Circular No. 404/37/98-CX
dated 22/6/1998
F.No. 6/10/98-CX.1
Government of India
Ministry of Finance
Department of Revenue
(Central Board of Excise
& Customs), New Delhi
Subject:
Central Excise- Valuation - Liability of duty on notional interest
on advance deposits taken
by manufacturers - regarding.
The issue regarding inclusion of notional interest on advance deposits
in the assessable value of excisable goods has been re-examined by the
Board in view of several references received from the field formations
and the trade seeking clarifications.
2. In this
connection, Board reiterates the Law Ministry's opinion dated 28.9.84 as
circulared under F.No. 2/2/86-CX.I dated 20.10.86 holding that:
"It will be for the Department
to establish that such additional consideration has nexus with the sale
price of the excisable goods. The Department should also be in a position
to determine the amount of the money value of such additional consideration.
If there is no such nexus or if the Department is not in a position to
determine the money value of the additional consideration, the provisions
of Rule 5 of the Central Excise (Valuation) Rules, 1975 would not be applicable."
3. Supreme
Court pronounced its judgement on 10.1.95 in case of Metal Box India Ltd.
vs. CCE, madras [1995 (75) ELT 449 (SC)] and held that has Ponds (I) Ltd.
not given the advance; the appellants would have been required to borrow
this amount from outside like banks and would have required to pay large
amounts of interest which naturally would have got reflected in the purchase
price to be charged from the buyers as it would form a part of the cost
of production which would be passed on to the Customers. To that separate
price charged from Ponds (I) Ltd. the extent of benefit obtained by
the assessee on interest-free loan was required to be reloaded by hiking
the price charged from Ponds to that extent. The Division Bench of Madras
High Court, in the judgement delivered on 6.3.95 in case of UOI vs. Lakshmi
Machine Works Ltd. [1995 (77) ELT 799 (Mad)], observed that it is necessary
to point out the extent of benefit obtained by the assessee on the interest-
free loan and to the extent only, the price has to be reloaded for the
purpose of determining the assessable value.
4. When
the matter was again consulted with Law Ministry in view of the above two
judgements, the Law Ministry, on 19.4.96, reiterated the views already
expressed by them under their earlier note dated 28.9.84.
5. Now
the Supreme Court has delivered another judgement on 8.1.98 in case of
M/s VST Industries Ltd. vs. CCE Hyderabad [1998 (97) ELT 395 (SC)] holding
inter alis:
"There is nothing on record
to show that the receipt of the deposit from some of the dealers could
possibly influence the fixation of the sale price even with regard
to those sales which are made at the factory gate against cash and not
on credit. Had there been a difference in the selling price where
for example special discount was given to the dealer who had given a deposit
that 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 ...... There is nothing to show that there
was any special consideration which was shown to the dealers who has
given the security deposit. Nor has it been shown by reference to any
documents or data that because of the receipt of such deposit the price
charged from all the buyers was reduced..... There was no justification
for disregarding the uniform wholesale price which was being charged from
all the dealers and adding the element of notional interest of the security
deposit to the said price". (emphasis added)
6. Taking
into consideration Law Ministry's opinion and both the above said judgements
of Supreme Court, Board clarifies that:
(i) The
notional interest on advances deposited by the wholesale buyers would be
included for the
purpose of determination 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 advance deposits is credited to the
buyer calculated at a
rate lower than the normal bank rate, the difference in both interest rates
should be equivalent
to the extent of benefit derived by the manufacturer. The money value of
the extent of
benefit should be quantified and added for the purpose of determination
of the assessable
value.
7. This supersedes
the Board's Circular No. 215/49/96 (F.No. 6/1/91-CX.1) dated 27.5.96.
Sd/-
(Sanghamitra
Panda)
Director (CX.1)