Commissioner of Central Excise, Delhi-III, Gurgaon v. M/s B.H.P. Engineers Ltd., Gurgaon

The revenue has preferred this appeal under Section 35-G of the Central Excise & Salt Act, 1944 (for short, “the Act”) proposing to raise following substantial questions of law:-

(i) Whether the Department was justified in adding the notional interest on the advances to the sale price of the goods for the purpose of arriving at the assessable value? (ii) Whether the Excise duty is liable to be charged on the interest accrued on advance payments CEA No.39 of 2007 2 received by the assessee, from the date of receipt up to the date of clearance of excisable goods?

The assessee was given a notice making demand on the basis of notional interest accrued on advances received from customers, not included in the assessable value. The said demand was confirmed. The assessee debited the amount under protest. In appeal, the amount in question was treated as pre- deposit under Section 35-F of the Act for entertaining the appeal.

In the profit and loss account for the year 1996-97, under the head ‘Excise Duty’, entry of profit was made by the assessee on which basis refund was declined. The Appellate Commissioner held that amount deposited under Section 35-F of the Act could not have been passed on and thus, there was no question of unjust enrichment and the assessee was entitled to refund. On appeal of the revenue, the Tribunal affirmed the said view with the following observation:- “5. Admittedly, the notional interest on the advance amount taken from the customers was not includible in the assessable value. It appears from the record that the invoice covering the sale of disputed goods indicated the duty chargeable, which was paid by the customers to the assessee. The invoice value did not include any such amount of notional interest, which was not payable and which could never be added in CEA No.39 of 2007 3 the value of the goods.

Therefore, when the transaction took place, excise duty was paid by the customers on the invoice value, there was no other amount payable by the customers, in respect of the goods sold to them by the assessee, towards excise duty. Pursuant to the order-in-original made, much after the transactions, taking into account the notional interest on the advances, the amount as ordered was paid, but it was treated as pre-deposit under section 35-F of the Act for the purpose of the appeal to the Commissioner (Appeals). Such subsequent payment of the pre- deposit could not have been taken as passing on the burden of erroneously fixed additional amount of excise duty retrospectively from the date of transactions, which were on the basis of invoice value on which the excise duty was already recovered without reference to any notional interest on advances. There is, therefore, no warrant for interference with the impugned order of the Commissioner (Appeals).” We have heard learned counsel for the parties.