Case: Vst Industries Ltd Vs. Collector Of Central Excise, Hyd

later, it is indeed a case of sale on credit and, therefore, the interest charged from the date of delivery of goods till the date of realization of the price thereof should be deducted from the value of the goods. The interest charged, it is submitted, is only in lieu of the time taken in making t he payments by the up-country wholesale buyer. Since this is the amount received subsequent to the sale from the depots and does not fell within the ambient of any of the expresses held includible in Bombay Tyre International, it is clearly excludable. The claim for this deducting is, therefore, allowed." * 16. The aforesaid observations clearly show that when goods are sold on credit and interest is received that does not form par t of the price on which excise duty is payable. 17. Coming to the facts of the present case it is not in dispute that the appellants are charging a uniform price from their wholesale dealers. The price at which the cigarettes are sold at the factory gate was the same, irrespective of the fact whether the dealers wee buying the cigarettes on credit or against payment of money. As is indicated in the circular, and there is no dispute to what has been stated therein, one of the commercial considerations for introducing interest free deposit scheme was to cover the risk of credit salad extended to bulk customers. There is nothing on the record to show that the receipt of the deposit from some of the dealers could possible influence the fixation of the sale price even with regard to those sales which were made at the factory gate against cash and not on credit. Had there been a difference in the selling price where, for example, special discount was given to the dealers who had given a deposit then it may have been possible to say that there were two different markets and two different prices and that lesser price was being charged for an extractor consideration and, in such a case the notional or actual interest could be added. But that is not the case here, Metal Box case (supra) was the one where two different prices were being charged. In Metal Box case the assesses was manufacturing goods which were offered for sale to M/s Ponds India Ltd., a wholesale buyer, who required bulk of the containers manufactured by the assesses for marketing its cosmetic products. In order to ensure a steady and regular supply Ponds India Ltd. gave large advances and an agreement had been entered into between the parties as a result whereof discounts were given by the assesses Ponds India Ltd. which were to be deducted from the gross price. The deduction was not allowed by the excise authorities and the Tribunal. It was contended on behalf of the assesses in this Court that the Tribunal erred innerspring the loading of purchase price by the ad hoc Interest on advances made by Ponds India Ltd. to the assesses. While rejecting this contention this Court took notice of the Fact that Ponds India Ltd. was a wholesale buyer who was lifting ninety per cent of the total production of the appellant. The assesses was giving to Ponds India Ltd. fifty per cent discount from normal price and Ponds India ltd. had given large amounts of money free of interest to the assesses. In the these circumstances it was held that the price charged by the appellant from Ponds India Ltd, could not be said to be the normal price of containers and, therefore, the action of the department in taking into account the notional interest on the advances given was upheld.Metal Box case is clearly distinguishable. The amounts given as security deposit in he present cases represents only avoid of 21 days supply in a year whereas in Metal Box case large amounts of money had been advanced. Secondly, and what is more important, in Metal Box case the assesses had given fifty per cent discount to Ponds India Ltd. on it gross sale price and thereby charged lesser price than what was charged from the other buyers. In the present case the cigarettes are sold at the factory gate to the wholesale dealers at a uniform price irrespective of the fact whether the purchaser is buying the cigarettes o n credit or against payment of money in cash. 18. 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 show that there was any special consideration which was shown to the dealers who had given the security deposit. Now 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 Factorys cases (supra). There was, thus, no justification for disregarding the uniform wholesale price which was being charged from all the dealers and adding the element of notional interest of the security deposit to their said price. 19. This 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 nor requiring al l 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.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]It was held that the supply of gas cullenders was ancillary to the supply of gases. It was open to the customers to bring their own cylinders and deposit was required to be given only if the customers required the company to lend the cullenders. This activity of giving cylinders was held to be ancillary and profits and gains from the deposit so received was not required to be taken into account while computing the value of the escapable goods. It and also been contended on behalf of the Revenue that there were two different classes of buyers; one class of such buyers was that who used to being their own cylinders and the other who used to get supply of gases from the cylinders of the suppliers. It was, therefore, submitted that different rates for these two classes of buyers constituted two different markets which was permissible under Section 4. Dealing with this contention it was observed at page 732 as follows:"There may be different classes of buyers for different classes of goods. Section 4(1)(a) of t he Act exhaustless that if the goods is of the same type, the prices should also be the same. The proviso to the said Section postulates that where in accordance with normal practice such goods, namely, the gases are sold to different classes of buyers then different prices may be charged. it gases had been sold to different classes of buyers at different rates, it is possible that there might be different markets for the same. But here the charges like rentals for the cylinders and the notional interest income, are for ancillary or allied services and that is not an activity of manufacture. hence Section 4(1)(a) proviso can be of no avail to the revenue." *In Madras Rubber Factory case (supra) this Court analysed Section 4 and observed as under:"It is obvious that the value of excisable goods for the purpose of sub-section (1) of Section 4 is ordinarily determined with reference to the normal price at which such good are sold, i.e., under clause (a) of sub-section (1) of Section 4. Only where the goods are not sold and, therefore, the price of such goods is not ascertainable or in a situation where the normal price of such goods is not ascertainable for some other reason that clause (b) is attracted, hereunder the nearest ascertainable equivalent price is ascertained in accordance with the rules framed in that behalf. Clause (b) is in the nature of a residuary clause which should be resorted to where the normal price cannot be ascertained for the reasons mentioned therein. In other words, where the normal price cannot be ascertained for the reasons mentioned therein. In other words, where the normal price is available or is ascertainable, resort to clause (b) is not permissible." *It then considered as to what are the various deductions from the price received which were permissible in order to arrive at the assessable value. One of the amounts claimed as a deduction from the amount received by the manufacturer was the element of interest received by it on the goods sold on credit. Dealing with this the Court at Page 470 observed as under:"The case of the assesses (Madras Rubber Factor y) is that where the goods are sold to up-country wholesale buyers and payments are received quite sometime later, it is indeed a case of sale on credit and, therefore, the interest charged from the date of delivery of goods till the date of realization of the price thereof should be deducted from the value of the goods. The interest charged, it is submitted, is only in lieu of the time taken in making t he payments by the up-country wholesale buyer. Since this is the amount received subsequent to the sale from the depots and does not fell within the ambient of any of the expresses held includible in Bombay Tyre International, it is clearly excludable. The claim for this deducting is, therefore, allowed." *The aforesaid observations clearly show that when goods are sold on credit and interest is received that does not form par t of the price on which excise duty is payableComing to the facts of the present case it is not in dispute that the appellants are charging a uniform price from their wholesale dealers. The price at which the cigarettes are sold at the factory gate was the same, irrespective of the fact whether the dealers wee buying the cigarettes on credit or against payment of money. As is indicated in the circular, and there is no dispute to what has been stated therein, one of the commercial considerations for introducing interest free deposit scheme was to cover the risk of credit salad extended to bulk customers. There is nothing on the record to show that the receipt of the deposit from some of the dealers could possible influence the fixation of the sale price even with regard to those sales which were made at the factory gate against cash and not on credit. Had there been a difference in the selling price where, for example, special discount was given to the dealers who had given a deposit then it may have been possible to say that there were two different markets and two different prices and that lesser price was being charged for an extractor consideration and, in such a case the notional or actual interest could be added. But that is not the case here, Metal Box case (supra) was the one where two different prices were being charged. In Metal Box case the assesses was manufacturing goods which were offered for sale to M/s Ponds India Ltd., a wholesale buyer, who required bulk of the containers manufactured by the assesses for marketing its cosmetic products. In order to ensure a steady and regular supply Ponds India Ltd. gave large advances and an agreement had been entered into between the parties as a result whereof discounts were given by the assesses Ponds India Ltd. which were to be deducted from the gross price. The deduction was not allowed by the excise authorities and the Tribunal. It was contended on behalf of the assesses in this Court that the Tribunal erred innerspring the loading of purchase price by the ad hoc Interest on advances made by Ponds India Ltd. to the assesses. While rejecting this contention this Court took notice of the Fact that Ponds India Ltd. was a wholesale buyer who was lifting ninety per cent of the total production of the appellant. The assesses was giving to Ponds India Ltd. fifty per cent discount from normal price and Ponds India ltd. had given large amounts of money free of interest to the assesses. In the these circumstances it was held that the price charged by the appellant from Ponds India Ltd, could not be said to be the normal price of containers and, therefore, the action of the department in taking into account the notional interest on the advances given was upheld.Metal Box case is clearly distinguishable. The amounts given as security deposit in he present cases represents only avoid of 21 days supply in a year whereas in Metal Box case large amounts of money had been advanced. Secondly, and what is more important, in Metal Box case the assesses had given fifty per cent discount to Ponds India Ltd. on it gross sale price and thereby charged lesser price than what was charged from the other buyers. In the present case the cigarettes are sold at the factory gate to the wholesale dealers at a uniform price irrespective of the fact whether the purchaser is buying the cigarettes o n credit or against payment of money in cashExcise 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 show that there was any special consideration which was shown to the dealers who had given the security deposit. Now 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 Factorys cases (supra). There was, thus, no justification for disregarding the uniform wholesale price which was being charged from all the dealers and adding the element of notional interest of the security deposit to their said priceThis 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 nor requiring al l 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.