ORDER
K.S. Venkataramani, Vice-President
1. The above mentioned appeals are directed against the captioned order of the Commissioner of Cen. Excise (Adjudication), Mumbai.
2. The appellants are manufacturing motor vehicles. Show cause notices were issued to them proposing to add interest earned on deposits received from customers for booking of the cars manufactured by them in the assessable value of the cars under Section 4 of the Central Excise Act, 1944. Three show cause notices were issued–first one dated 4.10.90 for the period 1.7.84 to 30.6.86 demanding duty of Rs. 29,80,888/-; second show cause notice dated 24.7.92 for the period 1.7.86 to 30.6.91 demanding duty of Rs. 6,24,19,000/-; the third show cause notice dated 13.10.93 in which Rs. 36,55,390/-was demanded as duty for the period 1.7.91 to 31.3.92. The Commissioner, after considering their defence observed that the department has not shown any nexus between the whole sale price and the interest earned on the advance so as to affect the price charged. But at the same time, the Commissioner held that the advances received conferred financial benefit to the appellant as a profit which would form part of manufacturing profit. Since the manufacturing profit has to be part of assessable value, the Commissioner held that the interest on deposit on this ground will be includable.
3. The Id. sr. counsel Shri J.J. Bhatt for the appellants, contended that apart from the fact that the ground as set out above was not put to the appellants in the show cause notice, the matter now stands well settled in favour of the appellants by series of judgments of Supreme Court, Madras High Court and Tribunal. The sr. counsel cited and relied upon the Supreme Court judgment in the case of VST Industries v. CCE. 1998 (97) ELT 395; there, the Supreme Court referred to their earlier decision in the case of Metal Box India Ltd. v. Collector and held that where the assessee has not offered any special discount or reduced price to buyers giving the advance deposits, the notional interest thereon cannot be included in the assessable value. The Tribunal has followed the Supreme Court decision in the case of Metal box India Ltd. (supra) in the Flex Industries Ltd. v. Commissioner of C.Ex. . This Bench also followed series of judgment to hold that notional interest on advance is not includable in the assessable value (Order No. 457/98/WZB dtd. 3.3.98 in the case of Vidyut Metalics Ltd. v. Commissioner of Cen. Excise. Mumbai. III.
4. Shri Gurnani, the Id. DR reiterated the reasonings in the impugned order.
5. On considering the rival submissions, the law now stands settled by various decisions of the Supreme Court. High Court and the Tribunal cited above by the Id.sr. counsel. The judicial pronouncements make it clear that the department has to show nexus between the advance received and the price charged to the customer and evidence must be led to indicate that there was a depression in the price charged because of the advance payment made by the customer. As held by the Tribunal following the Supreme Court decision in Flex Industries Ltd. that the department has to marshal evidence to show that a part of the price being received as advance and being retained for a short period had been or would have been taken into consideration in fixing the uniform price for all buyers, so as to establish that the advance paid, had, to any extent, depressed or otherwise affected the price charged. In the present case, it is significant that the Commissioner himself has given finding in para 10 of the impugned order as follows:–
In the subject case, I find that the department has not shown any nexus between the wholesale price and the interest earned on the advances/deposits inasmuch as it had not been able to prove that the price charged from the buyers who have given the deposits is less than the price charged from those who have not given the deposits/advances. Thus, I find that the department has not shown that the interest earned from the advances/deposits have influenced the wholesale price and the said interest is an additional consideration that has flown to the assessee, as such, it has not resulted in influencing the manufacturing cost.
6. The department has not shown that the price charged by the appellants is less to the buyers who have given the deposits than the price charged from those who have not given the deposits/ advances. The ratio of the judicial pronouncements referred to above when applied should lead to only one conclusion that the notional interest on such advances cannot be included in the assessable value. The argument of the Commissioner that form part of the manufacturing profit and therefore, be so included, does not find support in the precedent decisions cited supra. It is further found that a circular of the Central Board of Excise & Customs, which is also referred to in the Supreme Court decision in VST Industries Ltd. supra has also clarified that where the same price is charged from buyers who have given the deposit and from those who have not given the deposit and where the advance is purely a security deposit, interest earned by such deposit is credited to the buyer, the notional interest on such advance cannot be added to the price. In the light of the above discussions, we find substance in the appeals before us and accordingly hold that the notional interest on advances/deposits received by the appellants for the sale of cars manufactured by them is not an additional consideration under Rule 5 of the Central Excise (Valuation) Rules so as to be added to the assessable value of the cars under Section 4 of the CESA, 1944. Appeals are, therefore, allowed. The appellants will be entitled to consequential relief, as per law.
Pronounced in court.