COMMISSIONER OF CENTRAL EXCISE, MUMBAI-III versus M/S I.S.P. INDUSTRIES LTD.

Citation: [2003] 3 S.C.R. 814 · Decided: 02-04-2003 · Supreme Court of India · Bench: S.N. VARIAVA · Disposal: Dismissed

Judgment (excerpt)

A 
B 
COMMISSIONER OF CENTRAL EXCISE, MUMBAI-III 
v. 
MIS. l.S.P. INDUSTRIES LTD. 
APRIL 2 I, 2003 
[S.N. VARIA VA AND BRIJESH KUMAR, JJ.] 
Central Excise and Salt Act, 1944/Central Excise (Valuation) Rules, 
1975-Section 4/Rule 5-Valuation of excisable goods-Interest free advances 
C taken by manufacturer from buyer-Notional interest thereon-Whether liable 
to be added to assessable value of goods-Held: Such notional interest 
cannot be added to the assessable value of goods unless it is proved by 
Revenue that such advance has influenced lowering of the price-A 
. presumption that fixation of price is influenced by such advance, cannot be 
drawn-Central Excise Valuation (Determination of Price of Excisable Goods) 
D Rules, 2003. 
Appellant-Revenue issued show cause cum demand notices calling upon 
respondent-manufacturers to show cause regarding inclusion of the notional 
interest in the assessable value of goods, on the interest free advances taken 
by the assessees from customers in view of Section 4 of Central Excise and 
E Salt Act, 1944 and Rule 5 of Central Excise (Valuation) Rules, 1975. 
Respondent-manufacturers resisted the demands on the grounds that advance 
taken is merely a security for the due performance of the contract; that such 
advances can be included in the assessable value depending upon the terms 
and conditions of contract on which advance is made in full or in part; and that 
F it is not necessary that the advance must necessarily be used for manufacture 
of the item. The assessing and the appellate authorities added the notional 
interest accrued on advances made to the manufacturers in the assessable 
value. On appeal Central Excise and Gold (Control) Appellate Tribunal set aside 
the orders holding that it was not liable to be included in the assessable value. 
G 
In appeal to this Court, respondent-manufacturers relied on a circular 
issued by Central Board of Excise and Customs, New Delhi in 1998 which 
stipulated that where price is not influenced by fact of interest free advance 
made by the buyer to the manufacturer, there would be no occasion to add 
notional interest to the assessable value of the goods. Another notification was 
H also issued in 2003 to the same effect. 
814 
C.C.E v. l.S.P. INDUSTRIES LTD. 
815 
Appellant-Revenue contended that the amount of advance bei.ng utilised A 
for the purpose of manufacture of goods, entails profit to the manufacturer to 
the extent of interest which would have been paid by the manufacturer to the 
bank and the profit is liable to be added to the assessable \'alue of goods; that 
such buyers advancing money are favoured buyers enjoying special concessions 
at the bands of the manufacturers to the detriment of the Revenue; and that a 
presumption must be drawn that fixation of price is influenced by such an 
advance. 
Dismissing the appeals, the Court 
B 
HELD: l. Mere fact of making an interest free advance by a buyer to the C 
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. A presumption that fixation of price is influenced by such an 
advance, cannot be drawn. Clause (iii) of the Circular issued by the Central D 
Board of Excise and Customs, New Delhi in 1998 clearly provides that if there 
is no difference in the selling price for both categories of the wholesale buyers 
and there is also "no proor• that on account of advance deposits taken from 
some buyers, the price charged from all buyers has been reduced, then element · 
of notional interest on advance deposits, cannot be added. Obviously, where E 
there are two prices, one for those who have made the advance and the other 
who have not, it would require no further proof of the lower price having been 
influenced by the interest free advance made by the buyer. But otherwise it 
would require proof and. the proof for the purposes of holding that interest 
free advance has influenced the price would obviously be provided by the 
Revenue. The same position continued in the later amendment in the Rules of F 
2003. (824-F-H; 825-A-C( 
Union of India v. Lakshmi Machine Works Limited. (1995) 77 E.L.T. 799 
(Madras); Mis. VST Industries Ltd. v. Collector of Central Excise, Hyderabad, 
(199812 SCC 24 and Mi

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