TMI Blog1998 (1) TMI 73X X X X Extracts X X X X X X X X Extracts X X X X ..... dgment per : B.N. Kirpal, J.]. - These appeals involve for decision the question whether notional interest on the interest free security deposit received should be considered for the purpose of arriving at the assessable value under the Excise Act by including interest at the rate of 12% per cent per annum on such security deposits. 2.VST Industries Ltd. (appellant in C.A. No. 2524/92) is a company carrying on business of manufacture and sale of cigarettes which was assessable to duty under the erstwhile Item No. 4 of the First Schedule to the Central Excises and Salt Act, 1944. The other two appellants, namely, Venus Tobacco Company Pvt. Ltd. (appellant in C.A. No. 2523/92) and Hyderabad Deccan Cigarette Factory Ltd. (appellant in C.A. No. 2611/92) are also cigarette manufacturers and use their plant and machinery to manufacture cigarettes for and on behalf of VST Industries Ltd. (hereinafter referred to as "VST"). The question involved in these appeals, therefore, relates to the fixation of the assessable value of the cigarettes manufactured and sold under the brand name owned by VST. 3.The undisputed facts are that the cigarettes manufactured by the appellants are sold in wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hout payment of interest would influence the sale price of it's cigarettes to these main dealers. It was accordingly proposed to work out a notional interest at the rate of 12 per cent on the sums of security deposits received by VST from the main dealers and to add this to the sale price of the cigarettes so as to re-determine the assessable value as well as differential duty payable for the cigarettes cleared by the company during the above period. This was proposed on the ground that the sale price of the cigarettes by VST dealers did not constitute the normal price under Section 4 of the Central Excises and Salt Act and in such a situation where an additional money consideration has been there between the parties concerned, the normal price had to be determined only under Rule 5 of the Valuation Rules, 1975. The said show cause notice also referred to the receipt of the freight service charges by the appellants, but in these appeals we are not concerned with that question. 5.Reply was sent to the said show cause notice refuting the claim of the excise authorities. VST while denying its liability paid the demand of Rs. 2,23,10,405.79 under protest. The other two appellants, na ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rom those who have not given the deposit and/or where the advance is purely a security deposit and the interest earned by such deposit is credited to the buyer the notional interest on such advance cannot be added to the price." 9.Refuting the aforesaid submission Shri N.K. Bajpai, learned Counsel for the respondent, submitted that the appellants gained considerable pecunlary advantage by having received interest free security deposit. The receipt of this deposit must be taken into account in determining the assessable value. He contended that Rule 5 of the Central Excise is applicable because price was not the sole consideration and the value of such goods has to be based on the aggregate of the price and the amount of notional interest on the security deposit received by the appellants. In support of his submission strong reliance was placed on the decision of this Court in the case of Metal Box India Ltd. v. Collector of Central Excise, Madras [ 1995 (75) E.L.T. 449 (SC) = (1995) 2 SCC 90]. 10.Before referring to the decision in Metal Box's case it will be appropriate to refer to other decisions which are relevant on the point in issue which are Collector of Central Excise v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yers then different prices may be charged. If gases had been sold to different classes of buyers at different rates, it is possible that there might be different markets for the same. But here the charges like rentals for the cylinders and the notional interest income, are for ancillary or allied services and that is not an activity of manufacture. Hence Section 4(1)(a) proviso can be of no avail to the revenue." [emphasis added] 11.In Madras Rubber Factory case (supra) this Court analysed Section 4 and observed as under : "It is obvious that the value of excisable goods for the purpose of sub-section (1) of Section 4 is ordinarily determined with reference to the normal price at which such goods are sold, i.e. under Clause (a) of sub-section (1) of Section 4. Only where the goods are not sold and, therefore, the price of such goods is not ascertainable or in a situation where the normal price of such goods is not ascertainable for some other reason that Clause (b) is attracted, whereunder the nearest ascertainable equivalent price is ascertained in accordance with the rules framed in that behalf. Clause (b) is in the nature of a residuary clause which should be resorted to whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was given to the dealers who had given a deposit then it may have been possible to say that there were two different markets and two different prices and that lesser price was being charged for an extraneous consideration and, in such a case the notional or actual interest could be added. But that is not the case here. Metal Box case (supra) was the one where two different prices were being charged. In Metal Box case the assessee was manufacturing goods which were offered for sale to M/s. Ponds India Ltd., a wholesale buyer, who required bulk of the containers manufactured by the assessee for marketing its cosmetic products. In order to ensure a steady and regular supply Ponds India Ltd. gave large advances and an agreement had been entered into between the parties as a result whereof discounts were given by the assessee to Ponds India Ltd. which were to be deducted from the gross price. This deduction was not allowed by the excise authorities and the Tribunal. It was contended on behalf of the assessee in this Court that the Tribunal erred in restoring the loading of purchase price by the ad hoc interest on advances made by Ponds India Ltd. to the assessee. While rejecting this c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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