ORDER
Lajja Ram, Member (T)
1. M/s. Mahavir Aluminium Ltd., Bhiwadi (hereinafter referred to as the ‘appellant’ or the ‘party’), engaged in the manufacture of aluminium products, falling under Chapter 76 of the Schedule to the Central Excise Tariff Act, 1985 (hereinafter referred to as the ‘Tariff’), had collected the amounts from their dealers/customers as interest free trade deposits/unsecured loans/advances. No interest was paid on these deposits etc.
2. Under Show Cause Notice No. V(76)17/101/87/Part III, dated 26-7-1988, read with corrigendum dated 8-8-1988, the appellants were asked to show cause by the Assistant Collector, Central Excise, Jaipur as to why the amounts of interest of 18% per annum on the interest free amounts collected by them as deposits/advances against supplies, from their customers, and the interest free amounts of trade deposits from their dealers, for the period March 1988 to June 1988, should not be included in their assessable value.
3. The party was filing price lists in Form Part I for sale to dealers/customers, and in form Part-II for sale to industrial consumers.
4. The Assistant Collector, Central Excise, Jaipur, vide his Order-in-Original No.V(76)17/101/87/Part III, dated 13-2-1989 observed that the assessee was ordinarily selling its goods through the dealers who have provided interest free deposits. In his view, it was a truism to say that no body in the commerce and industry gives interest free loans unless he expects to be benefited by grant of such loans, directly or indirectly. He thought that the seller has very much benefited by such interest free deposits, and that those deposits were the indirect consideration of sale in the hands of the seller. The assessee was having interest free deposits of Rs. 31,45,000/- as on 31-12-1987. The annual interest on these deposits @ 18% worked out to Rs. 5,66,100/-. The Assistant Collector, Central Excise, Jaipur came to a finding that this amount had to be added to the assessable value as the same was a consideration for the sale of the goods. During the calendar year 1987 the assessee had sold goods worth Rs. 11,04,03,836/- to dealers for whom price lists had been filed in Part-I. Accordingly, he ordered the approval of the price lists filed in Part-I, from 30-3-1988 onwards, after addition of 0.51% in the assessable value on account of notional interest earned by the assessee on interest free deposits received from the dealers.
5. The Collector of Central Excise (Appeals), New Delhi, vide Order-in-Appeal No. 34-C.E./JPR/90, dated 30-3-1990, observed that the appellants have obtained advances/deposits from the dealers/customers without paying them any interest that has accrued thereon. He came to a finding that additional consideration existed for the appellant in respect of the sales made to such dealers/customers, who have made advance deposits without getting any interest. The value of such consideration was apparently the amount of interest that has accrued on such deposits. He distinguished the facts from the case of M/s. Indian Oxygen, 1988 (36) E.L.T. 730 (SC), and observed that the dispute in that case before the Hon’ble Supreme Court was about deposits for containers and not for excisable commodity.
6. In appeal, the appellant made the following points:-
(1) Amongst dealers there were a number of those who have furnished security deposits; but there were also dealers who did not make any such deposits; yet the goods of like kind and quality were sold to all the dealers at the same price;
(2) The security deposits were by way of security against goods supplied so that in the event of refusal to receive the goods sold, the appellant company’s interest were not jeopardised.
(3) There was no evidence whatsoever on record to show that the customers who had not made the deposits were their favoured buyers.
(4) The interest on the deposits had no nexus with the prices of the goods sold to the dealers. The fact that the price to the dealers who made deposits and the dealers who did not make deposits was the same showed that the notional interest allegedly earned was not a consideration for sale.
7. For the period 1-4-1989 to 31-7-1989 another demand Show Cause Notice No. C.E. 20/PL/MAL/Part-II/88, dated 3-11-1989, was issued by the Superintendent, Central Excise, Bhiwadi. It was observed that the deposits with the assessee which were Rs. 3145000 as on 31-12-1987 increased to Rs. 7630000/- as on 31-3-1989. The value of clearances under price lists in Part-I were Rs. 136537136.03 during the financial year 1988-89. Applying the criteria earlier fixed by the Assistant Collector, Central Excise, Jaipur in the Order-in-Original No. 7/89 Valuation, dated 13-2-1989, the interest @ 18% per annum on the deposit came to Rs. 13,73,400/-, and apportioning it on the value of clearances of Rs. 13,67,37,136.03 during the financial year 1988-89, the element of notional interest to be added to assessable value of the goods supplied under the price lists filed in Part-I came out to 1.00588%.
8. It was, thus, observed that the assessee was required to add 1.00588% in the assessable value of the clearances effected from 1-4-1989 onwards whereas they had only added 0.51%.
9. The differential duty of Rs. 69260.55 was accordingly demanded under Section 11A of the Central Excises and Salt Act, 1944 (hereinafter referred to as the ‘Act’).
10. On similar grounds, Show Cause Notices were issued for the period 1-8-89 to 30-9-1989 (No. C.E. – 20/PL/MAL/Part-II/88, dated 28-2-1990 for differential duty of Rs. 41870.84, with notional interest of 0.75% for August, 1989, and 1.286% for September, 1989), for the period 1-10-89 to 31-12-89 [No. C.E. – 20/PL/MAL/Part-II/88, dated 13-4-1990 for differential duty of Rs. 45736.07 with notional interest of 0.79% for October 1989, 1.06% for November, 1989 and 1.045% for December, 1989], and for the period 1-1-1990 to 30-4-1990 (No. C.E. – 20/PL/MAL/Part-II/88, dated 24-7-1990 for differential duty of Rs. 84095.02, with notional interest of 1.226% for January, 1990, 1.133% for Feb., 1990, 1.114% for March 1990 and 1.171% for April 1990.
11. During all this period, the assessee had added 0.51% in the assessable value towards interest, and the differential duty as above was demanded.
12. By his Consolidated Order-in-Original No. 265/90 (Demand) C.No. V(76) 21/Demand/90, dated 13-8-1991, the Assistant Collector, Central Excise, Jaipur confirmed the above demands against the party.
13. The Collector of Central Excise (Appeals), New Delhi did not find merits in the appellant’s contention, and vide Order-in-Appeal No. 367 to 369-CE/Appeal/JPR/91, dated 12-8-1991 upheld the adjudication Order of the Assistant Collector, and rejected the appeal.
14. In appeal, the following points were made:-
(1) The smaller buyers who outnumbered the large buyers did not have to make deposits. The goods manufactured by the appellants were sold to large buyers as well as smaller buyers on the same terms of sale. The deposits were for the sake of securing early payment of the goods in large quantities so that in the event of payment getting delayed, the loss of interest is made good from notional interest on the deposits;
(2) The excisable goods were sold for the value declared to the Department as established from the documents of sales. Normal price of the goods was ascertainable and, therefore, there was no reason to invoke the provisions of Section 4(1)(b) of the Act.
15. Both the appeals were heard together on 2-3-1993 when Shri Gopal Prasad, Consultant appeared for the appellant. Smt. C.G. Lal, SDR represented the respondent.
16. Shri Gopal Prasad, the learned Consultant referred that the Order passed in appeal No. 3284 is based on the order passed in appeal No. 2218. The matter related to the notional interest on security deposits received from some buyers. The question is whether the same was includible in assessable values. They had submitted price lists in Part-I. Along with the price lists they had submitted that they were taking interest free deposits/security from some of their customers. They were selling the goods on credit.
17. He added that there was no evidence of depression of sale prices. Sale prices were uniform. Department has taken a view that the buyers who have not made any deposits were favoured buyers and in their case the price could only be considered as concessional. He submitted that the facts and circumstances of the case do not support this view.
18. As regards appeal No. 3284 he submitted that the facts were the same as in appeal No. 2218, but the period was different. The arguments and submissions made by them were common to both the appeals.
19. In support of his arguments, he relied upon the following decisions:-
(1) 1990 (46) E.L.T. 462 (Tribunal);
(2) 1992 (57) E.L.T. 211 (Mad.);
(3) 1992 (62) E.L.T. 422 (Tribunal);
20. Smt. C.G. Lal, learned SDR submitted that the Tribunal’s decision in the case of Lily Foam was not applicable to the facts of this case. She relied upon the following decisions:-
(1) 1988 (36) E.L.T. 629 (Tribunal);
(2) 1989 (39) E.L.T. 79 (Tribunal);
(3) 1989 (44) E.L.T. 630 (Bom.);
(4) 1991 (52) E.L.T. 59 (Tribunal).
21. In reply, Shri Gopal Prasad, the learned Consultant submitted that the citations relied upon by the learned SDR were not applicable to the facts of this case, and that various citations on the subject have been taken care of in the Madras High Court decision appearing at 1992 (57) E.L.T. 211 (Mad.).
22. We have carefully gone through the facts and circumstances of the case and have given our careful consideration to the arguments advanced on both the sides.
23. In the questionnaires enclosed by the appellant with their price lists bearing Nos. 30/88 to 80/88 submitted for the period from March 1988 to June 1988 they had disclosed the fact of collecting trade deposits against dealership, and advance deposits against orders/supplies.
24. In reply to the Show Cause Notice, dated 26-7-1988, the appellant had contended that they have not given any price concession to the dealers who had made the deposits and that the sales had taken place to all the dealers – who had made the deposits, and those who had not made any deposits – at one and the same price. Thus, they submitted that the deposits made by some of the dealers had in no manner influenced the real value of the products in question.
25. In the case of advance deposits it was submitted that the contracted price was the basis for assessable value, and the advance payments against the orders booked for the products could not be said to influence or alter the price of the goods ordered out by the dealers.
26. During the course of personal hearing on 16-8-1988 it was informed that there were dealers who have not made any deposits and yet the price to them as well as the price to those who had made deposits, was the same. Advances were normally for a period of 10 to 15 days. Only for new products with different sizes, shapes and tolerances, advance for a period of more than 20 days and upto 45 days was taken. Such advances were interest free and were adjusted in the price.
27. The Assistant Collector, Central Excise, Jaipur who adjudicated the case had not disputed that the sale price for the dealers who had not made any deposits was the same as for the dealers who made the deposits. He, however, observed that the sale of small percentage to dealers who had not made the deposits at the same rates was by way of extra concession to such dealers.
28. The party had explained that the security deposit was obtained by way of security against the goods supplied so that in the event of refusal to receive the goods the appellants company’s interests are not jeopardised, and that they were interest free and refundable. They have submitted that these deposits had no nexus with the price of the goods sold.
29. In the facts and circumstances of the case, there is no evidence that the interest free security deposits/advance payments made by the dealers have led to a depression in the sale price of the excisable goods. There were dealers who had not made any deposits; still the price charged from them was the same as charged from the dealers who had made the deposits.
30. In the case – Lakshmi Machine Works Ltd. v. Union of India, 1992 (57) E.L.T. 211 (Madras), the Madras High Court have observed that there should be nexus between the additional consideration and the sale price of the excisable goods, and that additional consideration may not influence the sale price in certain cases, and in certain cases it may influence the sale price.
31. They observed in para 9 of their order that “One has to see in each case whether the deposits/advance received by the assessee goes to the depression of the sale price.”
32. In their opinion “this factual assessment has to be made by the quasi-judicial authorities prescribed under this Act; it cannot be laid down as a uniform and inflexible rule that notional interest payable on advances/deposits made by the customers can or cannot be included in the assessable value of the goods.”
33. They added that “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.”
34. While holding as above the Madras High Court had referred to the orders of this Tribunal in Collector of Central Excise, Hyderabad v. V.S.T. Industries, Hyderabad 1991 (52) E.L.T. 59 (Tribunal); Collector of Central Excise v. Indian Oxygen, 1989 (41) E.L.T. 610; Lily Foam Industries Pvt. Ltd. v. Collector of Central Excise, 1990 (46) E.L.T. 462; and Kerala Electric Lamp Works Ltd. v. Collector of Central Excise, Cochin, 1988 (33) E.L.T. 771.
35. As we have discussed above in the case before us, there is no evidence, and there is no finding that the deposits/advance have depressed the sale price. There was neither any allegation in the Show Cause Notice nor there is any finding to this effect in the Order-in-Original or Order-in-Appeal.
36. The fact that majority of the sales were to the dealers who had made the deposits, in no way leads to the assumption that the declared price was not the normal price, and was influenced by the non-payment of notional interest on such deposits by the manufacturer to the dealers, customers etc.
37. As emphasised before the Hon’ble Supreme Court in the case – Hindustan Polymers v. Collector of Central Excise, 1989 (43) E.L.T. 165 (SC) – “Percentages of sales do not in any manner affect determination of the assessable value of the excisable goods.”
38. There is nothing on record to show that the sales to dealers who had not made any deposits were not genuine, or that the price charged from them was not the real price. There is no evidence to show that such dealers were favoured buyers or the sales to them were only to create any evidence.
39. In the case – Collector of Central Excise v. Indian Oxygen Ltd., 1988 (36) E.L.T. 730 (SC), the respondents were manufacturers of gases which were supplied in cylinders. From the consumers who used to have the delivery in the cylinders supplied by the respondents, certain rentals were charged by the respondents. The activity of supply of gas cylinders was ancillary to the supply of gases.
40. The Hon’ble Supreme Court observed that any income either in the shape of interest on deposits, notional or real, may be earned on the deposit for the safe return of cylinders or any rental would be though ancillary, but would not be the price for the manufacture.
41. They added that charges like rentals for the cylinders and the notional interest income were for ancillary or allied services and that was not an activity of manufacture.
42. The Hon’ble Supreme Court had distinguished the ancillary or incidental “activity of manufacture” from the ancillary or incidental activity of the supply of the goods.
43. The Honourable Supreme Court held that “the interest, notional or real, accruing on deposits for the safe return of cylinders as well as the rentals would not constitute part of the assessable value.”
44. No evidence has been brought forth before us that when payments by the customers are delayed any interest is charged by the party from such customers. It is also not the case of the respondents that the purpose of the deposits was not security but collection of capital as in the case of Collector of Central Excise v. VST Industries, 1991 (52) E.L.T. 59 (Tribunal).
45. In the case – Collector of Central Excise v. VST Industries, 1991 (52) E.L.T. 59 (Tribunal), the Tribunal observed in para 16 that “the interest charges constituted an item which went into the wholesale value of the cigarettes and therefore, the exact value of the cigarettes itself was not correctly calculated when these were not taken into account.”
46. They held that “the extra accrual should be added to the wholesale price, and the assessable value worked back after allowing admissible deductions.”
47. In their view, extra accruals by way of notional interest on the deposits received by the VST Industries were to be added to the wholesale price and not to the assessable value. They observed that “addition of such extra accruals to the assessable value would distort the meaning of the Section because there is no way in which abatement of excise duty which is permitted by Section 4 can be given if the extra accrual is directly added to be assessable value.”
48. As no evidence has been placed before us that when payments are delayed interest is charged by the appellants from the defaulting customers or that the deposits were taken to get the working capital requirements and that the purpose of the deposits was not security but collection of capital, the decision in this case does not appear to be applicable to the facts before us.
49. The appellants have relied upon the Tribunal’s decision in the case – Lili Foam Industries Pvt. Ltd. v. Collector of Central Excise, 1990 (46) E.L.T. 462 (Tribunal), in support of their plea that the interest element was not includible to the prices for arriving at the assessable value. In that case, some of the customers had given deposits/advances, and it was alleged that the interest not paid on those deposits/advances was an element of the price and the assessable value. It was not disputed that the prices charged by the appellants to all the dealers were uniform whether or not the appellants received advances from a dealer or not.
50. The Tribunal in that case held that there was no case for increasing the assessable value in respect of the sale of polyurethene foam to the three dealers from whom the appellants had received advances.
51. In para 19 of their order, the Tribunal observed as under:-
“It is well settled law that where the goods are sold by an assessee, in the course of wholesale trade at a price where the price is the sole consideration and the buyer and seller are not related persons that such prices would become the normal price for the purposes of Section 4 of the Act. Admittedly, a substantial portion of the polyurethene foam namely about 46% was sold to dealers who have never given any advance to the appellants. There is no price difference between the dealers from whom advances were taken and others. Under these circumstances, we hold that there is no case for invoking the provisions of Rule 5 of the Valuation Rules to include the interest element to the prices for arriving at the assessable value. Even if the 3 dealers happen to be related, which position would be the worst that can be assumed against the appellants, the price charged to others, admittedly, unrelated buyers, would still form the basis for assessment in respect of the sales made to the assumed related persons also, according to settled law. The advances seem to have been taken from the 3 dealers only to ensure speedy deliveries, but not for a special price.”
52. In the case – Kerala Electric Lamp Works Ltd. v. Collector of Central Excise, 1988 (33) E.L.T. 771 (Tribunal), as per agreement between the appellants and their customers M/s. Crompton Greaves Ltd., M/s. Crompton Greaves Ltd. kept Rs. 15 lakhs with the assessee as a security deposit. This deposit was not a free gift or interest free loan to the assessee. The assessee had to pay a heavy interest for it to M/s. Crompton Greaves – 3% to 5% more than the normal Bank interest rate.
53. The Tribunal held that this security deposit did not amount to extra consideration accruing to the assessee.
54. In the case – Britannia Industries Ltd. v. Union of India, 1989 (44) E.L.T. 630 (Bom.), the matter related to the deductions of the interest paid on distributor’s advances, from the assessable values. Payments of interest were made for use of money borrowed, lent or advanced. The Bombay High Court observed that they saw no reason why the said interest payments upon deposits received by the petitioner company were to be deducted in assessing the wholesale price under Section 4 of the Act merely because the persons who made the said deposits of money happened to be wholesale buyers of the petitioner’s product. The Bombay High Court held that “the petitioner company’s claim for deduction on account of interest payments upon the deposits by its wholesale distributors ought to fail.”
55. The assessee did not adduce evidence to show that the said advances were not at all utilised as capital.
56. In the case before us no interest has been paid by the appellants to their dealers and nothing on this account had been added in the wholesale price/assessable value. In the circumstances, there was no question of any addition or deduction.
57. Thus, the facts before the Tribunal in the case – Kerala Electric Lamp Works Ltd. and before the Bombay High Court in the case – Britannia Industries Ltd. were different from the facts before us, and the observations made therein are not relevant for the purpose of disposal of this matter.
58. In the case, Ramdas Motor Transport Company v. Collector of Central Excise, 1988 (36) E.L.T. 629 (Tribunal) there were no uniform prices. From the factory of the appellants, all the goods were removed to their sales depots, and further disposal of the goods took place only from those sales depots. Their authorised dealers were given 36.5% discount over the list prices on the purchases made by them, while other buyers (consumers/dealers) were given a varying discount of 25%, or if so instructed by the concerned authorised dealer who procured the orders from such buyers, of more than 25%. The difference between the discount of 36.5% and lesser discount actually granted to a buyer, was passed on by the appellants to the concerned authorised dealers as commission.
59. The appellants took interest free deposit of Rs. 5 lakhs from their authorised dealers, which represented the substantial monetary benefits to the appellants over and above the purchase price for the goods.
60. The Tribunal held that the interest free deposits taken from one or more authorised dealer or dealers constituted additional consideration for the sale of their goods which flowed back to the appellants.
61. As the facts before us are different, the above observations are not relevant for the purpose of disposal of the case before us.
62. In the case – Collector of Central Excise v. Metal Box India Ltd., 1989 (39) E.L.T. 79 (Tribunal) there were disparities between the sale price adopted for M/s. Ponds (India) Ltd., and the price adopted for the other buyers. M/s. Ponds (India) Ltd. were given special and favoured treatment by way of deductions in the form of discount/rebate from the wholesale price while other buyers were not uniformly given such discounts/rebate in the normal course of their wholesale trade.
63. As per agreement an amount of Rs. 375 lakhs was advanced free of interest by M/s. Ponds (India) Ltd., to M/s. Metal Box India Ltd., to be used for specific purpose of covering raw and ancillary materials and keep them in stock sufficient to meet minimum 3 or 4 months requirements of the buyers namely M/s. Ponds (India) Ltd.
64. The Tribunal observed that M/s. Ponds (India) Ltd. provided the capital free of interest by way of huge advance which are not conceivable in the normal trade. These advances were not in the nature of security deposits.
65. They added that in consideration of that, a reduction had definitely been shown in the sale price to M/s. Ponds (India) Ltd. Consequently, the extent of such reduction could reasonably and justifiably be attributed to the interest amount payable on the advance, which had the appellants M/s. Metal Box India Ltd. obtained from any other source with interest bearing loan, such interests elements would have been loaded on to the cost of manufacturer’s sale price to the metal containers, naturally increasing the price debited towards M/s. Ponds (I) Ltd.
66. The Tribunal held that the interest accruing on the advances be added to the price while arriving at the assessable value.
67. Thus, the facts before the Tribunal in the case – Collector of Central Excise v. Metal Box India Ltd. are clearly distinguishable from the facts before us in the present case.
68. In the case – Transformers and Electricals Kerala Ltd. v. Collector of Central Excise, 1992 (62) E.L.T. 422 (Tribunal) also the facts were different. In view of the urgency of the purchasers in taking the delivery of the transformers, the purchasers made advance payments on various stages of production, towards the price originally fixed. No interest was paid by the appellants to the purchasers on such part payments. However, the appellants had to give bank guarantee for 40% of the advance of the payment released to him and to that extent the capital belonging to the appellants was locked up. Further, it was stipulated in the purchase orders that if there was delay in delivery of the goods, price would be reduced.
69. While remanding the matter to the Assistant Collector Central Excise to examine whether the advance paid by the purchasers and the bank guarantee executed by the manufacturer had any nexus with the sale price determined under the purchase order, the Tribunal observed that “If it has a nexus and reduced the sale price, he may add the interest as additional consideration to the sale price under rule 5 of the rules (Central Excise Valuation Rules, 1975), otherwise assessable value shall be on the basis of the sale price.”
70. A careful study of the various decisions discussed above leads to the conclusion that every deposit/advance by the customers may not amount to be an “additional consideration” as to vitiate the “sole consideration”, character of the price. In each case the facts and circumstances have to be properly analysed, the nature and the purpose of the deposit/advance have to be gone into, keeping in view the total cost, special features and special nature of the goods transacted for manufacture. It has to be studied whether such deposits/advances are normal to the buyer/seller in that particular trade and as to what extent and in what manner they have affected the price/prices. In no case, when such amounts represented the transfer of funds for “activity of manufacture” (Indian Oxygen case supra) and/or those who deposited/advanced the amounts are in the nature of “carved out buyers”, the notional or real interest payable or paid in respect of such deposits/advances could be deducted from the normal price to arrive at the assessable value.
71. In the present case, no nexus has been established between security/advance deposits, and the ultimate price of the goods. The interest element did not influence the price of the goods. In the circumstances, these deposits/advances could not be considered as an “additional consideration”, for the purposes of Section 4 of the Act.
72. Accordingly, we allow both the appeals, and set aside the Order-in-Appeals and order accordingly, with consequential relief to the appellant, keeping in view the provisions of Section 11B of the Act as amended.