Circular No. 194/28/96-Central Excise

dated 29/3/96
F.No. 6/5/96-CX.1

Government of India

Ministry of Finance

Department of Revenue

Central Board of Excise and Customs, New Delhi

Subject: Levy of Central Excise duty on interest recovery payment- Board”s ruling under Section 37-B Order- Clarification reg.

In the Case of  U.O. I. & Others v. M.R.F. Ltd & others, the Hon”ble Supreme Court in its order dated 3.5.95 has decided that in case of sales where payments are received quite dated 3.5.95 has decided that in case of sales where payments are received quite some time later if interest is charged from the date of delivery of goods till the date of realisation of the price thereof, such interest is excludable from the value of the goods.

Commissioner of Central Excise, Pune has reported that some assessees are interpreting this judgement so as to claim deduction of interest which is actually not charged by them from the customer but which they claim is incurred by them as a cost by way of interest on receivable which remains outstanding and has sought for the clarification of the Board in the matter.

The matter has been examined in the Board and it is hereby clarified that deduction of interest on receivables connot be permitted from the Assessable Value of excisable good if the interest is not charged over and above the sale price of such goods. The backing for this stand in available in supreme Court”s reasoning for excluding the interest on receivables, viz., such amounts are received subsequent to sale of excisable goods. If the assessees are claiming that such interest costs are inbuilt in the price, they cannot be deducted from the wholesale price because by their very nature these costs would then be part of the price known prior to sale.

(S.C. Bhatia)
Under Secretary of the Govt. of India

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