VST INDUSTRIES LTD. versus COLLECTOR OF CENTRAL EXCISE, HYDERABAD

Citation: [1998] 1 S.C.R. 31 · Decided: 08-01-1998 · Supreme Court of India · Bench: J.S. VERMA · Disposal: Appeal(s) allowed
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Judgment (excerpt)

>i 
VST INDUSTRIES LTD. 
A 
v. 
COLLECTOR OF CENTRAL EXCISE, HYDERABAD 
JANUARY 8, 1998 
[J.S. VERMA, B.N. KIRPAL AND V.N. KHARE, JJ.) 
B 
Excise Law: 
4. 
Central Excises and Salt Act, 1994-Section 4-First Schedule Item- C 
Central Excise (Valuation) Rule, 1975-Rule 5. 
Excise duty-Determination of assessable value -Addition of notional 
interest on interest free security deposit received to the sale price of the D 
-"\ 
goods-Dealers availing credit facility given no discount by the appellant 
after taking security deposits-Wholesale price of the goods not influenced 
by such deposits-Held, notional interest cannot be added tu the sale price 
to determine all the assessable value. 
The appellant has been carrying on business of manufacture and sale E 
of cigarettes which is assessable to duty under erstwhile item No. 4 of First 
Schedule to the Central Excise & Salt Act, 1944. The appellant, vide cir.cular · 
dated 22nd September, 1981, introduced credit facility scheme, if interest 
free security deposits were made with them with a view to cover the risk of 
credit sales extended to the bulk customers. The Collector of Central Excise F 
-(. 
issued show cause notice dated 28th December, 1987 to the appellant to add 
12 % notional interest to security deposits for working out the assessable 
value. On receipt of reply the Assistant Collector of Central Excise Passed 
an order against the appellant. On appeal, The Collector of Central Excise 
(Appeal) set-aside part of Assistant Collector's Order. The appeal filed by the 
Respondents against the order was allowed by the Tribunal holding that G 
notional interest should be considered for arriving at the assessable value. 
In this appeal challenging the decision of the Tribunal the appellants 
contended that the wholesale price charged by the appellant was not influenced 
by security deposits which some of the dealers had made who wanted to get H 
31 
32 
SUPREME COURT REPORTS 
[1998] 1 S.C.R. 
A goods on credit. Uniform price was charged form all the dealers irrespective 
of the fact whether the sale was made on cash basis or on credit. 
The Respondent contended that Rule 5 of Central Excise (Valuation) 
Rules, 1975 is applicable because price was not the sole consideration. The 
value of such goods has to be based on the aggregate of the price and the 
B amount of notional interest on the security deposit received by the appellant. 
c 
Allowing the appeal, this Court 
HELD : 1. When the goods are sold on credit and interest is received 
that does not form part of the price on which excise duty is payable. 
1.2. The Additional Collector was right in holding that Rule 5 of the 
valuation rules is not applicable as it was not shown that the price charged 
was not the sole consideration. When the appellant Company does not require 
all the dealers to give security deposit and it is only those who avail of credit 
D 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. 140 A-Bl 
1.3. Excise duty is on manufacture of goods at the price paid and the 
E price paid in the present case is same by all the dealers. There is nothing 
to show that on receipt of security deposit the price charged from all the 
buyers was reduced. Thus, there was no justification for disregarding the 
uniform wholesale price which was being charged from all the dealers and 
adding element of notional interest of security deposit to the said price 
F 
merely because interest pre deposit was reduced from some dealers. 
Collector of Central Excise v. Indian Oxygen Ltd.. (1988) 36 E.L.T. 730 
SC and Govt. of India v. Madras Rubber Factory Ltd., (1995) 77 ELT 433 
SC, relied on. 139 F-H] 
1.4. The appellant has been charging uniform price from their 
G wholesale dealers. 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 
extraneous consideration and in such a case the notional or actual interest 
H could be added. [38 E; G-H] 
,., 
-
VST INDUSTRIES LTD. v. C.C.E. [KIRPAL, J.] 
33 
Metal Box Ind Ltd. v. Collector of Central Excise, Madras, [1995) 2 A 
sec 90, distinguished. 
CIVIL APPELLATE J
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