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CASE NO.: Appeal (civil)  1564 of 1999

PETITIONER: Commissioner of Central Excise New Delhi

RESPONDENT: M/s Hero Honda Motors Ltd.

DATE OF JUDGMENT: 13/04/2005

BENCH: S.N. VARIAVA, Dr. AR. LAKSHMANAN & S.H. KAPADIA

JUDGMENT: J U D G M E N T

O R D E R

       This appeal is against the judgment of the Customs,  Excise & Gold (Control) Appellate Tribunal, New Delhi dated  6th October, 1998.

       The question which arises for determination is : whether  receipt of advance and the income accruing thereon has gone  towards depreciation of the sale price.

       A conspectus of decisions show that inclusion of notional  interest in the 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 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  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 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 shown 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

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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.

       At the outset, we may point out that in this case the  Annual Reports of 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 in various securities/deposits  leaving a balance of Rs.4.42 crore [see Schedule 4].  The said  schedule further indicates utilization of capital gains and  interest income to reduce the liability under the said head.   That, the said schedule 4 indicated not only liquidation of  liabilities under the head "customers advances" by utilization of  income on investments from such advances, they also indicated  flowback of the benefits from the customers to the assessee.   Moreover, the income from such investments was shown under  the head "Sales & Other Income".  The said "Other Income"  included interest on deposits, profit on sale of units and income  from units [schedule 10].  Even the Report of the Directors  under the head "Financial Reports" show that the profits of the  company have been based on implication of Sales with Other  Incomes.  For example, for the year 1985-86, Sales & Other  Incomes were of Rs.49.20 crore (rounded to "0") out of which  Income from Sales was Rs.45.02 crore (rounded to "0")  whereas Rs.4.06 crore was on account of Other Income.   Therefore, according to the adjudicating authority, the total  income (Sales & Other Income) contributed to the profits which  had a direct impact on pricing.  According to the adjudicating  authority, the said "Other Income" had contributed to the  pricing.  That, but for the said "Other Income", it was not  possible for the company to sell the motorcycles at a price  lower than the unit cost of production.  Lastly, the adjudicating  authority found on facts that since interest paid at 9% to the  customers was indicated as an expense, the income on the  investments from the advances was includible in the assessable  value.  This aspect has also not been considered by the tribunal.                    For the above reasons, we hold that the tribunal has  disposed of the appeal before it in a most perfunctory manner  without going into any figures at all but by merely on the  statement made by counsel and on the basis of material which  appears to have been produced first time before the tribunal.   We, therefore, set aside the order of the tribunal and remand the  matter back to the tribunal.  The tribunal will consider in detail,  if necessary, by taking the help of a Cost Accountant and after  looking into the accounts of the respondent whether or not the  advances or any part thereof have been used in the working  capital and whether or not the advances received by the  respondent and/or the interest earned thereon have been used in  the working capital and/or whether it has the effect of reducing  the price of the motorcycle.  The tribunal to so decide on the  material which was placed before the Commissioner and not to  allow any additional documents/materials to be filed before it.   None of our observations made herein shall bind the tribunal to  which this case is remitted.

       We may clarify that in the event of tribunal coming to the  conclusion that additional consideration flowed back from the  consumer to the assessee then the value of the benefit shall be  ascertained by the tribunal with the assistance of a Cost  Accountant.

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       The question of limitation is for the present left open to  be decided, if necessary, in the appeal which may be filed to  this Court from the order of the tribunal.  The appeal stands  disposed of accordingly. 26955