Judgment:
1. The appeal is directed against duty demand of Rs. 1,33,000 and penalty of Rs. 50,000. The appellants manufactured metal containers for several Industrial Companies. M/s. Sandoz India Limited is one of them.
The appellants got into a contract for manufacture and supply of 15 lakh mental containers to M/s. Sandoz India. The buyer Sandoz India advanced them Rs. 44,21,490 in a staggered manner for procurement of raw-materials payment of customs duty etc. The Central Excise Authorities held that the price adopted for assessment initially was a depressed price as it did not take into account the effect of the advance received. The orders demanding the duty and imposing the penalty followed. The appellant is aggrieved by those orders and is before us. It has been contended that in the present case the Central Excise Authorities has compared price to other buyers with the price to Sandoz India, even though the contracts covering both were not of comparable time. The price difference also is only about 5-7% which could be justified in terms of high quantity of purchase alone. It was also contended that the payment could be treated only in the nature of a deposit and no addition was required to be made. Reliance was placed on several decisions of the Tribunal , 2. The above contentions have been opposed by the learned DR stating that, in the facts of the present case, it is clear that the advance was a consideration for the price fixed. He drew our attention in particular to letter dated 4.1.89 of Sandoz. This letter discusses the financial assistance to be provided by sandoz India. With regard to pricing, the letter states that from the conversion cost of Rs. 1,655 adjustments are required to be made towards interest charges which Conwel Cans will normally incur for 45 days @16.5% on the raw material cost. The learned DR also submitted that it is settled law in the light of Supreme Court's decision in the Metal Box India Ltd. v. Collector of Central Excise, Madras reported in 1995 (75) ELT 449 that when prices are lower on account of advances made by the buyer, the benefit obtained by the assessee on account of interest free lone was required to be reloaded by hiking the price charged from the buyer to that extent.
3. It is clear from the facts of the present case that the sale to Sandoz was on contract basis. It is clear from the letter dated 4th January, 1989 of Sandoz India that advance given by Sandoz had affected the price and the price was being lowered to the extent the assessee would have paid interest on the advance. From this, it is clear that the contract price was lower on account of the interest free advance received by the appellant. In such a case, the extent of benefit obtained by the assessee on account of interest free loan from the buyer is required to be re-loaded by hiking the price charged to that extent, in view of Supreme Court decision in Metal Box India Ltd. case (supra). Therefore, the Revenue is justified in re-fixing the assessable value after making suitable addition towards interest cost on the advances. However, in the present case duly demand has been made adopting the sale price to other buyers. This action was clearly incorrect as what was required to be done while fixing the assessable value was only to neurals 7:45 AM 6/5/2006 the affect of interest free loan. Prices to other buyers could not be adopted for assessment of goods sold on contract basis to Sandoz. The duty demand is, therefore, required to be re-computed taking into account only the effect of interest free advances. For this purpose, the impugned orders are set aside and the case is remitted back to the jurisdictional Deputy Commissioner, for passing a fresh order after allowing the appellants to produce relevant data and to make submissions. The penalty amount shall also be re-considered in the light of the re-computed duty demand.