealer, i.e., when the goods first entered the stream of trade (Atic Industries v. H.C. Dave - 1978 (2) E.L.T. (J. 444) (SC). Therefore, it is the price which the manufacturer gets i.e. the assessable value under Section 4. We have already pointed out that the manufacturer is getting 40% advance in 4 instalments. However, he was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces it was held that there is no case for invoking the provision of Rule 5 of the Valuation Rules to include the interest element to the prices for arriving at the assessable value. 25. In Kerala Electric Lamp Works Ltd. v. Collector - 1988 (33) E.L.T. 771, it was held that security deposit of Rs. 5 lakhs kept by Crompton with the assessee did not amount to any extra consideration accrued from the Collector to the assessee. However, no reasons were given as to why it does not amount to extra consideration. 26. As pointed out in the earlier paragraphs under Section 4, it is the price which is relevant for determining the assessable value and the price should be the sole consideration for the purpose of sate. If the advance paid by the purchaser has nexus with the sale price then Rule 5 is attracted. However, on the facts of the present case, the appellants have also executed the Bank Guarantee being equivalent amount of the advance paid to them and the lower authorities have not examined the issue whether the advance paid by the purchasers and the Bank Guarantee executed by the appellants-has any nexus with the sale price namely whether it has reduced sale price of the goods ma ..... X X X X Extracts X X X X X X X X Extracts X X X X
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