Customs, Excise and Gold Tribunal - Delhi
Collector Of C. Ex. vs Metal Box India Ltd. on 11 October, 1988
Equivalent citations: 1989(19)ECC91, 1989(39)ELT79(TRI-DEL)
ORDER G.P. Agarwal, Member (J)
1. M/s. Metal Box India Ltd. are the manufacturers of Metal Containers falling under T.I. 46 of Central Excise Tariff. They supply Metal Containers to Cosmetic Manufacturers such as M/s. Ponds (I) Limited, M/s. T.S.R. & Co., M/s. Calcutta Chemicals, M/s. Mysore Cosmetics, M/s. Millet Roachas etc. M/s. Ponds (I) Ltd. are the major buyer lifting 90% of their requirements of Metal Containers from the said M/s. Metal Box India Ltd., M/s. Metal Box India Ltd. filed their Price Lists for the Metal Containers declaring the normal price In terms of proviso (1) to Section 4(1) (a) on the basis of the contracts/purchase orders of the buyers, i.e. Cosmetic Manufacturers. During the course of verification of records of M/s. Metal Box India Ltd. it was noticed by the department that they had entered into agreement dated 1.9.80, 10.6.81 and 13.5.82 with M/s. Ponds (I) lid. All these agreements were not made known to the department at the time of filing of the Price Lists for approval. On perusal of the said agreements it was noticed that gross sale price of the Metal Containers was indicated in the agreement and certain abatements from the same towards (1) Quantity rebate fixed on slabs basis dependent on quantity proposed to be purchased by M/s. Ponds (I) Ltd., (2) Special Body Maker rebate and (3) Cash discount at 2% of the price arrived at after deducting Items (1) and (2) above from gross selling price and the net price arrived at. However, in the Price Lists filed by M/s. Metal Box India Ltd. for approval they had quoted only the net price at which the Metal Containers were sold in the course of wholesale trade Instead of quoting the gross sale price as stated in the agreement and claiming the deductions towards items (1), (2) and (3) as stated above, to arrive at the assessable value and to enable the department to verify the claim and allow the admissible discounts and approve the assessable value. Disparities between the sale price adopted for M/s. Ponds (I) Ltd and the price adopted for the other buyers namely M/s. T.S.R. & Co., M/s. Calcutta Chemicals etc. were also noticed inspite of the fact that the Metal Containers contracted for and supplied by M/s. Metal Box India Ltd. were almost according to the department, identical in their specification, materials etc. According to the department it also appeared that among the buyers (i.e. Cosmetics Manufacturers) M/s. Ponds (I) Ltd were given special and favoured treatment by way of deductions in the form of discount/rebate from the wholesale price while other buyers were not uniformly given such discounts/rebate in the normal course of their wholesale trade. It was also noticed that as per the said three agreements totally an amount of Rs. 375 lakhs was advanced by M/s. Ponds (I) Ltd to M/s. Metal Box India Ltd. to be used for specific purpose of covering raw and ancillary materials and keep them in stock sufficient to meet minimum 3 or 4 months requirements of the buyers namely M/s. Ponds (I) Ltd. From this advance the department opined that M/s. Metal Box India Ltd had obtained the said advance for utilising the same as their capital for the purchase of raw material thereby effectively supplementing their capital and in consideration thereof has shown a reduction in the sale price to M/s. Ponds 0) Ltd. and the extent of such deduction was not reasonable justified since the interest payable on the advance would definitely have been loaded on the cost of manufacture and sale price, had the advance been obtained from any other Independent source. In this premises the Department tentatively concluded that the gross price as indicated in the aforesaid agreement had to be taken without deductions but with the addition of the interest @ 18% accruing to the advances made by M/s. Ponds (I) Ltd. to arrive at the assessable value and duty should have been paid on the value so arrived. Since M/s. Metal Box India Ltd. had paid duty on the net price after deductions of discount/rebate from the gross price they had paid the duty short on the clearances made to M/s. Ponds (I) Ltd. during 1.7.80 to 30.6.83 and from 1.7.83 onwards. Consequently, a show cause notice dated 27.6.84 was issued to M/s. Metal Box India Ltd. calling upon them to show cause as to why -
(1) the gross price indicated in the agreements be not taken as true one with which the additional considerations by way of interest accruing to the advances made by M/s. Ponds (I) Ltd. be not added to arrive at the assessable value for the period from 1.7.80 to 30.6.83;
(2) the gross price from the net price should not be arrived at and interest accruing to the advances added thereto and assessable value arrived at for the period on and from 1.7.83; and (3) the consequential differential duty be not demanded from them and also why future assessments be not done on the above basis.
In their reply they denied that there was any short-levy and/or short payment warranting demand for alleged differential duty and prayed for dropping of the proceedings. It appears that by another show cause notice dated 18.1.85 M/s. Metal Box India Ltd. were also called upon to show cause as to why Basic Excise Duty and Special Excise Duty of Rs. 23,50,013.40 and Rs. 1,17,500.68 respectively for the period from 1 7.80 to 13.11.84 be not demanded and recovered. In reply they submitted that the subsequent Notice-cum Demand was unwarranted in view of the fact that issues raised in the earlier notice, if decided in terms of their reply to the show cause notice dated 27.6.84 then the subsequent notice would be rendered ineffective.
2. However, after the usual adjudication proceedings the Assistant Collector who adjudicated the case held that M/s. Metal Box India Ltd. had suppressed the fact of existence of the agreements between them and M/s. Ponds (I) Ltd. with deliberate intention to evade payment of duty thus attracting the proviso to Sub-rule (1) of Rule 10 of Central Excise Rules, 1944 (for the period earlier to 17.11.80) and the proviso to Sub-section (1) of Section 11A of the Central Excises and Salt Act, 1944 (for the period from 17.11.80) and also held -
"that the rebates and discount shown in the agreements are not allowable and that the assessable value should be fixed at the gross price shown in the agreements plus the interest accruable to the advances held by M/s. Metal Box India Ltd. from M/s. Ponds (I) Ltd. for the period 1.7.80 to 30.6.83 and for the period from 1 7.83 to 30.11.84 the assessable value should be fixed at net price plus the difference between gross price and net price of the agreement for the period July, 1982/ June, 1983, plus the interest accruable to the advances held by M/s. Metal Box India Limited from M/s. Ponds (I) Ltd."
Consequently, he confirmed the demand and also directed that in respect of the clearances relating to the period on and from 1.12.84 the assessable value should be arrived at net price plus the difference between gross price and net price of the agreement for the period July, 1982 and June, 1983 plus the interest accruable to the advances held by M/s. Metal Box India Limited and the consequential differential duty should be paid.
3. Aggrieved by the said adjudication M/s. Metal Box India Limited filed their appeal before the Collector of Central Excise (Appeals), Madras who vide his impugned order held (1) that M/s. Metal Box India Limited were guilty of suppressing of facts and the extended period of five years Under Section 11A of the Central Excises and Salt Act will apply for the purposes of recovery of amounts of duty short paid. Consequently, the demand was not time barred; (2) that the discounts allowed by M/s. Metal Box India Ltd to M/s. Ponds (I) Ltd. viz. (i) the quantity rebate fixed on a slab basis dependent on the quantity proposed to be purchased, (ii) Special Body Maker rebate and (iii) Cash discount of 2% on the prices arrived at after deducting items (1) and (2) above from the gross selling price are not admissible under the Central Excises and Salt Act and therefore, the Assistant Collector was right in rejecting their plea for the abatement of discounts and rebates as aforesaid since they are not allowed in accordance with normal practice of wholesale trade of the party. However, the Collector (Appeals) did not agree with the Assistant Collector for loading the interest charges @ 18% on advances made by M/s. Ponds (I) Ltd. with the assessable value. Accordingly he modified the adjudication order passed by the Assistant Collector to that extent vide his impugned order.
4. Aggrieved, the department as well as M/s. Metal Box India Ltd. have filed their present appeals. In the appeal filed by the department they have challenged that part of the impugned order which has held that loading of price with interest, not actually paid is not correct in law.
5. In the appeals filed by M/s. Metal Box India Ltd. they have challenged that part of the impugned order which has held that the demand was not time barred and that discounts and rebates allowed by them to M/s. Ponds (I) Ltd. were not deductible while arriving at the assessable value.
6. It may be stated that M/s. Metal Box India Limited first filed their Appeal No. E/1656/86-A and when this appeal was taken up for hearing the Departmental Representative had raised the two preliminary objections, namely (1) that the appeal was not signed by the competent person; and (2) it was barred by limitation if the time is computed from the date of communication, that is to say, from 4.3.86 as mentioned in the appeal form by the appellants (M/s. Metal Box India Limited). To meet the said objections M/s. Metal Box India Lid. filed their another appeal No. E/1688/87-A properly signed and verified by the competent person with an application for condonation of delay (E/COD/557/87-A) and also filed their Misc. Application No. 234/87-A with the prayer that the date of communication of the order appealed against was actually 7.4.86 and not 4.3.86 as wrongly indicated in the earlier Appeal No. 1656/86-A. At the time of hearing of the appeals the said two applications were first taken up for hearing. These applications were not seriously opposed by the learned Departmental Representative. Since it was not disputed by the Departmental Representative that the impugned order was communicated on 7.4.86 and not on 4.3.86 as contended by the appellants M/s. Metal Box India Ltd. we allowed the said Misc. Application in the open court. Likewise we also allowed the application for condonation of delay since the earlier appeal No. E/1656/86-A was filed in time and procedural defect was removed by filing the other Appeal No. 1688/87-A duly signed by the competent person and pronounced in the court that the earlier appeal has become redundant.
7. We have heard Shri N. Mookherjee, Advocate for M/s. Metal Box India Ltd. and Shri S. Krishnamur they, learned SDR for the department.
8. Shri N. Mookherjee, learned counsel for M/s. Metal Box India Ltd. submitted -
(1) that authorities below erred in holding that the rebate and discounts in question were not admissible and therefore cannot be deducted while arriving at the assessable value; and (2) that the show cause notice dated 27.6.84 so far as it related to recovery of duty prior to 27.12.83 was barred by time for, failure to submit the financing agreement with M/s. Ponds (I) Ltd. does not amount to material suppression of fact warranting the invokation of the extended period of five years Under Section 11A of the Central Excises and Salt Act, 1944.
He cited the following cases -
(1) Union of India v. Bombay Tyre International Ltd., 1983 ELT 1896 (SC) (Emphasis was laid on para 42) (2) Facit Asia Ltd. v. Collector of Central Excise, 1985 (21) ELT 711 (3) Standard Electric Appliances v. Supdt. of Central Excise, 1986 (23) ELT 302 (Madras) (4) Auto Lamps Ltd. v. Collector of Central Excise, 1987 (29) ELT 889 (Tribunal)
9. In reply Shri S. Krishnamurthy, learned SDR supported the impugned order and while arguing the Department's appeal submitted that the Collector (Appeals) erred in setting aside the Order of the Assistant Collector to the extent that loading of the price with interest charges @ 18% on advances was not correct.
10. In reply to the argument raised in the Department's appeal Shri N. Mookherjee, learned counsel for M/s. Metal Box India Ltd. supported that part of the impugned order which had disallowed the loading of interest on advances with the assessable value.
11. Before we proceed to consider the respective arguments advanced by the parties, it would be advantageous to state a few admitted facts on record which are as follows :
(i) that M/s. Ponds (I) Ltd. had given huge advances free of interest to the appellants M/s. Metal Box India Limited to be used for the specific purpose of covering raw and ancillary materials and keeping them in stock sufficient to meet their minimum three or more months requirements. During the year 1980 by an agreement dated 1.9.80 a huge amount of Rs. 75,00,000 was given as an advance to the appellant M/s. Metal Box India Ltd. by the buyer M/s. Ponds (I) Ltd. By an agreement dated 10.6.81 this advance was increased from Rs. 75 lakhs to Rs. 100 lakhs and by another agreement dated 13.5.82 it was again raised to Rs. 200 lakhs (Rupees Two Hundred Lakhs);
(ii) that the price charged in respect of M/s. Ponds (I) Ltd. was nearly 50 per cent less than the price charged in respect of certain other cosmetic manufacturers; and
(iii) that the appellants M/s. Metal Box India Ltd. gave the benefit of quantity discount and cash discount only to their buyer M/s. Ponds (I) Ltd. and not to their other buyers. It was admitted by them that they did not send any circular to all cosmetic manufacturers to the effect that if the latter places orders for such and such quantity, certain discounts would be given.
12. Shri. N. Mcokherjee, learned counsel for the appellants M/s. Metal Box India Ltd. contended that the quantity rebate, special body maker rebate and cash discount of 2% on prices arrived at after deducting the quantity rebate and special body maker rebate from the gross selling price are admissible deductions being based on the agreement entered between the appellants M/s. Metal Box India Ltd. and the buyer M/s. Ponds 0) Ltd. in view of Section 4 of the Central Excises and Salt Act, and therefore both the authorities below erred in not allowing the said deductions while computing the assessable value and reiterated the same grounds which were advanced before the authorities below. From the adjudication order we find that the aforesaid rebate and discount as claimed by the appellants M/s. Metal Box India Ltd. were disallowed by the Adjudicating Authority on the ground that a special and favoured treatment was given to M/s. Ponds (I) Ltd. His findings on the point are as follows -
"20. On the contrary, in the instant case, M/s. Metal Box India Ltd., have shown a patent discrimination between M/s. Ponds (India) Ltd. on one side and all others viz. M/s. T.S.R. & Co., M/s. Calcutta Chemicals, M/s. Viniba Products etc. even though all are industrial consumers constituting the same class of buyers. M/s. Ponds (India) Ltd. have been given a special and favoured treatment by way of deductions in the form of discounts from the wholesale price while in respect of other buyers M/s. Metal Box India Ltd., have not given any discounts whatsoever. I am of the view that the quantity discount are to be allowed provided they are uniformly admissible to all independent buyers of the same quantity and the cash discount should also be admissible if they are available to all the buyers. In the instant case, the assessees have contended that if there were other customers who could place orders on them of the same magnitude as M/s. Ponds (India) Ltd., they would have granted the same rebates and discounts. But this is only a hypothetical statement and does not represent the reality. When at the time of personal hearing M/s. Metal Box India Ltd., were asked whether they send any circular to all cosmetic manufacturers to the effect that if the latter places orders for such and such quantity, certain discounts would be given, they stated that there is no general policy for sending circulars to customers, But they stated that each customer is given separate and special treatment in relation to the design of his product, his marketing policy, his specific requirement at present and in future and all these factors are taken into consideration in giving a price. Each customer negotiates the price with them and only after settlement of price, the sales contracts are executed. From this, I construe that customers are not given equitable rebates and discounts. Needless to say that a Company's marketing and selling pattern should be known to the customers so that there is no discrimination between two buyers of the same class if they lift the same quantity. But in this case, M/s. Ponds (India) Ltd., has been made a "carved out buyer" and is given special treatment in the form of discounts and rebates which is not available to other buyers. The assessees' plea that the discounts were available to other customers if they were in a position to place orders of the same magnitude is not acceptable to me as it is a bald hypothetical statement and the same has not been disclosed to the customers at any point of time.
21. As observed earlier, in all the financing agreements, the assessees have declared the gross price from which various discounts are given to arrive at the net price. When asked during the personal hearing that they could have declared the net price itself, instead of arriving the same from the gross price, they submitted that they could have done so, but they show the break-up for the satisfaction of their customers. Here, I find that there is no parity among the buyers of the same class. If the assessees could show the break-up to satisfy M/s. Ponds (India) Ltd., they should also adoptthe same policy forthe satisfaction of other customers which they do not do. On the contrary the assessees have stated that for all practical purposes, it is the net price which is relevant factor for accounting, taxation, administrative and other matters. But if this is so, then there is no plausible and acceptable reason for arriving at the net price from the gross price after giving various discounts and rebates. And as it is done only in the case of M/s. Ponds (India) Ltd., it is crystal clear that they are given special treatment in the form of discounts and rebates which is not allowed to others. To put it in other words, there is a special relationship between M/s. Metal Box India Ltd. and M/s. Ponds (India) Ltd., apart from the trade relationship which is on account of huge advances held by the former from the latter, resulting in a very low price charged to M/s. Ponds (India) Ltd., as compared to other buyers.
22. On a study of prices charged by M/s. Metal Box India Ltd., to different buyers, I notice that in certain cases the price charged in respect of M/s. Ponds (India) Ltd., is nearly 50% less than the price charged in respect of certain buyers viz. M/s. Calcutta Chemicals Ltd., and M/s. Viniba Products etc. This does not mean a simple variation in price, but a chasm. When their attention was drawn to this point, the assessees have stated that they require time to set machine for each customer separately because each product is unique and distinct. The machine setting for one customer will not be same for another customer. Therefore, for small quantity orders it will not be economical for the company to accept orders at lower prices. Where the order quantity is substantial, certain price concession is given. The assessees have further added that the gestation cost before crystalising a contract is very substantial because they give the design and have to try out several sample drawings, colour combinations, photographs with their customers before accepting a particular design for the customer. This is necessary for all customers. Therefore, when a customer does not have the potentiality of taking very large quantities, a very substantial loading of cost has to be made in the case of such contracts, they have pointed out. They have further added that they also provide customer services in the form of sending service engineers to their factory whenever there is a problem. Therefore, the small manufacturers use their services more than relatively larger manufacturers. This is another reason why there would be a variation in price, according to them.
23. The aforesaid argument is not fully convincing to me. Of course, for the reasons stated by the assessees, there would be some variation in the prices charged to different customers; but there is a vast difference between the prices charged to M/s. Ponds (India) Ltd., on one hand and the prices charged to other customers on the other which cannot simply be explained in this position. All the more so, because the metal containers contracted for and supplied by the assessees are almost identical in their specifications, materials etc. And the company's argument that the containers themselves are unique, distinctive and separate is not correct."
To the arguments that the transaction between the appellants M/s. Metal Box India Ltd. and M/s. Ponds (I) Ltd., was at arms length and no consideration had flowed from M/s. Ponds (I) Ltd. to them excepting the price shown in the sales contract, the Adjudicating Authority while negativing the said contention held as follows -
"25. The arms length transaction as contended by the assessees is put to serious doubt on account of the fact that M/s. Metal Box India Ltd. had entered into an agreement with M/s. Ponds India Ltd., by which the latter had given huge advances to the former; but this fact was not disclosed to the Department. According to column 9 of the agreement executed, the advance paid by M/s. Ponds India Ltd. is to be used for the specific purpose of covering raw and ancillary materials and keeping them in stock to meet minimum three or more months requirements of the buyer. This fact has been admitted by the assessees and they themselves have stated that they keep a sizable advance from M/s. Ponds India lid. to ensure "maintenance of adequate stock of raw material and finished goods by them so as to maintain an uninterrupted and regular flow of supplies to M/s. Ponds India Ltd." This would mean that M/s. Metal Box India Ltd. had obtained the advance for utilising them as their capital for the purchase of raw materials and in consideration of that a reduction had definitely been shown In the sale price to M/s. Ponds India Ltd. The extent of such reduction can reasonably and justifiably be attributed to the Interest amount payable on the advance, which had M/s. Metal Box India Ltd. obtained from any other source with interest bearing loan such interest elements would have been loaded on to the cost of manufacture and sale price to the metal containers, naturally increasing the present price adopted towards M/s. Ponds India Ltd.
26. According to proviso (i) to Sub-section (1) (a) of Section 4 of the Central Excises and Salt Act, 1944, where different prices are charged by the assessees from different classes of buyers, each such price shall constitute the price of the goods provided they satisfy the other ingredients of the said Section 4 (1) (a). One of the ingredients for 'normal price' Under Section 4(1) (a) of the Act is that the price must be the sole consideration for the sale of goods and there should be no other consideration except the price for the sale of the goods. If the price, in a particular transaction, is not the sole consideration and there is some additional consideration flowing directly or indirectly from the buyer to the assessee, either in cash or in any other form, the additional consideration quantified in terms of money value is to be added to the price declared by the assessee for determining the normal price of the goods."
13. On appeal the learned Adjudicating Authority while confirming the adjudication order observed as follows -
"...It is not the case of the department that discounts/rebates stated above are being rejected on the ground that they are not uniform to all other buyers of appellants. In fact, no buyers are getting any discounted price except the appellants, and the Assistant Collector has also produced evidence that appellants have received a suitably large sum as interest free-loan from their buyers namely M/s. Ponds India Limited. Therefore, it is not the question of uniformity of rebate/discount, but it is the question of discount which is allowed only to a particular buyer and not allowed in accordance with the normal practice of wholesale trade..." and that "...Section 4(4)(d)(ii) authorises deductions of discounts in the following words: the trade discount (such discount not being refundable on any account whatsoever) allowed in accordance with the normal practice of the wholesale trade at the time of removal in respect of the goods sold or contracted for sale. Therefore, before a trade discount can be eligible for deduction, it has to be established that such trade discount is being allowed, in accordance with the normal practice of wholesale trade. In the present case quantity rebate fixed on a slab basis dependent on the quantity proposed to be purchased is not allowable to the other customers. But only to Ponds India because no intimation of such available discount was given to the other buyers. Special body maker rebate is said to be a rebate on account of economics in making a large number of units and cash discount is only allowed to M/s. Ponds India Limited and not to other purchasers of the appellants: As such it cannot be said that such discounts, as stated above, are allowed in accordance with the normal practice of wholesale trade of appellants. Therefore, the discounts mentioned above are not admissible under the Central Excises and Salt Act."
14. We find no cogent reason to differ with the said findings recorded by the authorities below. According to proviso (i) to Sub-section (1) (a) of Section 4 of the Central Excises and Salt Act, 1944, where different prices are charged by the assessees from different classes of buyers, each such price shall constitute the normal price of the goods provided they satisfy the other ingredients of the said Section 4(1) (a). Further, as per Section 4(4)(d)(c) of the said Act value does not include the trade discount (such discount not being refundable on any account whatsoever) allowed in accordance with the normal practice of the wholesale trade at the time of removal in respect of such goods sold or contracted for sale. The quantity discounts are allowable provided they are uniformly admissible to all Independent buyers of the same class and cash account is admissible If they are available to all the buyers. One of the ingredients for 'normal price1 Under Section 4(1) (a) of the Act is that the price must be the sole consideration for the sale of goods and there should be no other consideration except the price for the sale of the goods. If the price, in a particular transaction, is not the sole consideration and there is some additional consideration flowing directly or indirectly from the buyer to the assessee, either in cash or in any other form, the additional consideration quantified in terms of money value is to be added to the price declared by the assessee for determining the normal price of the goods. Rule 5 of the Central Excise (Valuation) Rules, 1975 provides that "Where the excisable goods are sold in the circumstances specified in Clause (a) of Sub-section (i) of Section 4 of the Act except that the price is not the sole consideration, the value of such goods shall be based on the aggregate of such price and the amount of the money value of any additional consideration flowing directly or indirectly from the buyer to the asses-see". In the case of A.K. Roy v. Voltas Ltd., AIR 1973 SC 225, their Lordships of the Hon'ble Supreme Court while holding that it is not correct to say that the price of sales to wholesale dealers would not represent the 'wholesale cash price' for the purpose of Section 4(1) of the Central Excises and Salt Act merely because the manufacturer has entered into agreements with them stipulating for commercial advantages added that there can be no doubt that 'wholesale cash price' has to be ascertained only on the basis of transactions at arms length. If there is a special or favoured buyer to whom a specially low price is charged because of extra-commercial considerations, the price charged for these sales would not be the 'wholesale cash price' for levying excise duty Under Section 4(a) of the Act. In the instant case from the findings recorded by the authorities below as extracted above with which we have agreed it stands established that M/s. Ponds (India) Ltd., was a special and favoured buyer to whom a specially low price was charged because of extra-commercial considerations and the transaction was not at arms length. The case law cited by the learned counsel for M/s. Metal Box India Ltd. is not apt to the instant case in view of its peculiar facts and circumstances. On the other hand the case of Union of India v. Bombay Tyre International Ltd., 1983 ELT 1896 (S.C.) cited by the learned counsel for the appellants M/s. Metal Box India Ltd. supports our view. In that case their Lordships of the Hon'ble Supreme Court had categorically held that since under new Section 4(1) (a) the price should be the sole consideration for the sale, it will be open for the Revenue to determine on the basis of evidence whether a particular transaction is one where extra-commercial consideration has entered and, if so what should be the price to the taken as the value of the excisable article for the purpose of excise duty and that is what exactly has been done in the case and after analysing the evidence on record it is found that extra-commercial consideration had entered into while fixing the price of the metal containers to be supplied by M/s. Metal Box India Ltd. to M/s. Ponds (I) Ltd.
15. In view of the above we reject the contention of the learned counsel for the appellants M/s. Metal Box India Ltd. that the rebate and discount in question should not be included while arriving at the assessable value.
16. As regards interest on advances : Shri S. Krishnamurthy, learned SDR appearing for the department contended that the Collector (Appeals) erred in setting aside that portion of the Assistant Collector's Order whereby he ordered for loading of interest accruing on the advances made by M/s. Ponds (I) Ltd. to the appellants M/s. Metal Box India Ltd. with the assessable value. In reply Shri N. Mookherjee contended that the Collector (Appeals) was right in holding that the notional percentage of interest could not be added in the normal price. He emphasised that huge advances were made by M/s. Ponds (I) Ltd., in pursuance of their contract to lift 90% product.
17. From the record we find that the Assistant Collector ordered for loading of the interest accruing on the advances made by M/s. Ponds (I) Ltd. to the appellant company while arriving at the assessable value and while ordering so inter alia held that M/s. Ponds (I) Ltd. had given huge advances to the appellants M/s. Metal Box India Limited free of interest and according to proviso (i) to Sub-section (1)(a) of Section 4 of the Central Excises and Salt Act, 1944, where different prices are charged by the assessees from different classes of buyers, each such price shall constitute the price of the goods provided they satisfy the other ingredients of the said Section 4(i)(a). One of the ingredients for 'normal price' Under Section 4(1) (a) of the Act is that the price must be the sole consideration for the sale of goods and there should be no other consideration except the price for the sale of the goods. If the price, in a particular transaction, is not the sole consideration and there is some additional consideration flowing directly or indirectly from the buyer to the assessee, either in cash or in any other form, the additional consideration quantified in terms of money value is to be added to the price declared by the assessee for determining the normal price of the goods and that according to column 9 of the agreement executed, the advance paid by M/s. Ponds India Ltd. is to be used for the specific purpose of covering raw and ancillary materials and keeping them in stock to meet minimum three or more months requirements of the buyer. This fact has been admitted by the assessees and they themselves have stated that they keep a sizable advance from M/s. Ponds India Ltd. to ensure "maintenance of adequate stock of raw material and finished goods by them so as to maintain an uninterrupted and regular flow of supplies to M/s. Ponds India Ltd". This would mean that M/s. Metal Box India Ltd., had obtained the advance for utilising them as their capital for the purchase of raw materials and in consideration of that a reduction had definitely been shown in the sale price to M/s. Ponds India Ltd. The extent of such reduction can reasonably and justifiably be attributed to the interest amount payable on the advance, which had M/s. Metal Box India Ltd. obtained from any other source with interest bearing loan such interest elements would have been loaded on to the cost of manufacture and sale price to the metal containers, naturally increasing the present price adopted towards M/s. Ponds India Ltd.
18. However, the Collector (Appeals) did not agree with the said findings and set aside the same observing as follows -
"The other question involved in the appeal is the loading of such interest percentage with the assessable value for loans taken by appellants from customers which has been ordered by the Assistant Collector. On this point, I am unable to agree with the Assistant Collector, inasmuch as, when interest is not payable, and arbitrary percentage of interest cannot be calculated and loaded to the assessable value, inasmuch as no deduction has been allowed on account of such interest rates, from the price as per agreement. It is possible that due to such financial accommodation, provided by customer, the appellants have allowed the above stated discounts, which I have held above, are not admissible. In any event, to add percentage of interest with the wholesale price, as per the contract, definite evidence has to be produced by the department that such percentage has been deducted from the price, because of consideration of interest free loan. I am therefore unable to confirm the view of the Assistant Collector that percentage of interest is also to be added in the normal price...."
19. We have considered the submissions made by the parties. It is not in dispute that huge advances were made by M/s. Ponds (I) Ltd. to the appellants M/s. Metal Box India Ltd. free of interest. From the record it is clear that after the agreements were entered into, the appellants M/s. Metal Box India Company were at all times holding advances of Rs. 75 lakhs in 1980, Rs. 100 lakhs in 1981 and Rs. 200 lakhs in 1982 free of interest and these advances were maintained at the same level on the first working day of every month as specifically provided for in the agreement. Column 9 of the agreement which is identically worded (except the amount of advance) in all the three agreements runs thus -
"9. The Buyers having undertaken to pay the Sellers on the basis of the terms and conditions of this agreement have paid them an advance of Rs. 75,00,000 (Rupees severnty five lakhs only) on 1st August, 1980 and also have undertaken to pay such further amounts as may be mutually agreed upon, depending on the size of the orders placed with the Sellers, to be used for the specific purpose of covering raw and ancillary materials and keeping them in stock, consistent with and sufficient to meet minimum 3 or more months requirements of the Buyers, depending on the size of the orders placed by them with the Sellers from time to time and mutually agreed upon. The Sellers shall further so plan their inventory and keep stocks of finished goods as to be able to meet the Buyers minimum 3 or more months' requirements taking into account the fluctuations, if any, provided that the Buyers shall give adequate notice of changes in design or other marketing consideration, to avoid redundancy of such finished goods and components."
From the above it is clear that the aforesaid advances were made to the appellant company to be used for the specific purpose for covering raw and ancillary materials and keeping them in stock sufficient to meet the minimum three or more months requirements of the buyers, depending on the size of the orders placed by them with the Sellers from time to time and mutually agreed upon with a further condition that the Sellers i.e. to say the appellants M/s. Metal Box lndia Ltd. shall further so plan their inventory and keep stocks of finished goods as to be able to meet the buyers minimum 3 or more months requirements taking into account the fluctuations, if any. In other words M/s. Ponds (I) Ltd. provided the capital free of interest by way of huge advances which are not conceivable in the normal trade, for the purchase of raw materials to manufacture the metal containers and to keep the metal containers so manufactured ready in stock to meet minimum three or more months requirements of M/s. Ponds (I) Ltd. It is to be remembered that huge advances so made by M/s. Ponds (I) Ltd. were free of interest. These advances were not in the nature of security deposit. According to Clause 8 of the agreement under the heading "Advances" the appellant company was given a right to retain the said advance amount so long as the agreement lasts. The said clause runs thus -
"(b) The Buyers shall on the first working day of each month appropriate out of the advance of Rs. Seventy-Five Lakhs or more aforesaid, the value of the supply made during the previous months.
(c) The Buyers undertake that if the advance remaining with the Sellers after adjustment of the value under Clause (b) above fall below Rs. Seventy-Five Lakhs they shall make good the difference so however, that the Sellers may retain an advance of at least Rupees seventy-five lakhs."
Hence it is clear that the buyer M/s. Ponds (I) Ltd. supplied the capital to the appellants M/s. Metal Box India Ltd. free of interest for utilising it in purchasing the raw materials for manufacturing the metal containers to be supplied to the buyer M/s. Ponds (I) Ltd.
20. Thus, under these circumstances, in our opinion the Assistant Collector was right in holding that the appellants M/s. Metal Box India Ltd. had obtained the advance for utilising them as their capital for the purchase of raw materials and in consideration of that a reduction had definitely been shown in the sale price to M/s. Ponds (I) Ltd. Consequently, the extent of such reduction can reasonably and justifiably be attributed to the interest amount payable in the advance, which had the appellants M/s. Metal Box India Ltd. obtained from any other source with interest bearing loan, such interests elements would have been loaded on to the cost of manufacturers sale price to the metal containers, naturally increasing the present price debited towards M/s. Ponds (I) Ltd. In the case of Union of India v. Bombay Tyre International Ltd., supra in para 49, their Lordships of the Supreme Court has expressly stated that "Where the price contemplated under the old Section 4(a) or under the new Section 4(1) (a) is not ascertainable, the price is determined under the old Section 4(b) or the new Section 4(1 )(b). Now, the price of an article is related to its value (using this term in a general sense), and into that value how poured several components, including those which have enriched its value and given to the article its marketability in the trade. Therefore, the expenses incurred on account of the several factors which have contributed to its value upto the date of sale, which apparently would be the date of delivery, are liable to be included. Consequently, where the sale is effected at the factory gate, expenses incurred by the assessee upto the date of delivery on account of storage charges, outward handling charges, interest on inventories (stocks carried by the manufacturer after clearance)...cannot be deduted."
21. In the result we agree with the Assistant Collector that the interest accruing on the advances be added to the price while arriving at the assessable value.
22. As regards the contention as to whether the demand was time barred : Shri N. Mookherjee, learned counsel for M/s. Metal Box India Limited contended that the demand so far as it relates to the recovery of duty prior to 27.12.83 was barred by limitation of six months and the extended period of 5 years Under Section 11A of the Central Excises and Salt Act, 1944 could not be invoked because failure to submit the financing agreements entered with M/s. Ponds (I) Ltd. does not amount to material suppression of facts. We have considered the arguments and find no force in it. It is not in dispute that there were financing agreements between the appellants (M/s. Metal Box India Ltd.) and M/s. Ponds (I) Ltd. under which M/s. Ponds (I) Ltd., advanced a huge amount of Rs. 75 lakhs in 1980, one crore in 1981 and two crores in 1982 free of interest for the specific purpose of covering raw and ancillary materials and keeping them in stock sufficiently to meet minimum three or more months requirements of the buyer namely, M/s. Ponds (I) Ltd. These agreements were admittedly suppressed by the appellants M/s. Metal Box India Ltd. and were never disclosed to the department. It is on record that the normal price, that is to say, the price at which such goods are sold to M/s. Ponds (I) Ltd. were not declared in the Price Lists. What was declared in the Price Lists was a discounted price whereas the requirement of Section 4 of the Central Excises and Salt Act is that normal price, that is the price at which such goods are ordinarily sold by the assessee should be stated and from this price discount as admissible Under Section 4(4), ibid can be availed of. In the instant case the appellant M/s. Metal Box India Ltd. did not state the normal price and what they stated was the discounted price or the net price as they called it. A perusal of Price List proforma in Part-ll Form for exciseable goods for sale to class of buyers (not being related persons) Under Section 4(a) - proviso (1) would show that Column No. 4 and 5 of the Form is for declaration of the price at which such goods are ordinarily sold in the course of the wholesale trade. Column 6 and 7 are for cost of packing. Column 8 and 9 are for normal trade discounts and Column 10 and 11 are for other deductions, if any, claimed from the price and Column 12 is for value as claimed by the assessee for approval. In the instant case the appellants M/s. Metal Box India Ltd. instead of showing the undiscounted price in Column 4 and 5 and claiming from that undiscounted price the admissible discounts showed only discounted price in Column 4 and 5 of the Price Lists filed by them for approval. Thus they precluded the department from considering the nature of the discounts allowed by them on their own and coming to any conclusion as to their admissibility or inadmissibility. In a nutshell according to the existing law/rules, the manufacturer ' is to declare in the price lists, the selling price and claims of abatement from such price under whatever heading he may choose and arrive at the assessable value and seek the approval of the Department and the Department in turn is to allow whatever abatement it considers are admissible and accord approval for the final assessable value. In this case, M/s. Metal Box India Ltd. had failed to disclose the sale price truly reflecting the discounts, abatements and considerations as should have been declared to the Department, but had only declared the net selling price, thereby suppressing the true and full facts to the Department. Thus, we reject the contention of the learned counsel for the appellants that the demand was time barred and hold that the extended period of 5 years for raising the demand was available to the Department as the appellants M/s. Metal Box India Ltd. was guilty of intentionally suppressing the material facts. In this view of the matter we are supported by the decisions rendered by this Tribunal in the case of Kerala State Detergents & Chemicals Ltd. v. Collector of Central Excise, 1987 (27) ELT 323 and Alms Oxygen Pvt. Ltd. v. CCE, 1988 (36) 151.
23. In the result we dismiss the appeal filed by the appellants M/s. Metal Box India Ltd. The appeal filed by the department is allowed and that part of the Impugned order whereby the Collector (Appeals) had modified the order of the Assistant Collector to the effect that interest accruing on the advances made by M/s. Ponds (I) Ltd. should not be Included while arriving at the assessable value Is set aside and the order of the Assistant Collector Is restored.