Holding

Interest on receivables arising from a credit sale and bank/collection charges are deductible from the assessable value of goods, and the Tribunal erred in limiting the investigation to invoices that mention a payment period.

Summary

A Infrastructure Ltd., a manufacturer supplying goods to Government and public sector undertakings, claimed deductions for interest on delayed payments (3‑12 months) and bank/collection charges under Section 35L(b) of the Central Excise Act, 1944. The assessing authority, appellate authority and the Central Excise, Customs and Gold (Control) Appellate Tribunal rejected the claim, holding that the contract did not expressly provide for interest and that the Tribunal should limit its inquiry to invoices that specified a payment period. The Supreme Court held that the presence of a payment period indicates a credit sale and that interest on receivables, as well as bank charges, are post‑manufacturing expenses deductible from the assessable value, but the period mentioned is not a decisive factor. The Court directed the authorities to investigate the entire matter, not just the limited aspect, and modified the Tribunal’s order. Consequently, the appeals were allowed.

Issues considered

Whether interest accruing on advances/receivables is deductible from the price for valuation under Section 35L(b) of the Central Excise Act, 1944.
Whether bank charges and collection charges are deductible from the assessable value of the goods.
Whether the mere inclusion of a payment period in the invoice is a decisive factor for allowing such deductions.

Legislation cited

Central Excise Act, 1944s. 35L(b)

Subjects

central excisevaluationinterest on receivablesbank chargescredit saleSection 35L(b)deductionassessable valuegovernment contracts

Judgment

A A. INFRASTRUCTURE LTD.
.
V.

COMMISSIONER OF CENTRAL EXCISE, JAIPUR

MAY 5, 2004

B [S. RAJENDRA BABU, CJ. AND G.P. MATHUR, J.] ,

Central Excise Act, 1944; Section 35L(b) :

Valuation-Goods manufactured and sold by the ussessee to
C Government/Public Section Undertakings-Delay in payment of price-
Deduction on interest accrued on receivable/advances and bank charges-
Rejected by Revenue authorities-Affirmed by Central Excise and Gold
Control Appellate Tribunal on ground that the contract did not specifically
provide for stipulation as to payment of interest-On appeal, Held :
D Mentioning of a particular period of payment in the agreement to sale
invoice indicates that the payment would not be made immediately-It
could be termed as credit sale-Deductions could be allowed on interest
charged thereto-However, the circumstances as noticed by the Tribunal
itself could not be a decisive factor-Hence, the Tribunal ought not to have
E directed the authorities concerned to confine their investigation to the
limited aspect of the matter but should have directed them to investigate
the entire matter-Interest on receivable on account of time lapse in
realization of price and also bank charges whether deductible from the
price/valuation of the goods--Revenue authorities to examine--Tribunal's
order modified accordingly.
' -
F
Assessment-Bank charges-Deductions-Held : They are in the
nature of post-manufacturing and post-clearing expenses and could be
deductible from the assessable value of the goods.

G The question which arose for consideration in these appeals was
as to whether interest accruing on advances and Bank charges are
deductible from the price for the purpose of assessment of value of the
goods.

H Allowing the appeals, the Court
108
A. INFRASTRUCTURE LTD. v.C.C.E 109

HELD: 1.1. The question whether in a given case the price structure A
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 B
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. Hence, 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 C
investigated the entire matter. [112-F-G-H]

1.2. 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 D
expenses and should be deductible from the assessable value. It cannot
be stated that such expenses would form part of the sale price. Further,
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 excludible from the price while calculating the E
assessable value of the goods. Hence, the order of the tribunal is
modified and the authorities to whom the matter have been remanded
are directed to examine the question as to whether interest on
receivables arises on account of time lapse between the delivery of
goods and the realization of monies is deductible from the assessable
value of the goods at the time of removal from the factory of the F
assessee and as to whether the bank charges includible in the price on
account of clearance of outstation cheques. [113-A-B, D, F-G]

Commissioner ofCentral Excise, New Delhi v. Vikram Detergent Ltd.,
[2001] 2 sec 417; Asstt. Collector of Central Excise & Ors. v. Madras G
Rubber Factory Ltd., (1986] Supp. SCC 751 and Shriram Fertilizers &
...
Cher/iicals v. Union of India, (1997) 96 ELT 12..., SC, relied on .

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 5756-59
~~. H
l!O SUPREME COURT REPORTS [2004] SUPP. 2 S.C.R.

A From the Judgment and Order dated 6.6.2000 of the Central Excise,
Customs and Gold (Control) Appellate Tribunal, New Delhi in E.O. Nos.
348-355/2000-A in A. Nos. E/1698-1701/99-A, E/1077/98-A, E/1278/99-
A and E/14-15/2000-A.

D.A. Dave, R.N. Karanjawala, Ms. Ruby, S. Ahuja, Ms. Seema
Sundd, Mrs. Manik Karanjawala for the Appellant.

Ranjit Kumar, T.A. Khan and B.K. P,rasad for the Respondent.

The Judgment of the Court was delivered by
c
RAJENDRA BABU, CJ. : 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). 1.n that proceeding the appellant raised two
D 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
E 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
... -
F 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
G 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
H indefinitely delayed or where the dealer refuses to pay the price,
- A. INFRASTRUCTURE LTD. v.C.C.E. [RAJENDRA BABU, CJ.]

the sale price will stand wiped off, because the interest may A
111

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 B
till the realisation of the price should be understood 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."
c
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 D
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. v.
Madras Rubber Factory Ltd., [1986] Supp. SCC 751. This decision again
came up by way ofreview in the decision reported in Government pfIndia
& Ors. v. Madras Rubber Factory Ltd. & Ors., (1995] 4 SCC 349. In the E
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 F
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 G
received subsequent to the sale from the depots and does not fall
within the ambit ofany of the expenses held includable in Bombay
Tyre International, it is clearly excludable. The claim for this
l
deduction is, therefore, allowed."
(emphasis supplied)
H
112 SUPREME COURT REPORTS [2004] SUPP. 2 S.C.R.
A 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 ifthe assessee is claiming interest out of the price mentioned .•
B 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.

c 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.

D This Court clearly stated in 1995 (77) EL T 433 that since the
amount is received subsequent to the sale from the depots and does not
fall within the ambit ofany of the expenses held includible in Bombay Tyre
International, it is clearly excludible and the claim for this deduction
should, therefore, be allowed.
E
In cases where buyers do not make payments immediately against
delivery of the goods but payments are received subsi:quently 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
F li>e 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
G 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
H and should have let the entire matter investigated as indicated by us.
A. INFRASTRUCTURE LTD. v.C.C.E. [RAJENDRA BABU, CJ.) 113

Next we have to consider deduction of the bank charges and A
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 B
of the sale price. The view taken by us finds support from the decision of
this Court in Commissioner of Central. Excise, New Delhi v. Vikram
Detergent Ltd., [200 I] 2 SCC 417, which conclusion was arrived at by this
Court after examining earlier decisions of this Court in Asst. CCE v.
Madras Rubber Factory Ltd. [supra], Shriram Fertilizers & Chemicals v. C
Union of India, (1997) 96 ELT 12 (SC), and Government of India v.
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 D
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 v. Vikram Detergent Ltd. case (supra) fully
E

covers both the questions in this case and, therefore, we have no hesitation
in modifying the order of the Tribunal to direct the authorities to whom
the matters have been remanded to examine the question whether interest F
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 ..
G
The appeals stand allowed accordingly.

S.K.S. Appeals allowed.

H