Kirpal, J. - (1.) These appeals involve for decision the question whether notional interest on the interest free security deposit received should be considered for the purpose of arriving at the assessable value under the Excise Act by including interest at the rate of 12% per cent per annum on such security deposits.
(2.) VST Industries Ltd. (appellant in CA No. 2524/92) is a company carrying on business of manufacture and sale of cigarettes which was assessable to duty under the erstwhile Item No. 4 of the First Schedule to the Central Excise and Salt Act, 1944. The other two appellants, namely, Venus Tobacco Company Pvt. Ltd. (appellant in CA No. 2523/92) and Hyderabad Deccan Cigarette Factory Ltd. (appellant in CA No. 2611/92) are also cigarette manufacturers and use their plant and machinery to manufacture cigarettes for and on behalf of VST Industries Ltd. (hereinafter referred to as "VST"). The question involved in these appeals, therefore, relates to the fixation of the assessable value of the cigarettes manufactured and sold under the brand name owned by VSI.
(3.) The undisputed facts are that the cigarettes manufactured by the appellants are sold in wholesale, ex-factory, at cum-duty prices to main dealers who buy these cigarettes on a principal-to-principal basis. The main dealers in turn sell the cigarettes to other wholesale dealers called sub-dealers who in turn sell these cigarettes to the retailers. The cigarettes were being sold by the appellants either on cash-and-carry basis or by extending credit facilities to few of the main dealers. As the appellant company, namely, VST found that several of the main dealers were taking considerable time in making remittances for cigarettes which were delivered to them, they issued a circular dated 22nd September, 1981 whereby it introduced credit facility if interest free security deposits were made with the company. In the said circular it was written that "with a view to provide the facility of such credit to its customers and to safeguard itself against the commensurate risk and for introducing some uniformity the company now proposes that w.e.f. 1-10-1981 those of its main dealers as are desirous of getting credit facilities would have to keep security deposit (interest free) with the Company equivalent to about 21 days of their normal monthly purchases. It is of course entirely up to the main dealers to request for this facility and they will be at full liberty to take delivery against payments if they do not want to make the security deposit. The company reserves the right to apply the amount of security deposit towards payment of unpaid price or any other amounts which may be due to the buyer to the company or any account whatsoever. On discontinuation of trading with the buyer the company will return the security deposit or the balance if any remaining after the company has deducted/adjusted any amount due to the company by the buyer on any account whatsoever and this will be strictly without prejudice to and in addition to the company's other right. A copy of the revised conditions of sale for cigarettes effective from October 1, 1981 are annexed herewith. In the event of your desiring to avail yourself of the credit facilities kindly send a letter as per the form enclosed for your convenience.";