Central Excise - Valuation - Notional Interest on Advances
WHETHER the notional interest on advances received by a manufacturer from his buyer, should be included in the assessable value of excisable goods, is an issue that crops up periodically as it did in the Supreme Court last week.
In Commissioner Vs ISPL Industries - , the Supreme Court observed,
It is clear that the mere fact of making an interest free advance by a buyer to the manufacturer, by itself will not be a sufficient ground to reload the assessable value with notional interest. It would be necessary for the revenue to show that such advance has influenced in the lowering of the price and that it is not depicting the normal price of the goods. There may be different reasons for taking advances, as indicated above in the earlier part of this judgment .
The case decided last week had a chequered history.
The Show Cause Notice was issued in 2002. The Adjudication order confirming the demand was passed in 2003 demanding the duty payable on the additional consideration received by the assessee from the customers in the form of notional interest accrued on advance payments.
In the Tribunal, the Member (Technical) came to hold that the revenue had not been able to discharge the onus by adducing cogent material evidence that the advances obtained from a buyer had really been instrumental in depression of the price. He further opined that there was no nexus of interest with the price and hence, the demand was not acceptable.
The Member (Judicial) opined that the the matter needs to be remanded to the Commissioner for fresh examination the entire aspect of the use of the advances, income generated from the said advances, their contribution of the pricing structure and their reflection in the Balance-sheet or the Annual Reports of the appellants, and the deployment of the funds so received by them.
As there was difference of opinion, the matter was referred to the third Member and the third Member, who was a Judicial Member concurred with the opinion expressed by the Member (Technical).
Revenue is in appeal before the Supreme Court, which last week sent the case back to the Tribunal for considering the amount of money paid by purchasers, the effect of the sales made in percentile terms and whether this had the effect of depressing the sale price. The onus would be on the revenue.
As a measure of Ease of doing business, can't the Government stipulate that such interest on advances will not form part of the assessable value?
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