FACTS: Buyer agreed to provide interest free advance to the appellant to help him in setting up his factory with an undertaking that the appellant would supply at least 90% of their production(tread rubber) to the said buyer. As per the agreement the buyer could either provide interest free advance or pay 90% of the interest cost, borne by the appellants in securing the finances. The interest cost was paid to the appellant but not included in the declared price of the goods. Revenue contended that the “compensation” should have formed part of the assessable value of goods sold by the appellant to the buyer based on the assessable value of goods sold to a third party & hence an undervaluation was resorted.

A Show Cause notice issued in this regard confirmed Duty Demand along with interest in respect of the non- addition of extra consideration received. Penalty was also imposed for non disclosure of such compensation before Revenue although the same was reflected in the balance sheet of the appellant

The appellant argues that interest free advance was provided for setting up the factory for uninterrupted supply of production to the said buyer & the compensation did not affect the price of the goods sold by the appellants having regard to the prevailing market price of the said goods. They submit that the final products were sold at the same price to other independent buyers also.

HELD: The following facts were confirmed:

1. The final products were sold at the same price to the said buyer & other independent buyers & adding the impugned compensation to the sale consideration would inflate the sale consideration beyond the prevailing market price (in comparison with third party) so the fact remains confirmed that the compensation was mainly given for setting up factory for continuous supply to the said buyer & should not be considered as an additional consideration & added to sale consideration. Payment of such compensation should be treated as a normal business deal.

2. Such non-disclosure (compensation) to the revenue when there is disclosure of the factual position in the balance sheets which is held to be a public document cannot be considered to be suppression or misstatement with intent to evade payment of duty.

3. Show-cause notice was issued since the compensation is being treated as additional consideration; the same should have been added with the sale price. The SCN did not specifically raise allegation that the compensation was paid was to influence sale price neither attempted to find out whether the buyer was anyway related to manufacturer to take undue advantage of deflating sale price in the guise of “compensation”. All these aspects were also essential consideration for Revenue. But no attempt was made to understand as to whether there was any intention behind the transaction to cause loss to Revenue. Hence it is difficult to decide in favour of Revenue in the absence of such specific allegation raised & no substantive evidence to support the same.

Due such limitation demands set aside & consequential relief was provided to the appellant.

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