TMI Blog1991 (4) TMI 131X X X X Extracts X X X X X X X X Extracts X X X X ..... ertain norms and conditions. They are as follows :- (A) For the buyer not to pay interest (i) on the retention money on the part of the buyer for proper performance of the goods; (ii) In case of delay occasioned by postponement or order execution pending decision on further subsidiary specifications or due to subsequent changes/modifications required by the buyer; (iii) In case of delay by the buyer in taking delivery of the ready goods; (iv) In case of delay by the buyer in making payments of balance moneys for goods sold. (B) For manufacturer-Sellers not to pay interest on security deposit/advance received from the Buyer. The second respondent had issued a circular on 20-10-1986 giving certain directions to the authorities to the effect that addition of notional interest on such advance will arise only in those cases where the authorities are in a position to establish a nexus between the receipt of the advance deposited and the depression of the sale price on account of such interest free deposits. By memorandum dated 13-6-1990, the Department of Revenue in the Government of India and Ministry of Finance had issued certain instructions on the basis of the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would have paid interest for the loan amounts which is certainly includible in the assessable value. The inclusion of notional interest is not uncommon to Central Excise law and even in the circular of the second respondent dated 13-6-1990, the inclusion of notional interest had been permitted in cases where nexus had been established between the receipt of advance/deposit and the depression of the sale price. Reliance is placed on M/s. Britania Industries Limited v. Union of India, 1989 (44) E.L.T. 630 (Bom.), for the proposition that such deposits are similar to the bank loans and the interest paid thereon is includible in the assessable value. It is also pointed out that the principles relating to assessment of the value of the goods as incorporated in Section 4 of the Act read with Rule 5 of the Valuation Rules is always kept in mind. According to the respondents, the clarifications are well within the said provisions of law. The sum and substance of the stand taken by the respondents is that the interest element influences the price of the goods and tantamounts to additional consideration enjoyed by the manufacturers. On the question of the impugned circulars tying the hands ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the articles being sold on a wholesale basis. So, even if there was no market in the physical sense of the term at or near the place of manufacture where the articles of a like kind and quality are or could be sold, that would not in any way affect the existence of market in the proper sense of the term provided the articles themselves could be sold wholesale to traders, even though the articles are sold to them on the basis of agreements which confer certain commercial advantage upon them. In other words, the sale to the wholesale dealers did not cease to be the wholesale sales merely because the wholesale dealers had entered into agreement with the respondent under which certain commercial benefits were conferred upon them in consideration of their undertaking to do service to the articles sold, or because of the fact that no other person could purchase the articles wholesale from the respondent. We also think that the application of clause (a) of Section 4 of the Act does not depend upon any hypothesis to the effect that at the time and place of sale, any further articles of like kind and quality should have been sold. If there is an actual price for the goods themselves at th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... osits made by distributors. It was claimed that the Britania Industries had received advance deposits from wholesale dealers, which were in the nature of security so that they would not default in making payments in respect of supplies. The company paid interest at 8% to the distributors on the deposits made by them. This claim for deduction was rejected by the authorities on the ground that the advances had been utilised for the working of the company and for utilising such money they had paid interest to their authorised wholesale dealers. It was contended that the advances did not differ from monies borrowed by the company from banks or other financing institutions. It was argued in that case by the Central Excise authorities that the amounts paid by way of interest were in no way connected with the determination of the assessable value of the goods, the Bombay High Court came to the conclusion that the assessees in that case did not adduce evidence to show that the said advances were not at all utilised as capital. Liability to pay interest on these deposits was to be discharged out of the miscellaneous income arising, if any, by way of deposits and not out of the sale price of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee goes to the depression of the sale price. I am clearly of the opinion that this factual assessment has to be made by the Quasi-Judicial Authorities prescribed under the Act, it cannot be laid down as a uniform and inflexible rule that notional interest payable on advances/deposits made by customers can or cannot be included in the assessable value of the goods. In a particular case, the notional interest may influence the sale price as amounting to additional consideration. In a particular case it may not so influence. 10. There is an interesting judgment of the Tribunal in Collector of Central Excise, Hyderabad v. VST Industries, Hyderabad and 2 Others [1991 (52) E.L.T. 59 (Tri.) = 1990 (16) ETR 539]. The following line of thinking lends support to the view taken by me. After extracting a passage from the Bombay Tyre case and Hindustan Polymers [1989 (43) E.L.T. 165], the Tribunal says - "The language of Section 4 and the extract of the Supreme Court's Judgment reproduced above show that the interpretation as given by the Supreme Court alone is the correct one. Rule 5 of Valuation Rules and Section 4 of the Act have to be read together. A harmonious construction can lead on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d goods - did not amount to any extra consideration accruing from Crompton to the assessee. But the third element - the salaries of the Chief Executive and the Works Manager - did. These salaries have to enter the manufacturing cost of the goods and since they were paid separately by the customer, these have to be added to the assessable value of the goods under Rule 5 of the Central Excise (Valuation) Rules, 1975." 15. In Ramdas Motor Transport Ltd. v. Collector of Central Excise [1988 (36) E.L.T. 629], the Tribunal held that the appellant got considerable working capital which they would otherwise have had to borrow from Bank and pay the Commercial Bank interest thereon. Accordingly, it was held that the interest-free deposit taken from one or more authorised dealer or dealers constituted additional consideration for the sale of their goods which flowed back to the appellants. 16. A conspectus of these decisions only fortify my view that the inclusion of the notional interest in the assessable value or the wholesale price will depend upon the facts of each case. In a particular case there may be a deposit or advance by one or few of the customers. In a particular there may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 37(B) should be to the classification of excisable goods or with reference to levy of duties of excise on such goods. In other words, it is argued that the words "all such goods" are relatable only to the classification of excisable goods. If the argument of the revenue with regard to the scope of Section 37(B) is accepted, it will only mean that the second respondent can give any direction to any of the statutory authorities and direct them to impose duty in a particular manner. I am clearly of the opinion that could not have been the intention of the legislature. The quasi-judicial authorities are certainly supposed to apply the charging provisions to the facts of a case and find out whether the goods are assessable and if so what would be the assessable value. Certainly Section 37(B) does not enable the second respondent to give a direction that in respect of advances/deposits, notional interest is definitely chargeable and includible in the assessable value in all cases, notwithstanding the fact whether the same had an effect on the price, directly or indirectly or did not have such an effect. In support of this contention the decision in Rajagopal Naidu v. The State Transport ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... comprising of Justice Nanavati and Justice Vaidya, it was held that a trade notice though not binding on the quasi-judicial authority shall not be overlooked by him. They have gone to the extent of saying that the trade notice should be followed provided it is not contrary to the statutory provisions. Therefore, the only conclusion we can arrive at is that a circular under Section 37(B) cannot interfere with the powers of a quasi-judicial authority in so far as the quasi-judicial authority applies the statutory provisions, the clarification issued under Section 37(B) cannot bind the quasi-judicial authority hand and foot so that the quasi-judicial authority merely obeys the circular and passes a particular order. In this view of the matter, I am clearly of the opinion that the impugned circulars and trade notice have gone beyond the limited scope of Section 37(B) and have attempted to bind the quasi-judicial authorities with a general direction that notional interest in all cases of security deposits/advances shall be included in the assessable value of the goods. I am therefore of the opinion that the impugned government memorandum and the Trade Notice are invalid and liable to b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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