I. J. Rao, Member (T)

1. These three appeals emanate from a common impugned order and have common facts and issues. These were heard together and are being disposed of by this common order.

2. The facts necessary for the disposal of the appeals are that the Respondents introduced a deposit scheme (during the years 1981, 1982, 1983). In the Revenue's appeal, among the facts, it is mentioned that in their reply to show cause notice the Respondents mentioned that the scheme was intended to get working capital requirements to be met by the company in a period of "shrinking net realisations" and that they (Respondents here) went on to say that the additional commercial consideration for introducing the interest from the deposit scheme was to cover the risk of credit sales extended to the bulk of customers.

3. The Deptt. examined the matter and opined that the interest on the deposit should legitimately form additional element of value for assessment of the cigarettes cleared by the respondents. Therefore, the Deptt. proposed to include the notional interest @ 12% p.a. and to add this to the sale price to re-determine the assessable value and to demand the differential value. The show cause notice alleged that in such circumstances, normal price has to be determined only under Rule 5 of the Valuation Rules, 1975. There was a further allegation in the show cause notice that the company received a sum of Rs. 35.01 lakhs towards "freight service charges" from the main dealers during the year 1982-83 and action was threatened under Rule 5 of the Valuation Rules in respect of this sum also.

4. After due process, the Asstt. Collector adjudicated the matter and confirmed a demand for over 2.23 crores of differential duty against the respondents on both the counts. The reasons given by the Asstt. Collector are best referred to by reproducing the operative part of the Order:-

"As regards the security deposit scheme, the party has mentioned that they resorted to this arrangement in order to get some capital money for investment by the company. It is worthwhile to note that the reply at Page 6, they have mentioned that "an additional commercial consideration" for introducing the interest from the security deposit scheme was to cover the risk of credit sales extended to the bulk customers. From this, it is obvious that the party had an idea that the introduction of the security deposit scheme would be an additional commercial consideration. Moreover in case the company is not able to mobilise funds for investment through the security deposit scheme, they would have obviously gone to some of the financial institutions like banks and procured the money required for investment. In such a case, they would have to pay some interest to the financial institutions offering the money as loan to them. Such being the case when the party is well aware that the security deposit scheme would give them the funds required for investment, it is much more obvious that this scheme would have influenced the fixation of the price relating cigarettes being sold to the dealers, from whom only the security deposits have been taken on a condition that no interest will be paid to them. The calculation of interest on the security deposit scheme at 12% also is not excessive nor arbitrary. This figure tallies more or less with the interest rates charged by the companies and other financial institutions during the relevant period i.e. during 1981-82 1982-83. Since the company has clearly submitted that the security deposit scheme was resorted to by them in order to raise capital, the interest element on account of such deposits raised by the company naturally forms part of value on which the duty is payable. Since this aspect of the value has not been taken into account during the relevant time for payment of C. Ex. duty, in terms of Rule 5 of Central Excise Valuation Rules, 1975, recalculation of assessable value is called for as has been done in the show cause notice.