Excise – Cestat Chandigarh: Interest on receivables is deductible from assessable value even when the interest is inbuilt in the price in invoice - Department cannot demand duty arising due to accounting treatment adopted by the appellant – Appeal allowed [Order attached]
Order Date – 29 August 2023
Parties: M/s Swaraj Engines ltd. Vs CCE-Chandigarh-I
- The Appellant, M/s Swaraj Engines Ltd., engaged in engine manufacturing, receives orders for the finished goods in terms of purchase orders ("POS") placed on the appellant and as per the purchase orders, the credit period of 30 days was offered by the Appellant to the purchasers. The value reflected on the purchase orders also includes a specified amount per engine as interest for credit period.
- Show cause notices dated 30.10.2008 & 22.01.2009 were issued to the appellant proposing the demand of excise duty on deduction of interest on receivables from the assessable value.
- After following due process, vide common Order-in-Original dated 30.04.2010 entire demand was confirmed along with interest and penalty.
- Whether interest on receivables should be deducted from the assessable value for excise duty calculation?
- The Tribunal observed that the interest on receivables has been deducted on the basis of the purchase orders and invoices wherein it is clearly mentioned that the interest on receivables is on account of credit period and interest for the credit period is inbuilt in the price. Further the department Circular dated 01.07.2002 also clarified this point.
- This issue has been considered by various benches of the Tribunal and it has been consistently held that interest on receivables is admissible to the assessee even when the interest is inbuilt in the price in invoice.
- Further in the appellant’s own case for the period January 2007 to November 2007, the department has allowed the deduction of interest on receivables and the said order has attained finality. Further, department cannot demand duty arising due to accounting treatment adopted by the appellant as held in the case of Firm Foundation & Housing Pvt. Ltd. wherein the Hon’ble High Court set-aside the demand of service tax computed on the basis of profit & loss account and held that it is irrelevant for the purposes of determination of service tax payable.
- When the demand of tax itself is not sustainable, the demand for interest and penalty is not justified and the appeal is allowed.