of Central Excise New Delhi Vs. M/S Hero Honda Motors Ltd  Insc 251 (13 April 2005)
Variava, Dr. Ar. Lakshmanan & S.H. Kapadia
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.
question which arises for determination is : whether receipt of advance and the
income accruing thereon has gone towards depreciation of the sale price.
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.
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 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
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.
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.
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.
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.
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.
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.
of our observations made herein shall bind the tribunal to which this case is
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
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.