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1998(1) Supreme 157
Supreme Court of India
(From Central Excise, Gold (Control) Appellate Tribunal, Delhi)
J.S. Verma, CJI., B.N. Kirpal, V.N. Khare, JJ.
VST Industries Ltd. -Appellant
versus
Collector of Central Excise, Hyderabad -Respondent
Civil Appeal No. 2524 of 1992
With
Civil Appeal Nos. 2523, 2611 of 1992
Decided on 8-1-1998
Counsel for the Parties :
For the Appellant, Anil B. Devan, Sr. Advocate,, S.R. Setia, Advocate.
For the Respondent, N.K. Bajpai, Pallav Shishodia,, V.K. Varma, Advocates.
reduction in price allowed-Excise duty can be charged only on uniform price paid by dealers without addition of notional interest.
Held : Excise duty, as has been held, is on the manufacture of goods at the price paid. The price paid in the present case is the same by all the dealers. There is nothing to show that there was any special consideration which was shown to the dealers who had 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. Merely because interest pre-deposit was reduced from some dealers cannot, by itself, lead to the conclusion arrived at by the excise authorities and the Tribunal. This also followed from the decisions in the Indian Oxygen and Madras Rubber Factory’s cases (supra). There was, thus, no justification for dis-regarding 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. (Para 13)
Further held : The additional Collector, in our opinion, was right in coming to the conclusion that Rule 5 of the Valuation Rules was not applicable in the present case as it was not shown that the price charged was not the sole consideration. When the appellants are not requiring all the dealers to give security deposit and it is only those who avail of credit facilities who are required to give the security deposit but get no discount or pay a reduced price, then in such a case excise duty can be charged only on the uniform price paid by the dealers without any addition of notional interest.
(Para 14)
Judgment
Kirpal, J.-These appeals involve for decision the question whether notional interest on the interest free security deposit received should be considered for the purpose of arriving at the assessable value under the Excise Act by including interest at the rate of 12% per cent per annum on such security deposits.
2. VST Industries Ltd. (appellant in CA No. 2524/92) is a company carrying on business of manufacture and sale of cigarettes which was assessable to duty under the erstwhile Item No. 4 of the First Schedule to the Central Excise and Salt Act, 1944. The other two appellants, namely, Venus Tobacco Company Pvt. Ltd. (appellant in CA No. 2523/92) and Hyderabad Deccan Cigarette Factory Ltd. (appellant in CA No. 2611/92) are also cigarette manufacturers and use their plant and machinery to manufacture citgarettes for and on behalf of VST Industries Ltd. (hereinafter referred to as “VST”). The question involved in these appeals, therefore, relates to the fixation of the assessable value of the cigarettes manufactured and sold under the brand name owned by VST.
3. The undisputed facts are that the cigarettes manufactured by the appellants are sold in wholesale, ex-factory, at cum-duty prices to main dealers who buy these cigarettes on a principal-to-principal basis. The main dealers in turn sell the cigarettes to other wholesale dealers called sub-dealers who in turn sell these cigarettes to the retallers. The cigarettes were being sold by the appellants either on cach-and-carry basis or by extending credit facilities to few of the main dealers. As the appellant company, namely, VST found that several of the main dealers were taking considerable time in making remittances for cigarettes which were delivered to them, they issued a circular dated 22nd September, 1981 whereby it introduced credit facility if interest free security deposits were made with the company. In the said circular it was written that “with a view to provide the facility of such credit to its customers and to safeguard itself against the commensurate risk and for introducing some uniformity the company now proposes that w.e.f. 1.10.1981 those of its main dealers as are desirous of getting credit facilities would have to keep security deposit (interest free) with the Company equivalent to about 21 days of their normal monthly purchases.
It is of course entirely upto the main dealers to request for this facility and they will be at full liberty to take delivery against payments if they do not want to make the security deposit.
The company reserves the right to apply the amount of security deposit towards payment of unpaid price or any other amounts which may be due to the buyer to the company or any account whatsoever. On discontinuation of trading with the buyer the company will return the security deposit or the balance if any remaining after the company has deducted/adjusted any amount due to the company by the buyer on any account whatsoever and this will be strictly without prejudice to and in addition to the company’s other right.
A copy of the revised conditions of sale for cigarettes effective from October 1, 1981 are annexed herewith.
In the event of your desiring to avail yourself of the credit facilities kindly send a letter as per the form enclosed for your convenience.”
4. A show cause notice dated 28th December, 1987 was issued from the office of the Collector of Central Excise to the appellants. In the said notice it was, inter alia, stated that the receipt of security deposits by VST from the main dealers and without payment of interest would influence the sale price of it’s cigarettes to these main dealers. It was accordingly proposed to work out a notional interest at the rate of 12 per cent on the sums of security deposits received by VST from the main dealers and to add this to the sale price of the cigarettes so as to re-determine the assessable value as well as differential duty payable for the cigarettes cleared by the company durin
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