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TMI Blog2003 (4) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeal No. 410 of 2000, it was also indicated on behalf of the respondent that major part of the demand had become time barred. If necessary, we would advert to that question. No other question, in any appeal has been raised or pressed before us by either party. 2.For the sake of convenience, we refer to the documents on the record of the Civil Appeal Nos. of 2884-2892 of 1999, Commissioner of Central Excise v. M/s. ISPL Industries Ltd. The show cause-cum-demand notice dated 3-7-1995 is a long notice calling upon to show cause in respect of different matters under the Central Excise Act, besides one relating to inclusion of the notional interest in the assessable value, on the interest free advances taken by the assessees from customers. It reads as under :- "Whereas it appears that M/s. ISPL Industries Limited, Kolshet …………….. They have not(1) included the interest accrued on the advance received from the customers in the assessable value on the goods cleared during the period from Jan. 95 to Mar. (details shown in the Annexure enclosed in the SCN). The interest payable/paid in the advance made by the customers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r it would be possible to get buyers for such tailor made goods. In such cases the advance taken is nothing else than mere security for the due performance of the contract. In some cases, it is submitted that advance of only a part of the amount is taken rest of which, for example, up to 90% is paid on delivery of the goods and the balance of 10% or whatever amount as per agreement it may be, is paid after the period fixed for watching the proper performance of the machinery. Therefore, sometimes the amount which remains in balance is paid much after the delivery of the goods. Their case is that it all depends on the terms and conditions of contract to contract on which advance is made in full or in part. Yet another submission which has been advanced is that it is not necessary that amount taken in advance must necessarily be used for manufacture of the item. There may be units which may carry out the manufacturing and supplies without any need of having utilized such amount. It might have sufficient resources of liquid finances of its own to carry out the manufacturing. That is to say for such units there may not be any necessity to take loans from the banks or other institutions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chapter II reads as under : "Where the excisable goods are sold in the circumstances specified in clause (a) of sub-section (1) of Section 4 of the Act except that the price is not the sole consideration, the value of such goods shall be based on the aggregate of such price and the amount of the money value of any additional consideration flowing directly or indirectly from the buyer to the assessee". 7.Shri R.P. Bhat, learned senior counsel appearing for the Revenue submits that amount of advance taken by a manufacturer from its customers free of interest and such money being utilized for the purposes of manufacture of the goods, entails profit to the manufacturer to the extent of interest which would have been paid by the manufacturer to the bank. The benefit which accrues to the manufacturer amounts to profit to him, liable to be added in the assessable value of goods. Such buyers advancing money are favoured buyers, enjoying special concession or benefits at the hands of the manufacturer to the detriment of the revenue. He has taken us through the order passed by the Commissioner of Central Excise where it has been observed that price charged from a favoured buyer would not b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one for those who may not have advanced any interest free loan to the manufacturer and the other for Ponds (I) Limited which was a bulk purchaser to the extent of nearly 90% of the production for which purpose advance was also made available to the manufacturer without interest. The fact of interest free loan, has direct nexus with price fixation at a lower amount than the normal price. 8.The other case on the point which has been relied upon by the learned Counsel for the respondents is reported in 1998 (2) SCC 24, VST Industries Ltd. v. Collector of Central Excise, Hyderabad. The appellant in that case carried on business of manufacture and sale of cigarettes exigable to excise duty. The goods manufactured by them were sold in wholesale. The main dealers would sell the cigarettes to the wholesalers. The appellants sold the goods on cash-and-carry basis as well as by extending credit facility to some of its main dealers. Since it was felt that there was delay in remittances of the amount on account of sale on credit, the manufacturers introduced a credit facility scheme under which such main dealers were to make interest free security deposit equivalent to about 21 days of their ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation of assessable value if the deposit influences the fixation of sale price either by way of charging a less price from or by offering a special discount to the buyer who has given the deposit. (ii) If two different price exist, one for the wholesale buyer who has deposited the advance and the other for the wholesale buyer who has not deposited the advance, they would form two different classes of buyers and two different assessable values can be arrived at. For the wholesale buyer depositing the advance, the notional interest on advance deposit should be added for the purpose of determination of the assessable value. (iii) If there is no difference in the selling price for both categories of the wholesale buyers and there is also no proof that on account of advance deposits taken from some buyers, the price charged from all buyers has been reduced, then element of notional interest on advance deposits cannot be added. (iv) If the interest earned/saved on such advanced deposits is credited to the buyer calculated at a rate lower than the normal bank rate, the dif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cture the goods as per design and specification given by the buyer. It has, however, been rightly pointed out on behalf of the appellant the above noted notification dated March 1, 2003 would not be applicable to the present appeals since the appeals relate to the period prior to 2003 but there is no dispute that the cases in appeal are covered by the other circular of 1998 referred to earlier. Nonetheless, the notification dated 1-3-2003 has been issued, though not applicable in the present cases, on the principle that in case interest free advance does not influence the price by making it lower than the normal price, notional interest is not to be added. We may like to clarify that the view taken by us is not based on the notification dated 1-3-2003, but it certainly lends strength to the submissions made by the learned Counsel for the respondents, since that principle is found to be adhered to in the above noted notification issued subsequently too in the year 2003. 11.It is clear that the mere fact of making an interest free advance by a buyer to the manufacturer, by itself will not be a sufficient ground to reload the assessable value with notional interest. It would be neces ..... X X X X Extracts X X X X X X X X Extracts X X X X
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