Customs, Excise and Gold Tribunal - Tamil Nadu
Commissioner Of C. Ex., Hyderabad And ... vs M/S. Lokesh Machines Ltd. And M/S. M.M. ... on 26 June, 2001
ORDER
Shri Jeet Ram Kait
1. In the stay application filed by Revenue, the Commissioner seeks for stay of operation of the order. Similar matters have been listed today for final disposal. Therefore, while dismissing the stay application, appeal itself is taken up for final disposal alongwith other appeals listed today for final disposal.
2. In the appeal of Revenue pertaining to Lokesh Machines Ltd., the Commissioner (Appeals) Hyderabad has given his finding in paras 6 to 12 as follows:-
"6. The issue involved in the instant appeal is regarding the inclusion of the interest element on the advances collected from the customers in the assessable value of the finished goods.
7. The contention which has been put forth by the appellants in the 'grounds of appeal' was that the respondents utilised the advance collected for the purchase of the materials / components for the manufacture of machines. the appellant have relied on the decision of the Hon'ble CEGAT in the case of CCE Allahabad Vs M/s. Resistance Alloys (P) Ltd. - 1995 (77) ELT 721 in which it has been held that the deposit/advance enhances the working capital and, therefore, affects the assessable value and is in the nature of additional value flowing indirectly from the buyer to the assessee and, therefore, the interest on deposit/advance is includible in the assessable value.
8. The Department has also relied on the Supreme Court judgement in the case of metal Box (I) Ld. Vs CCE Madras (1995 (75) ELT 449 (SC)) in supports of their claim that the interest on advances made by the customers to the respondents are addable to the purchase price to arrive at the assessable value. Reliance placed by the Department on this case law is no correct as the facts are distinguishable. In the case of Metal Box (I) Ltd. Vs CCE Madras (1995 (75) ELT 449 (SC)), it has been held by the Hon'ble Supreme Court as under:-
"The assessee 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 assessee 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 assessee to Ponds India Ltd. which were to be deducted from the gross price. This deduction was not allowed by the excise authorities and the Tribunal. it was contended on behalf of he assessee in this Court that the Tribunal erred in resorting the loading of purchase price by the adhoc interest on advances made by Ponds India Ltd. to the assessee. While rejecting this contention this Court took notice of the fact that Ponds India Ltd., was a wholesale buyer who was lifting ninety percent of the total production of the appellant. The assessee was giving to Ponds India Ltd. fifty percent discount from normal Price and Ponds India Ltd. had given large amount of money free of interest to the assessee. In 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."
9. This is not the situation in the instant case. I find that in the instant case, the price was a contracted price and in no way influenced by the advances taken. The respondents manufactured tailor made special purpose machines as per the requirements of the buyer. To manufacture special purpose machines as per the requirements of the buyer, it takes a long time of more than a year. To ensure that the buyer did not renege on the contract and leave the respondents stuck up with the goods made to buyer's requirements, a part of the sale proceed is being taken from the buyer to the extent of 30%. Another 60% of the total sale consideration was received after the inspection of the machine the completion of the warranty period of 18 months. The respondent have to furnish a bank guarantee to their customers fro the safeguard. At the time of issuing bank guarantee, bankers will debit 40% as margin money apart from the commission of 3% per annum. Further, 10% of their payment including notional interest of the same is locked up until the expiry of the warranty period of the machine. These liabilities neutralise the advantage of the advance sale consideration received, if any. it is to be observed that the buyers have given only a part of the sale value but not an interest free advance. Either in Section 4 or at any other place in the Act or Rules, it has not been specified at what stage the sale proceeds are to be collected. This advance is not being deposited in any bank and the respondents are not enjoying any interest. The Department has not adduced any evidence to show that any consideration has been made to reduce the assessable value on account of taking the advance. In this connection, the reliance is placed on the Hon'ble CEGAT decision in the case of CCE, Mumbai III Vs Netel Chromatographs (1998 (100) ELT 111 (T)) in which it has been held that the fact that the price was a contracted price between the buyer and seller would by itself have no relevance to the advance taken and as such it was held that the interest on advances cannot be loaded to the assessable value.
10. Further, in the case of Carborundum Universal Ltd. Vs CCE Cochin (1997 (95) ELT 603 (T)., it has been held as under:
"Valuation - (Central Excise) - Notional interest on advance received from customers when not includible. Burden on department to prove extract commercial consideration influencing assessable value not discharged Notational interest on advance not includible in assessable value - Section 4 of C.E. Act 1944"
11. I find that in the instant case, the Department has not been able to establish the nexus between the advances and the price and to show whether the advances taken value resulted in depressing and influencing the price. The onus is on the Department to prove such a nexus which the Department has failed to discharge. I also place reliance on the Hon'ble Supreme Court decision in the case of VST Industries Ltd. Vs CCE Hyderabad (1998 (97) ELT 395 (SC)) in which it has been held as under:
"Valuation - Additional consideration - Notional interest on advance/security deposit taken from customer when not addable to assessable value Assessee charging a uniform price from wholesale buyers irrespective of the fact whether the buyer was buying gods on credit or against cash Interest free deposit scheme introduced by assessee because of commercial consideration of covering the risk of credit sales - No special discount or reduced price given by assessee to buyers keeping deposit - Excise duty chargeable only on the uniform price paid by the buyers without any addition of notional interest - Tribunal order set aside - Assessee's appeal allowed with costs - Section 4 of Central Excise Act, 1944 Rule 5 of Central Excise (Valuation) Rules, 1975."
12. In the light of the above discussion, I hold that the impugned order passed by the Deputy Commissioner is sustainable."
3. The above finding has been challenged by Revenue in the said appeal.
4. Ld. SDR Shri G.S. Menon reiterated the grounds of appeal. One Shri K. Sudir appeared for M/s. Lokesh Machines Ltd. and relied on the findings given by the Commissioner in the impugned order and seeks for its confirmation while none appeared for M.M. Engineering Pvt. Ltd. despite notice issued to them.
5. In the other connected appeals of Revenue, arising from OIA No. 718 to 739/96 (CBE) dt. 27.11.96 passed by Commissioner of Customs & C.Ex. (Appeals), Trichy who has followed his earlier orders and recorded his finding which have already come up for final consideration before this Tribunal and this Tribunal by its latest final order No. 932 to 935/01 dated 16/6/01 in the case of CCE Vs Sree Sowdeshwari Spinners & Others has dismissed the Revenue appeals by recording the findings as follows:-
"3. Ld. Counsel at the outset submits that the issue is covered in assessee's favour and the Commissioner has given a detailed finding holding that there is no evidence on record to show that the deposits which they have received from various person have influenced the price. It is contended by him that deposits are independent of the price in all the matters and they are all connected with the appeal which can be disposed of.
4. Ld. SDR Shri G.S. Menon, appeared for the Revenue in these batch of appeals and submitted that all these may be remanded back for examining whether the value has depressed because of accepting the deposits on which there would have been notional interest.
5. Ld. Counsel invited our attention to paras-3 & 4 of the Order-in-Appeal which are extracted herein below:-
"3. In the grounds of appeals field by the appellants which are more or less similar, it has been claimed that the raw materials required for the manufacturing activities are being purchased generally and stored before purchase orders are received except for a few items of specific nature and that it is from this bulk stock that the appellants draw the materials for the manufacturing activity and that the purchases have not been made exclusively out of the advances received from the customers. Most of the appellants have categorically stated that they do not receive advance deposits from all the customers and that the quantum of advance is very low compared to the turn over of the company and that the price is uniform and does not vary for a particular item whether the customer pays advance or not and that once the prices are agreed to as per the contract the appellants are obliged to supply the goods at the same price even if the costs of raw materials vary. It has also been argued that the earnest deposit received was purely to ensure the contractual binding as per the Trade practice since the goods are tailor mae and are not of the type which are mass-produced and delivered of the shelf and the amount of advance received is not taken into account while arriving at the contract price; therefore the question of the interest free advance influencing the price did not arise; Further such a concept had not been in their minds or the customers.
4. In the light of the above, I have no reason to change my views taken in the earlier orders in appeal referred supra. I therefore hold that the Assistant Commissioner's orders here cannot be sustained in law in the absence of any evidence brought on record to show that the advances taken by the appellants had in fact depressed the price or that the appellants had derived benefit by receipt of such advance, particularly in the absence of quantification thereof. The impugned orders do not survive in law in the light of the judicial pronouncements as above and the demands confirmed have to be set aside."
6. Ld. Counsel has also relied on this Tribunal judgment in the matter of FORT WiLLIAM INDUSTRIES LTD. Vs CCE Calcutta-IV as reported in 2000 (122) ELT 174 (T); CCE New Delhi Vs SCHENCK AVERY LTD reported in 2000 (119) ELT 582 (T); ACC MACHINERY COMPANY LTD Vs CCE, MUMBAI VI as reported in 2000 (117) ELT 231 (T) and CCE Coimbatore Vs FESTO ELGI PVT. LTD reported in 1998 (100) ELT 175 (T) and this Tribunal final order No. 737 to 761/2001 dated 24.5.01 arising from the same impugned order which was considered by the Tribunal and the Revenue appeals were rejected therein.
7. Ld. Counsel has stated that whether they have taken advance or not, they have charged the same price from each customer and the advance has not depressed the price to any extent and therefore same is not includible in the assessable value in terms of Section (4) of the Central Excise Act, 1944.
8. We have carefully considered the submissions made by Ld. SDR & DRs who appeared for the Revenue and the Ld. Counsel Shri J. Narayanswamy who appeared for the respondent, namely M/s. Sree Andal & Co. The learned Commissioner (Appeals) has thoroughly examined this matter and has given his detailed findings in paras-3 & 4 of his order which have been extracted supra and therefore respectfully following the various Tribunal's judgments, cited by the learned Counsel for the respondents, we do not find any merit in the appeals filed by the Revenue and therefore the order of the Commissioner (Appeals) is confirmed and appeals filed by the department are dismissed. We also note that by Final Order NO. 737 to 761/01 dated 24.5.01 in the case of CCE Vs UNIVERSAL HEAT EXCHANGES LTD & OTHERS; final order No. 806 to 840/01 dt 1/6/01, the impugned order has already been set aside by following the ratio of the above cases, Thus, the Revenue appeals are accordingly dismissed."
6. We find that above findings are directly applicable to the facts of this case also. Therefore, respectfully following the ratio of the same, we find that there is no merit in these appeals of Revenue and same are rejected accordingly.
(Dictated and Pronounced in open court)