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CASE NO.: Appeal (civil)  5756-59 of 2000

PETITIONER: A. Infrastructure Ltd.

RESPONDENT: Commissioner of Central Excise, Jaipur

DATE OF JUDGMENT: 05/05/2004

BENCH: CJI & G.P. MATHUR.

JUDGMENT: JUDGMENT

RAJENDRA BABU,  CJI. :

       These appeals are filed under Section 35L(b) of  the Central Excise Act, 1944 against an order passed  by the Customs, Excise and Gold (Control) Appellate  Tribunal (hereinafter referred to as  the Tribunal).  In  that proceeding the appellant raised two issues,  namely,  (i) whether the interest accruing on advances  are deductible from the price or not,  and (ii) as to  deduction of the bank charges and collection charges.    

       During the relevant period, the appellant  manufactured and sold the goods principally to  Government and Public Sector Undertakings. On  account of the fact that the payments were not effected  against delivery or within any specified period, the  payments of the prices became delayed averaging  between 3 to 12 months and, therefore, the appellant  claimed deduction in respect of interest of such  receivables calculated for the period between the date  of removal till the date of realisation of payment.   The  deduction so claimed was supported by Certificate of  Chartered Accountant for the relevant period.   Deductions were also claimed in the price list filed from  time to time.   The assessing authority, the appellate  authority and Tribunal rejected the claim made by the  appellant on the basis that the contract did not  specifically provide for payment of such interest on  sales on credit.   The Tribunal stated the matter of law  as follows :-

"The interest so deductible is only the  interest for the period mentioned in the  invoice, otherwise  it will lead to unintended  consequences. In cases where payment to  the manufacturer is indefinitely delayed or  where the dealer refuses to pay the price, the  sale price will stand wiped off, because the  interest may exceed price. In such a case,  are not the goods liable to excise duty ?   The  answer can only be emphatic ’no’.   Excise  duty is on the manufacturer of the goods.  It  is not depending on the issue as to whether  the manufacturer gets the price of the goods  from the dealer or not.  So, the interest  charged from the date of delivery till the  realisation of the price should be understood

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with reference to the period fixed in the  invoice.   If the invoice provides a specific  period up to thirty days for effecting  payment, interest from the date of delivery  till the expiry of that period of thirty days  alone is deductible from the price mentioned  in the invoice."

       This part of the order is challenged apart from  other aspects to which we will advert to a little later.

       It is pointed out that this Court had occasion to  examine the question as to the value of the goods on  the date of removal whether interest on the price for  the period during which the payment is deferred has to  be deducted or not in the case of Asst. Collector of  Central Excise & Ors.  vs. Madras Rubber Factory  Ltd., 1986 Supp. SCC 751.  This decision again came  up by way of review in the decision reported in  Government of India & Ors. vs. Madras Rubber  Factory Ltd. & Ors., 1995 (4) SCC 349.  In the  second judgment, this Court stated as follows :-

"The case of the assessee (Madras Rubber  Factory)  is that where the goods are sold to  upcountry wholesale buyers and payments  are received quite sometime later,  it is  indeed a case of sale on credit and,  therefore,  the interest charged from the date  of delivery of goods till the date of realisation  of the price thereof should be deducted from  the value of the goods.  The interest charged,  it is submitted, is only in lieu of the time  taken in making the payment by the  upcountry wholesale buyer.   Since this is the  amount received subsequent to the sale from  the depots and does not fall within the ambit  of any of the expenses held includable in  Bombay Tyre International, it is clearly  excludable.  The claim for this deduction is,  therefore, allowed." (emphasis supplied)

         A circular was also issued by the Government  which is to the effect that interest on receivables  cannot be permitted to be deducted from the  assessable value if the interest is not charged over and  above the sale price of the goods.   However, this  aspect was not accepted by the Tribunal. It was held  that if the assessee is claiming interest out of the price  mentioned in the invoice, when the period for its  payment is mentioned and when the invoice makes it  clear that the sale is on credit, interest on the amount  for the period of credit permitted must be a permissible  deduction and it must be excluded from the price fixed  in the invoice for finding out the assessable value.    

          The question whether the interest that is payable  on the sale price that is not yet paid by the customer is  built into the price structure or not and, therefore,   should be deducted from the value of the goods needs  to be examined.  

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       This Court clearly stated in 1995 (77) ELT 433  that since the amount is received subsequent to the  sale from the depots and does not fall within the ambit  of any of the expenses held includible in Bombay Tyre  International, it is clearly excludible and the claim for  this deduction should, therefore, be allowed.    

       In cases where buyers do not make payments  immediately against delivery of the goods but  payments are received subsequently it would indeed   be a case of sale of credit and, therefore, interest is  chargeable from the date of delivery of goods till the  realisation of price thereof and should be deducted  from the value of the goods.   The question whether in  a given case the price structure itself includes the  interest charged or not is a matter for establishment on  evidence.   The fact that a particular period for  payment is mentioned would indicate that the payment  is not to be made immediately but at a subsequent  date and that is credit sale and interest could be  charged and deducted out of the sale price.  But that  circumstance, by itself, is not a decisive factor.   Therefore, the Tribunal while remanding the matter  should not have limited the investigation of the matter  only to cases where the period has been subsequently  stated in the invoice.  Therefore, we are of the view  that the Tribunal ought not to have confined the  investigation by the concerned authority after remand  to only that aspect of the matter and should have let  the entire matter investigated as indicated by us.

       Next  we have to consider deduction of the bank  charges and collection charges.  We must make it clear  that if the invoice price is the basis for valuation bank  commission or interest charges payable to the bank in  the account of the customer are definitely in the nature  of post-manufacturing and post-clearing expenses and  should be deductible from the assessable value.  It  cannot be stated that such expenses will form part of  the sale price.  The view taken by us finds support from  the decision of this Court in Commissioner of Central  Excise, New Delhi vs. Vikram Detergent Ltd.,  2001  (2)  SCC 417,  which conclusion was arrived at by this  Court after examining earlier decisions of this Court in  Asst. CCE  vs. Madras Rubber Factory Ltd. [supra],  Shriram Fertilizers & Chemicals vs. Union of India,   (1997) 96 ELT 12 (SC),  and Government of India vs.  Madras Rubber Factory Ltd. [supra].   These three  cases were adverted to by a Bench of three Judges to  hold that the interest on receivables arises on account  of time lapse between the delivery of goods and the  realisation of monies is deductible from the assessable  value of the goods at the time of removal from the  factory of the assessee.  For the same reason, bank  charges included in the price on account of clearance of  outstation cheques cannot form part of the price of the  goods at the time of removal and as such excludable  from the price while calculating the assessable value of  the goods.   

       Therefore, we think, it is clear that the decision in   Commissioner of Central Excise, New Delhi  vs.   Vikram Detergent Ltd. case (supra)  fully covers both  the questions in this case and, therefore,  we have no  hesitation in modifying the order of the Tribunal to

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direct the authorities to whom the matters have been  remanded to examine the question whether interest on  receivables arises on account of time lapse between the  delivery of goods and the realisation of monies is  deductible from the assessable value of the goods at  the time of removal from the factory of the assessee  and also excludes the bank charges included in the  price on account of clearance of outstation cheques.

       The appeals stand allowed accordingly.