The issue regarding inclusion of notional interest on advance deposits in the assessable value of excisable goods has been re-examined by the Board in view of several references received from the field formations and the trade seeking clarifications.

2.    In this connection, Board reiterates the Law Ministry's opinion dated 28.9.84 as circulared under F.No. 2/2/86-CX.I dated 20.10.86 holding that:

"It will be for the Department to establish that such additional consideration has nexus with the sale price of the excisable goods. The Department should also be in a position to determine the amount of the money value of such additional consideration. If there is no such nexus or if the Department is not in a position to determine the money value of the additional consideration, the provisions of Rule 5 of the Central Excise (Valuation) Rules, 1975 would not be applicable."

4.    When the matter was again consulted with Law Ministry in view of the above two judgements, the Law Ministry, on 19.4.96, reiterated the views already expressed by them under their earlier note dated 28.9.84.

5.    Now the Supreme Court has delivered another judgement on 8.1.98 in case of M/s VST Industries Ltd. vs. CCE Hyderabad [1998 (97) ELT 395 (SC)] holding inter alis:

"There is nothing on record to show that the receipt of the deposit from some of the dealers could possibly influence the fixation of the sale price even with regard to those sales which are made at the factory gate against cash and not on credit. Had there been a difference in the selling price where for example special discount was given to the dealer who had given a deposit that 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 could be added ...... There is nothing to show that there was any special consideration which was shown to the dealers who has given the security deposit. Nor has it been shown by reference to any documents or data that because of the receipt of such deposit the price charged from all the buyers was reduced..... There was no justification for disregarding the uniform wholesale price which was being charged from all the dealers and adding the element of notional interest of the security deposit to the said price". (emphasis added)

(i)    The notional interest on advances deposited by the wholesale buyers would be included for the purpose of determination of assessable value if the deposit influences the fixation of sale price either by way of charging a less price from or by offering a special discount to the buyer who has given the deposit.

(ii)    If two different price exist, one for the wholesale buyer who has deposited the advance and the other for the wholesale buyer who has not deposited the advance, they would form two different classes of buyers and two different assessable values can be arrived at. For the wholesale buyer depositing the advance, the notional interest on advance deposit should be added for the purpose of determination of the assessable value.

(iii)    If there is no difference in the selling price for both categories of the wholesale buyers and there is also no proof that on account of advance deposits taken from some buyers, the price charged from all buyers has been reduced, then element of notional interest on advance deposits cannot be added.

(iv)    If the interest earned/ saved on such advance deposits is credited to the buyer calculated at a rate lower than the normal bank rate, the difference in both interest rates should be equivalent to the extent of benefit derived by the manufacturer. The money value of the extent of benefit should be quantified and added for the purpose of determination of the assessable value.