ORDER
U.L. Bhat, J. (President)
1. These appeals are directed against the common Order-in-Original Nos. 34 to 43/97, dated 19-2-1997 passed by the Commissioner of Central Excise, Indore holding that notional interest at 18% on advances collected from buyers of many of the machinery parts manufactured and cleared by the appellant should be included in the assessable value and confirming the demand on that basis.
2. The undisputed facts are that appellant was manufacturing machinery parts, tailor made to suit the requirement of each buyer and was receiving advance amount from most of the buyers. The amounts of advance ranged from Rs. 36,000/- to Rs. 29.29 lakhs. The amounts of advance ranged from 10% to 35% of the amounts of the contract. The period during which the advance remained in the hands of the appellant varied from 23 days to 1148 days. One of the cases involving a fairly substantial amount of advance was the contract for supply of machinery parts at the price of Rs. 83 lakhs. On this contract, appellant received an advance amount of Rs. 29.29 lakhs.
3. Show cause notice alleged that the appellant did not pay any interest on the amounts of advances and if the interest-free advance amounts were not available appellant’s prices would have gone higher than the contract prices since, if loans had been taken from finance institution, appellant would have to pay interest which would ordinarily be loaded on the price and the interest accrued on the advance amount was an extra-consideration. There is no dispute that the advance amounts were used as working capital by the appellant.
4. On the above facts, the lower authorities came to the conclusion that the receipt of advance amounts was reflected in the price and therefore, notional interest from the amount of advance should be added to the assessable value. This conclusion is challenged by the appellant relying on the decisions of the Tribunal in National Controls India 1998 (25) RLT 343 and Flex Industries 1997 (91) E.L.T. 120 (Tribunal) and Metal Box India Ltd. 1995 (75) E.L.T. 459 (S.C). These decisions indicate that receipt of the interest free advance amount would not by itself be a ground for including interest in the assessable value and the question of nexus between the advance received and the price agreed upon would be relevant. In Metal Box India Ltd. the Supreme Court indicated that 45% discount was given to the favoured buyer who paid a huge amount as interest free advance. These facts considered by the Supreme Court clearly indicated nexus between the receipt of advance and the discount given to the buyer and the price contracted with the buyer. The two decisions of the Tribunal referred to also indicate the requirement of nexus between the receipt of advance and the price fixed.
5. As against the above decisions Shri K. Srivastava, SDR placed reliance on the decision in Resistance Alloys (India) Ltd. 1995 (77) E.L.T. 721 (Tribunal) where it was held that the appellant had collected deposits and advances from all customers without any exception and no deposit had been returned during the period in question though advances received from dealers had been returned subsequent to the period. In the light of the fact-situation in that case, the Bench took the view that there was some force in the contention of the department that there was nexus between the goods supplied and the advances received as there was no activity other than the manufacturing activity carried out by the appellant. The aspect of nexus between the price and the receipt of the advance was not adverted to in the decision in the manner contemplated in the Metal Box decision of the Supreme Court.
5. The goods manufactured by the appellant were tailor-made goods. Machine parts ordered by a particular buyer in the event of his failure to pay the price and accept the goods, cannot be passed on to other prospective buyer. In order to cover the risk of a particular buyer failing to take delivery of the goods, the manufacturer, as a matter of trade practice, may insist on receipt of an advance amount from the buyers. In such circumstances, without anything more, it cannot be inferred that the receipt of the advance depressed the price to any extent. In the case of goods which are available on the shelf, it would be easy to verify whether there was nexus by comparing the prices charged by the particular manufacturer to buyers who did not pay any advance amount or the prices charged by other manufacturers for identical goods. As pointed out by Shri K. Srivastava, SDR, such a comparison is not possible in a case like the present one where the goods are tailor-made goods. The fact that it would be more difficult in the case of tailor-made goods to establish a nexus, will not relieve the department of the responsibility of establishing nexus by some credible means or other.
6. The facts of the present case by themselves are not sufficient to establish such a nexus; that being so the Commissioner was in error in including in the assessable value notional interest on amount of advance.
7. We set aside the impugned order and allow the appeals.