COMMISSIONER OF CENTRAL EXCISE, NEW DELHI versus M/S. HERO HONDA MOTORS

Citation: [2005] 3 S.C.R. 588 · Decided: 13-04-2005 · Supreme Court of India · Bench: S.N. VARIAVA, AR. LAKSHMANAN, S.H. KAPADIA · Disposal: Disposed off
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Judgment (excerpt)

A 
COMMISSIONER OF CENTRAL EXCISE, NEW DELHI 
v. 
M/S. HERO HONDA MOTORS 
APRIL 13, 2005 
B 
[S.N. VARIAVA, DR. AR. LAKSHMANAN AND S.H. KAPADIA, JJ.] 
Excise Law: 
Assessable value-Cost of production-Receipt of advance and income 
C accruing thereon-Whether has gone towards depreciation of sale price-
Matter remitted back to Central Excise and Service Tax Appellate Tribunal to 
consider whether or not advances or any part thereof have been used in the 
working capital and whether or not the advances received by the assessee 
and/or the interest earned thereon have been used in the working capital and/ 
D or whether it has the effect of reducing the price of the product. 
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1564of1999. 
From the Judgment and Order dated 6.10.98 of the Central Excise, 
Customs and Gold (Control) Appellate Tribunal, New Delhi in F.O. No. 
E 
13~0/98 in A. No. E/1983 of 1997-A. 
A. Subba Rao, V. Ramasubramaniam, Tufail Ahmed Khan, R11pesh 
Kumar, P. Parmeswaran, B. Krishna Prasad for the Appellant. 
S. Ganesh, P.A.S. Rao, P.K. Ram and D.N. Misra with him for the 
F Respondent 
The Order of the Court was delivered : 
ORDER 
G 
This appeal is against the judgment of the Customs, Excise & Gold 
(Control) Appellate Tribunal, New Delhi dated 6th October, 1998. 
H 
The question which arises for determination is : whether receipt of 
advance and the income accruing thereon has gone towards depreciation of· 
the sale price. 
588 
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I ....
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C.C.E. v. HERO HONDA MOTORS 
589 
A conspectus of decisions show that inclusion of notional interest in the A 
assessable value or wholesale price will depend on the facts of each case. In 
the present case, according to the adjudicating authority, the evidence indicated 
that the main object behind receiving advance from the customers was not 
security but collection of capital. In this connection, reliance was placed on 
financial accounts, MIS reports, pricing and costing. The said material was B 
put to the officers of the company. The adjudicating authority found on 
evidence that the advances were invested and income therefrom by way of 
interest, dividends etc. constituted additional flowback (consideration) from 
the customer to the assessee. In this connection, the adjudicating authority 
found that interest at 9% was actually paid by the assessee to each of the 
customers; that the interest was shown as cost of production; that it was C 
charged to cost of production; that the said expense was incurred under the 
head "Sales" which implicated "sales income" with "other income". On 
examination of the balance sheet, profit & loss account and costing data, the 
adjudicating authority found that but for "other income", assessee was required 
to increase the prices to recover the cost of manufacture. The adjudicating D 
authority further found that this "other income" accrued to the assessee in the 
course of sale. The said authority found that the said "other income" formed 
part of the prices. That, the difference in the interest paid to the customers 
and the interest earned on the advances received from the customers constituted 
"additional consideration" which flowed back from the customer to the 
assessee. The adjudicating authority further found difference between the 
current assets and current liabilities in the final statements indicating utilization 
of advances to meet the working capital requirement. The adjudicating 
authority further found that the payment of interest to the customer was 
shO\yn in the books as cost of production whereas the income received on 
deployment of funds (advances) has been shown as income from sales and 
other income. The adjudicating authority found understatement of assessable 
value on account of failure on the part of the assessee to take into account 
the additional consideration arising on account of difference in the rates of 
interest. 
E 
F 
At the outset, we may point out that in this case the Annual Reports of G 
the assessee show the opening and closing balance of the funds received 
under the caption "Customers' Advances''. They show deployment of funds 
so received. The income accruing to the assessee was reflected in profit & 
loss accounts. For the year ending 31.3.1986 the outstanding balance under 
the above head was Rs. 33.40 crore out of which Rs. 28.90 crore was invested H 
590 
SUPREME COURT REPORTS 
[2005] 3 S.C.R. 
A in various securities/deposits leaving a balance of Rs. 4.4
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