1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL No.3159 OF 2004
COMMISSIONER OF CENTRAL EXCISE,
INDORE ...APPELLANT(S)
VERSUS
M/S GRASIM INDUSTRIES LTD.
THROUGH ITS SECRETARY ...RESPONDENT(S)
WITH
C.A. Nos.3455/2004, 7272/2005, 2982-2985/2005, 2986/2005,
7143/2005, 2261/2006, 2246-2247/2008, 2934-2935/2008, 3528/2008,
4820/2008, 6695/2008, 2534/2009, 253/2010, 8541/2009, 445/2010,
1382/2010, 2003-2004/2010, 2430/2010, 2363/2010, 7174-7175/2010,
4696/2011, 6984/2011, 2705/2012
JUDGMENT
RANJAN GOGOI, J.
1. First, the facts:
The respondent Assessees are manufacturers of dissolved and
compressed industrial gases, liquid chlorine and other allied products.
Cotton yarn and Post Mix Concentrate manufactured by two other
individual assessees are also in issue. These articles are supplied to the
Signature Not Verified
customers in tonners, cylinders, carboys, paper cones and HDPE bags,
Digitally signed by
NEETU KHAJURIA
Date: 2018.05.12
12:36:00 IST
Reason:
BIBs, pipeline and canisters, which may be more conveniently referred to
2
as "containers". In some cases the containers are provided by the
Assessees to the customers on rent whereas in others the customers
bring their own containers. For making available or for filling up the
containers provided by the customers the Assessees charge the
customers certain amounts under different heads viz. packing charges,
wear and tear charges, facility charges, service charges, delivery and
collection charges, rental charges, repair and testing charges. The
Assessees treat the said amounts as their income from ancillary or allied
ventures.
2. The issue arising is whether the aforesaid charges realised by the
Assessees are liable to be taken into account for determination of value
for the purpose of levy of duty in terms of Section 4 of the Central Excise
Act, 1944 (hereinafter referred to as "the Act") as amended with effect
from 1st July, 2000.
3. Perceiving a conflict between the two decisions of this court in
Union of India and Ors. v. Bombay Tyre International Ltd. and Ors. 1
and Commissioner of Central Excise, Pondicherry v. Acer India Ltd.2,
a two judge Bench of this Court by order dated 30 th July, 20093 referred
the following questions for an answer by a larger bench:
1 (1984) 1 SCC 467
2 (2004) 8 SCC 173
3 (2009) 14 SCC 596
3
"1. Whether Section 4 of the Central Excise Act, 1944
(as substituted with effect from 1-7-2000) and the
definition of "transaction value" in clause ( d) of sub-
section (3) of Section 4 are subject to Section 3 of the
Act?
2. Whether Sections 3 and 4 of the Central Excise
Act, despite being interlinked, operate in different fields
and what is their real scope and ambit?
3. Whether the concept of "transaction value" makes
any material departure from the deemed normal price
concept of the erstwhile Section 4(1)(a) of the Act?"
4. As the decisions in Bombay Tyre International Ltd. (supra) and
Acer India Ltd. (supra) were rendered by Benches of Three Hon'ble
Judges of this Court, the above questions were referred by order dated
30th March, 20164 to an even larger Bench. This is how we are in seisin of
the matter.
5. What is excise duty and what is the relationship between the nature
of the duty and the measure of the levy are the two precise questions that
would arise for determination in the present reference.
6. On first principles, there can be no dispute. Excise is a levy on
manufacture and upon the manufacturer who is entitled under law to pass
on the burden to the first purchaser of the manufactured goods. The levy
of excise flows from a constitutional authorisation under Entry 84 of List I
4 (2016) 6 SCC 391
4
of the Seventh Schedule to the Constitution of India. The stage of
collection of the levy and the measure thereof is, however, a statutory
function. So long the statutory exercise in this regard is a competent
exercise of legislative power, the legislative wisdom both with regard to
the stage of collection and the measure of the levy must be allowed to
prevail. The measure of the levy must not be confused with the nature
thereof though there must be some nexus between the two. But the
measure cannot be controlled by the rigors of the nature. These are
some of the settled principles of laws emanating from a long line of
decisions of this Court which we will take note of shortly. Do these
principles that have withstood the test of time require a rethink is the
question that poses for an answer in the present reference.
7. At this stage, it may be necessary to specifically take note of the
provisions of Sections 3 and 4 as originally enacted and as amended from
time to time.
Section 3
Section 3 of the Act in force Relevant portion of Section 3 as
prior to amendment by Finance substituted/amended (with effect
Act 2000 (Act 10 of 2000) from 12th May, 2000) by Section
92 of the Finance Act, 2000
(No.10 of 2000)
3. Duties specified in the First 3. Duties specified in [the First
5
Schedule to be levied. Schedule and the Second
Schedule] to the Central Excise
(1) There shall be levied and Tariff Act, 1985] to be levied.-
collected in such manner as may
be prescribed,- There shall be levied and collected
in such manner as may be
(a) a duty of excise on all prescribed,-
excisable goods which are
produced or manufactured in (a) a duty of excise to be called
India as, and at the rates, set the Central Value Added Tax
forth in the First Schedule to the (CENVAT) on all excisable goods
Central Excise Tariff Act, 1985; which are produced or
manufactured in India as, and at
the rates, set forth in the First
Schedule to the Central Excise
Tariff Act, 1985 (5 of 1986);
(b)............ (b).............
Section 4
Section 4 as originally Section 4 as amended Section 4 as
enacted (in the by Amendment Act amended by Finance
Central Excise and No.22 of 1973 Act, 2000 with effect
Salt Act, 1944), from 1.7.2000
Determination of Valuation of excisable Valuation of
value for the goods for purposes excisable goods for
purposes of duty of charging of duty of purposes of
Where under this Act excise.- (1) Where charging of duty of
any article is under this Act, the duty
excise. - (1) Where
chargeable with duty of excise is chargeable
under this Act, the
at a rate dependent on any excisable goods
on the value of the with reference to value, duty of excise is
article, such value such value shall, chargeable on any
shall be deemed to subject to the other excisable goods with
be the wholesale provisions of this reference to their
cash price for which section, be deemed to value, then, on each
an article of the like be- removal of the goods,
kind and quality is such value shall -
sold or is capable of (a) the normal price
being sold for delivery thereof, that is to say, (a) in a case
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at the place of the price at which such
manufacture and at goods are ordinarily where the goods
the time of its sold by the assessee to are sold by the
removal therefrom, a buyer in the course of assessee, for
without any wholesale trade for delivery at the
abatement of delivery at the time and time and place of
deduction whatever place of removal, the removal, the
except trade discount where the buyer is not assessee and the
and the amount of a related person and buyer of goods
duty then payable. the price is the sole
are not related
consideration for the
and the price is
sale:
the sole
Provided that- consideration for
(i) where, in the sale, be the
accordance with the transaction value;
normal practice of the
wholesale trade in such (b) in any other
goods, such goods are case, including
sold by the assessee at the case where
different prices to the goods are not
different classes of sold, be the value
buyers (not being determined in
related persons) each such manner as
such price shall, may be
subject to the existence
prescribed.
of the other
circumstances
specified in clause (a), (2) The
be deemed to be the provisions of this
normal price of such section shall not
goods in relation to apply in respect
each such class of of any excisable
buyers; goods for which a
tariff value has
(ii) where such goods been fixed under
are sold by the sub-section (2) of
assessee in the course section 3.
of wholesale trade for
delivery at the time and (3) For the
place of removal at a purpose of this
price fixed under any
7
law for the time being
in force or at a price, section,-
being the maximum,
fixed under any such (a) "assessee"
law, then, means the
notwithstanding person who is
anything contained in liable to pay the
clause (iii) of this duty of excise
proviso, the price or the under this Act
maximum price, as the and includes his
case may be, so fixed, agent;
shall, in relation to the
goods so sold, be (b) persons shall
deemed to be the be deemed to be
normal price thereof; "related" if -
(iii) where the (i) they are inter-
assessee so arranges connected
that the goods are undertakings;
generally not sold by
him in the course of (ii) they are
wholesale trade except relatives;
to or through a related
person, the normal (iii) amongst them
price of the goods sold the buyer is a
by the assessee to or relative and
through such related distributor of the
person shall be assessee, or a sub-
deemed to be the price distributor of such
at which they are distributor; or
ordinarily sold by the
related person in the (iv) they are so
course of wholesale associated that they
trade at the time of have interest,
removal, to dealers directly or indirectly,
(not being related
in the business of
persons) or where such
goods are not sold to each other.
such dealers, to Explanation. - In
dealers (being related this clause -
persons) who sell such
goods in retail; (i)"inter-connected
8
undertakings" shall
(b) where the normal have the meaning
price of such goods is assigned to it in
not ascertainable for clause (g) of
the reason that such section 2 of the
goods are not sold or Monopolies and
for any other reason,
Restrictive Trade
the nearest
Practices Act,
ascertainable
equivalent thereof 1969 (64 of 1969);
determined in such and
manner as may be
prescribed. (ii)"relative" shall
have the meaning
(2) Where, in relation assigned to it in
to any excisable goods clause (41) of
the price thereof for section 2 of the
delivery at the place of Companies Act,
removal is not known 1956 (1 of 1956);
and the value thereof is
determined with
(c) "place of
reference to the price
removal" means
for delivery at a place
other than the place of (i) a factory or any
removal, the cost of other place or
transportation from the premises of
place of removal to the production or
place of delivery shall manufacture of the
be excluded from such excisable goods;
price. (ii) a warehouse or
any other place or
(3) The provisions of premises wherein
this section shall not the excisable
apply in respect of any goods have been
excisable goods for
permitted to be
which a tariff value has
deposited without
been fixed under sub-
section (2) of section 3. payment of duty,
from where such
(4) For the purposes of goods are
this section,- removed;
(a) " assessee" means
9
the person who is liable (d) "transaction
to pay the duty of value" means the
excise under this Act price actually paid
and includes his agent; or payable for the
(b) " place of removal" goods, when sold,
means- and includes in
(i) a factory or any
addition to the
other place or premises
amount charged
of production or
manufacture of the as price, any
excisable goods; or amount that the
(ii) a warehouse or any buyer is liable to
other place or premises pay to, or on
wherein the excisable behalf of, the
goods have been assessee, by
permitted to be reason of, or in
deposited without connection with
payment of duty, the sale, whether
payable at the time
from where such goods of the sale or at
are removed;
any other time,
(c) "related person"
including, but not
means a person who is
so associated with the limited to, any
assessee that they amount charged
have interest, directly for, or to make
or indirectly, in the provision for,
business of each other advertising or
and includes a holding publicity, marketing
company, a subsidiary and selling
company, a relative organization
and a distributor of the expenses, storage,
assessee, and any outward handling,
sub- distributor of such servicing,
distributor.
warranty,
commission or any
Explanation.- In this
clause" holding other matter; but
company"," subsidiary does not include
company and" relative" the amount of duty
have the same of excise, sales tax
meanings as in the and other taxes, if
10
Companies Act, 1956 ; any, actually paid
(1 of 1956 ) or actually payable
(d) "value", in relation on such goods.
to any excisable
goods,-
(i) where the goods
are delivered at the
time of removal in a
packed condition,
includes the cost of
such packing except
the cost of the packing
which is of a durable
nature and is
returnable by the buyer
to the assessee.
Explanation.- In this
sub- clause," packing"
means the wrapper,
container, bobbin, pirn,
spool, reel or warp
beam or any other
thing in which or on
which the excisable
goods are wrapped,
contained or wound;
(ii) does not include
the amount of the duty
of excise, sales tax and
other taxes, if any,
payable on such goods
and, subject to such
rules as may be made,
the trade discount
(such discount not
being refundable on
any account
whatsoever) allowed in
accordance with the
normal practice of the
wholesale trade at the
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time of removal in
respect of such goods
sold or contracted for
sale.
(e) "wholesale trade"
means sales to
dealers, industrial
consumers,
Government, local
authorities and other
buyers, who or which
purchase their
requirements/otherwise
than in retail.
8. It may be appropriate, at this stage, to make a brief narration of the
developments in the particular branch of fiscal jurisprudence which is in
issue in the present cases. The Central Provinces and Berar Sales of
Motor Spirit and Lubricants Taxation Act, 1938, (Central Provinces
and Berar Act No.XIV of 1938) authorised the levy and collection from
every retail dealer, as defined by the Act, a tax on the retail sales of motor
spirits and lubricants at the rate of five per cent on the value of such
sales. The levy was challenged and what arose for decision before the
Federal Court on a reference, made by the Governor General under
Section 213 of the Government of India Act, 1935 (often referred to as
"the Constitution Act") is the question whether the said levy was a duty of
excise under Entry 45 of List-I in the Seventh Schedule to the Constitution
Act or a tax on sale of goods under Entry 48 of List II of the said
12
Schedule. While the eventual answer in the reference holding the levy to
be a tax on sale of goods and therefore within the competence of the
Provincial Legislature is of no consequence to the present issue, what
may require a specific notice is that Entry 45 which empowered the
Federal Legislature to make laws with respect to "duties of excise on
tobacco and other goods manufactured or produced in India; except..."
corresponds to Entry 84 of List-I of the Seventh Schedule to the
Constitution of India.
9. Some extracts from the opinion rendered by Chief Justice Gwyer(all
the Judges on the Bench gave their own opinions while agreeing to the
eventual conclusion) would throw light on the nature of the levy of excise
and is therefore being recollected below:-
"The federal legislative power extends to making laws
with respect to duties of excise on goods
manufactured or produced in India. "Excise" is stated
in the Oxford Dictionary to have been originally
accise", a word derived through the Dutch from the
late Latin accensare, to tax; the modern form, which
ousted accise" at an early date, being apparently due
to a mistaken derivation from the Latin excidere, to
cut out. It was at first a general word for a toll or tax,
but since the 17th century it has acquired in the
United Kingdom a particular, though not always
precise, signification. The primary meaning of "excise
duty" or "duty of excise" has come to be that of a tax
on certain articles of luxury (such as spirits, beer or
tobacco) produced or manufactured in the United
Kingdom, and it is used in contradistinction to
13
customs duties on articles imported into the country
from elsewhere. At a later date the licence fees
payable by persons who produced or sold excisable
articles also became known as duties of excise; and
the expression was still later extended to licence fees
imposed for revenue, administrative, or regulative
purposes on persons engaged in a number of other
trades or callings. Even the duty payable on
payments for admission to places of entertainment in
the United Kingdom is called a duty of excise; and,
generally speaking, the expression is used to cover
all duties and taxes which, together with customs
duties, are collected and administered by the
Commissioners of Customs and Excise. But its
primary and fundamental meaning in English is still
that of a tax on articles produced or manufactured in
the taxing country and intended for home
consumption. I am satisfied that that is also its
primary and fundamental meaning in India; and no
one has suggested that it has any other meaning in
Entry (45).
xxx xxx xxx
xxx xxx xxx
...There can be no reason in theory why an excise
duty should not be imposed even on the retail sale of
an article, if the taxing Act so provides. Subject
always to the legislative competence of the taxing
authority, a duty on home produced goods will
obviously be imposed at the stage which the
authority find to be the most convenient and the
most lucrative, wherever it may be; but that is a
matter of the machinery of collection, and does
not affect the essential nature of the tax. The
ultimate incidence of an excise duty, a typical indirect
tax, must always be on the consumer, who pays as
he consumes or expends; and it continues to be an
excise duty, that is, a duty on home-produced or
home-manufactured goods, no matter at what stage it
is collected. The definition of excise duties is
therefore of little assistance in determining the extent
of the legislative power to impose them; for the duty
14
imposed by a restricted legislative power does not
differ in essence from the duty imposed by an
extended one.
It was argued on behalf of the Provincial
Government that an excise duty was a tax on
production or manufacture only and that it could
not therefore be levied at any later stage.
Whether or not there be any difference between a
tax on production and a tax on the thing
produced, this contention, no less than that of
the Government of India, confuses the nature of
the duty with the extent of the legislative power to
impose it. Nor, for the reasons already given, is
it possible to agree that in no circumstances
could an excise duty be levied at a stage
subsequent to production or manufacture ."
(Underlining and bold is ours)
10. The issue was considered further in The Province of Madras vs.
Messrs. Boddu Paidanna & Sons5. The following observation would
be relevant.
"In 1939 F.C.R. 18 the opinions expressed were
advisory opinions only, but we do not think that we
ought to regard them as any less binding upon us
on that account. We accept, therefore, the general
division between the Central and Provincial
spheres of taxation which commended itself to the
majority of the Court in that case................. They
recognized that the expression 'duty of excise' is
wide enough to include a tax on sales ; but where
power is expressly given to another authority to
levy a tax on sales, it is clear that "duty of excise"
must be given a more restricted meaning than it
might otherwise bear. On the other hand the fact
5 A.I.R. (29) 1942 Federal Court 33 (from Madras)
15
that "duty of excise" is itself an expression of very
general import is no reason at all for refusing to
give to the expression "tax on sales" the meaning
which it would ordinarily and naturally convey. In
these circumstances the question at issue in the
present appeal appears to us to lie within a very
small compass.
The duties of excise which the Constitution Act
assigns exclusively to the Central Legislature are,-
according to the 1939 F.C.R 18, duties levied upon
the manufacturer or producer in respect of the
manufacture or production of the commodity taxed.
The tax on the sale of goods, which the Act assigns
exclusively to the Provincial Legislatures, is a tax
levied on the occasion of the sale of the goods.
Plainly a tax levied on the first sale must in the
nature of things be a tax on the sale by the
manufacturer or producer ; but it is levied upon him
qua seller and not qua manufacturer or producer.
...............If the taxpayer who pays a sales tax is
also a manufacturer or producer of commodities
subject to a central duty of excise, there may no
doubt be an overlapping in one sense ; but there is
no overlapping in law. The two taxes which he is
called on to pay are economically two separate and
distinct imposts. There is in theory nothing to
prevent the Central Legislature from imposing
a duty of excise on a commodity as soon as it
comes into existence, no matter what happens
to it afterwards, whether it be sold, consumed,
destroyed, or given away. A taxing authority
will not ordinarily impose such a duty, because
it is much more convenient administratively to
collect the duty (as in the case of most of the
Excise Acts) when the commodity leaves the
factory for the first time, and also because the
duty is intended to be an indirect duty which
16
the manufacturer or producer is to pass on to
the ultimate consumer, which he could not do if
the commodity had, for example, been
destroyed in the factory itself. It is the fact of
manufacture which attracts the duty, even
though it may be collected later ; and we may
draw attention to the Sugar Excise Act in which
it is specially provided that the duty is payable
not only in respect of sugar which is issued
from the factory but also in respect of sugar
which is consumed within the factory. In the
case of a sales tax, the liability to tax arises on
the occasion of a sale, and a sale has no
necessary connexion with manufacture or
production. The manufacturer or producer
cannot of course sell his commodity unless he
has first manufactured or produced it; but he is
liable, if at all, to a sales tax because he sells
and not because he manufactures or produces;
and he would be free from liability if he chose
to give away everything which came from his
factory."
11. The early views on the nature of excise duty as a levy and the stage
of collection thereof would make it clear that though the impost is on the
manufacture of an article the point of collection of the same need not
necessarily coincide with the time of manufacture. The stage of collection
can and usually is a matter of administrative convenience and such stage,
normally, is the stage of clearance of article when it, for the first time,
enters the trade for sale. The above position was affirmed by the Privy
17
Council in Governor-General in Council v. Province of Madras6
wherein it was, inter alia, held as follows:
"The term " duty of excise " is a somewhat flexible
one: it may, no doubt, cover a tax on first and,
perhaps, on other sales: it may in a proper context
have an even wider meaning. An exhaustive
discussion of this subject, from which their Lordships
have obtained valuable assistance, is to be found in
the judgment of the Federal Court in 1939 F. C. R.
18. Consistently with this decision, their Lordships
are of opinion that a duty of excise is primarily a duty
levied upon a manufacturer or producer in respect of
the commodity manufactured or produced. It is a tax
upon goods not upon sales or the proceeds of sale of
goods. Here again, their Lordships find themselves in
complete accord with the reasoning and conclusions
of the Federal Court in the Boddu Paidanna case.
The two taxes, the one levied upon a manufacturer in
respect of his goods, the other upon a vendor in
respect of his sales, may, as is there pointed out, in
one sense overlap. But in law there is no overlapping.
The taxes are separate and distinct imposts. If in fact
they overlap, that may be because the taxing
authority, imposing a duty of excise, finds it
convenient to impose that duty at the moment when
the exciseable article leaves the factory or workshop
for the first time on the occasion of its sale. But that
method of collecting the tax is an accident of
administration; it is not of the essence of the duty of
excise, which is attracted by the manufacture itself."
12. The above views received the consideration of this Court in R.C.
Jall Parsi v. Union of India and anr7. wherein this Court held that while
excise duty is essentially a duty on manufacture which is passed on to the
6 [A.I.R. (32) 1945 Privy Council 98]
7 AIR 1962 SC 1281
18
consumer, the stage of collection, subject to legislative competence of the
taxing authority, could be at any stage convenient so long the character of
the levy i.e. duty on manufacture is not altogether lost. The further view
expressed was to the effect that "the method of collection does not affect
the essence of the duty, but only relates to the machinery of collection for
administrative convenience."
13. It will hardly be necessary to reiterate the long lines of
pronouncements that have consistently followed the above view,
except to make a little detailed reference to Bombay Tyre International
Ltd. (supra), not only because the true ratio of the decision in the said
case has to be understood for the purpose of this reference so as to deal
with the perceived conflict with Acer India Ltd. (supra) but also on
account of the fact that the subject in issue had received a full and
detailed consideration of this Court.
14. In Bombay Tyre International Ltd. (supra) the issue, shortly put,
was whether determination of assessable value for the levy of excise duty
can be only on the manufacturing cost and the manufacturing profit. It
was contended before this Court, by relying on the decision of this Court
in A.K. Roy and Another vs. Voltas Limited8, that having regard to the
8 (1973) 3 SCC 503
19
character of the levy the measure must be restricted thereto. The
contention was rejected by referring to a long line of precedents including
those referred to herein above to hold that " the levy of a tax is defined
by its nature, while the measure of the tax may be assessed by its
own standard. It is true that the standard adopted as the measure of
the levy may indicate the nature of the tax but it does not necessarily
determine it.". The further view expressed in Bombay Tyre
International Ltd. (supra) is that merely because excise is a levy on
manufactured goods the value of the excisable article for the purpose of
levy cannot be limited to only the manufacturing cost plus manufacturing
profit. This Court went on to hold that " a broader based standard of
reference may be adopted for the purpose of determining the
measure of the levy. Any standard which maintains a nexus with the
essential character of the levy can be regarded as a valid basis for
assessing the measure of the levy."
15. A reading of Section 4 of the Act, as originally enacted; as amended
by 1973 Amendment; and as further amended by 2000 Amendment would
clearly show that the value of the article for the purposes of levy of ad
valorem duty was with reference to the price i.e. `normal price' prior to the
2000 Amendment and thereafter with reference to the `transaction value'
which has been defined (already extracted) to mean "the price actually
20
paid or payable for the goods, when sold, and includes in addition to the
amount charged as price......"
16. The measure for the purpose of the levy is, therefore, essentially the
price charged in respect of a transaction which must necessarily be at
arm's length. Inclusions and additions that enrich the value of the Article
till its clearance are permissible additions to the price that can be taken
into account to determine `value' under the old Section 4 (prior to 2000) as
well as the `transaction value' under the amended section effective from
1.7.2000. While such additions have been judicially held to be permissible
under the old Act in Bombay Tyre International Ltd. (supra) the very
same heads have been statutorily engrafted by the amendment made in
2000.
17. The price charged for a manufactured article at the stage when the
article enters into the stream of trade in order to determine the
value/transaction value for computation of the quantum of excise duty
payable does not come into conflict with the essential character or nature
of the levy. The measure is the value and value is related to price. The
price charged at the stage of clearance, in addition to manufacturing cost
and manufacturing profit, can include certain value additions and
inclusions which enrich the value of the product to make it suitable for
21
sale or to facilitate such sale. At this stage, impost has nothing to do with
the sale. The impost is on manufacture. But it is the value upto the stage
of the first sale that is taken as the measure. Doing so does not introduce
any inconsistency between the nature and character of the levy and the
measure adopted.
18. The above aspect had been considered in Bombay Tyre
International Ltd. (supra) on a specific contention advanced on behalf of
the Assessees that the deductions under the following heads should be
made from the sale price in the following terms:
"48. We now proceed to the question whether any
post-manufacturing expenses are deductible from the
price when determining the "value" of the excisable
article. The old Section 4 provided by the Explanation
thereto that in determining the price of any article
under that section no abatement or deduction would
be allowed except in respect of trade discount and
the amount of duty payable at the time of the removal
of the article chargeable with duty from the factory or
other premises aforesaid. The new Section 4
provides by sub-section (2) that where the price of
excisable goods for delivery at the place of removal is
not known and the value is determined with reference
to the price for delivery at a place other than the place
of removal, the cost of transportation from the place
of removal to the place of delivery has to be excluded
from such price. The new Section 4 also contains
sub-section (4)(d)(ii) which declares that the
expression "value" in relation to any excisable goods,
does not include the amount of the duty of excise,
sales tax and other taxes, if any, payable on such
goods and, subject to such rules as may be made,
22
the trade discount (such discount not being
refundable on any account whatsoever) allowed in
accordance with the normal practice of the wholesale
trade at the time of removal in respect of such goods
sold or contracted for sale. Now these are clear
provisions expressly providing for deduction, from the
price, of certain items of expenditure. But learned
counsel for the assessees contend that besides the
heads so specified a proper construction of the
section does not prohibit the deduction of other
categories of post-manufacturing expenses. It is also
urged that although the new Section 4(4)( d)(i)
declares that in computing the "value" of an excisable
article, the cost of packing shall be included, the
provision should be construed as confined to primary
packing and as not extending to secondary packing.
The heads under which the claim to deduction is
made are detailed below:
(1) Storage charges.
(2) Freight or other transport charges, whether
specific or equalised.
(3) Outward handling charges, whether specific or
equalised.
(4) Interest on inventories (stocks carried by the
manufacturer after clearance).
(5) Charges for other services after delivery to the
buyer.
(6) Insurance after the goods have left the factory
gate.
(7) Packing charges.
(8) Marketing and Selling Organisation expenses,
including advertisement and publicity expenses.
(Underlining is ours)
19. The above issue was answered by saying -
"50. We shall now examine the claim. It is
apparent that for the purpose of determining the
"value", broadly speaking both the old Section 4 ( a)
and the new Section 4(1)(a) speak of the price for
sale in the course of wholesale trade of an article
23
for delivery at the time and place of removal,
namely, the factory gate. Where the price
contemplated under the old Section 4 (a) or under
the new Section 4(1)(a) is not ascertainable, the
price is determined under the old Section 4( b) or
the new Section 4(1)(b). Now, the price of an article
is related to its value (using this term in a general
sense), and into that value have poured several
components, including those which have enriched
its value and given to the article its marketability in
the trade. Therefore, the expenses incurred on
account of the several factors which have
contributed to its value upto the date of sale, which
apparently would be the date of delivery, are liable
to be included. Consequently, where the sale is
effected at the factory gate, expenses incurred by
the assessee upto the date of delivery on account
of storage charges, outward handling charges,
interest on inventories (stocks carried by the
manufacturer after clearance), charges for other
services after delivery to the buyer, namely after-
sales service and marketing and selling
organisation expenses including advertisement
expenses cannot be deducted. It will be noted that
advertisement expenses, marketing and selling
organisation expenses and after-sales service
promote the marketability of the article and enter
into its value in the trade. Where the sale in the
course of wholesale trade is effected by the
assessee through its sales organisation at a place
or places outside the factory gate, the expenses
incurred by the assessee upto the date of delivery
under the aforesaid heads cannot, on the same
grounds, be deducted. But the assessee will be
entitled to a deduction on account of the cost of
transportation of the excisable article from the
factory gate to the place or places where it is sold.
The cost of transportation will include the cost of
insurance on the freight for transportation of the
goods from the factory gate to the place or places
of delivery."
(Underlining is ours)
24
20. We find no room whatsoever for any disagreement with the above
view taken by this court in Bombay Tyre International Ltd. (supra). It is
a view consistent with what was held by the Federal Court and the Privy
Council in Central Provinces and Berar (supra),Boddu Paidanna
(supra) and Province of Madras (supra) and the decisions that followed
thereafter including the decision in Voltas Limited (supra) and Atic
Industries Limited vs. H.H. Dewa, Asstt. Collector of Central Excise
and ors9 the true purport of which was explained in Bombay Tyre
International Ltd. (supra). Both the above opinions were clarified to
mean that neither of them lay down any proposition to the effect that the
excise duty can be levied only on the manufacturing cost plus the
manufacturing profit only.
21. At this stage, the amendment to Section 3 by substitution of the
words "a duty of excise on all excisable goods" by the words "a duty of
excise to be called the Central Value Added Tax (CENVAT) on all
excisable goods" is conspicuous. The amendment of Section 3 to the Act
not only incorporates the essentials of a changed concept of charging of
tax on additions to the value of goods and services at each stage of
production but also engrafts in the statute what was judicially held to be
permissible additions to the manufacturing cost and manufacturing profit
9 (1975) 1 SCC 499
25
in Bombay Tyre International Ltd. (supra). This fundamental change by
introduction of the concept underlying value-added taxation in the
provisions of Section 3 really find reflection in the definition of `transaction
value' as defined by Section 4(3)(d) of the Act besides incorporating what
was explicitly held to be permissible in Bombay Tyre International Ltd.
(supra). Section 4(3)(d), thus, defines `transaction value' by specifically
including all value additions made to the manufactured article prior to its
clearance, as permissible additions to be price charged for purpose of the
levy.
22. This would bring us to a consideration of the decision of this Court
in Acer India Ltd (supra). The details need not detain us. Softwares
which were duty free items and could be transacted as softwares came to
be combined with the computer hardware which was a dutiable item for
purposes of clearance. The Revenue sought to take into account the
value of the computer software for the purposes of determination of
`transaction value' with regard to the computer. This Court negatived the
stand of the Revenue taking the view that when software as a separate
item was not dutiable its inclusion in the hard-disk of the computer cannot
alter the duty liability of the software so as to permit the addition of the
price/value of the software for the purpose of levy of duty. It is in the
26
above context that the decision of this Court in Acer India Ltd. (supra)
has to be understood. The observations made in paragraph 84 thereof to
the effect that `transaction value' defined in Section 4(3)(d) of the Act
would be subject to the charging provisions contained in Section 3 of the
Act will have viewed in the context of a situation where an addition of the
value of a non-dutiable item was sought to be made to the value of a
dutiable item for the purpose of determination of the transaction value of
the composite item. This is the limited context in which the subservience
of Section 4(3)(d) to Section 3 of the Act was expressed and has to be
understood. If so understood, we do not see how the views expressed in
paragraph 84 of Acer India Ltd. (supra) can be read to be in conflict with
the decision of Bombay Tyre International Ltd. (supra).
23. Accordingly, we answer the reference by holding that the measure
of the levy contemplated in Section 4 of the Act will not be controlled by
the nature of the levy. So long a reasonable nexus is discernible between
the measure and the nature of the levy both Section 3 and 4 would
operate in their respective fields as indicated above. The view expressed
in Bombay Tyre International Ltd.(supra) is the correct exposition of the
law in this regard. Further, we hold that "transaction value" as defined in
Section 4(3)(d) brought into force by the Amendment Act, 2000, statutorily
27
engrafts the additions to the `normal price' under the old Section 4 as held
to be permissible in Bombay Tyre International Ltd. (supra) besides
giving effect to the changed description of the levy of excise introduced in
Section 3 of the Act by the Amendment of 2000. Infact, we are of the view
that there is no discernible difference in the statutory concept of
`transaction value' and the judicially evolved meaning of `normal price'.
24. The above answers would comprehend the issues specifically
arising in all the three questions that have been referred for our opinion.
...........................J.
(RANJAN GOGOI)
........................J.
(N.V. RAMANA)
........................J.
(R. BANUMATHI)
........................................................J.
(MOHAN M. SHANTANAGOUDAR)
................................J.
(S. ABDUL NAZEER)
NEW DELHI
MAY 11, 2018.
28
ITEM NO.1501 COURT NO.3 SECTIONS XIV, XII, IVA,
XVIA, XVII, IX
S U P R E M E C O U R T O F I N D I A
RECORD OF PROCEEDINGS
Civil Appeal No(s). 3159/2004
COMMISSIONER OF CENTRAL EXCISE Appellant(s)
VERSUS
M/S. GRASIM INDUSTRIES LTD. Respondent(s)
WITH
C.A. Nos.3455/2004, 7272/2005, 2982-2985/2005,
2986/2005, 7143/2005, 2261/2006, 2246-2247/2008,
2934-2935/2008, 3528/2008, 4820/2008, 6695/2008,
2534/2009, 253/2010, 8541/2009, 445/2010,
1382/2010, 2003-2004/2010, 2430/2010, 2363/2010,
7174-7175/2010, 4696/2011, 6984/2011, 2705/2012
Date : 11-05-2018 These appeals were called on
for pronouncement of judgment today.
For the parties :
Ms. Pinky Anand, Sr. Adv.
Mr. K. Radhakrishna, Sr. Adv.
Mr. Arijit Prasad, Adv.
Ms. Rashmi Malhotra, Adv.
For Mr. B. Krishna Prasad,Adv.
Mr. S.K. Bagaria, Sr. Adv.
Mr. S. Sukumaran, Adv.
Mr. Anand Sukumar, Adv.
Mr. Bhupesh Kumar Pathak, Adv.
Mr. K. Rajeev, Adv.
Ms. Meera Mathur,Adv.
Mr. v. Sridharan, Sr. Adv.
Mr. L. badrinarayanan, Adv.
Mr. Aditya Bhattacharya, adv.
Mr. Victor Das, Adv.
Ms. Apeksha Mehta, Adv.
Mr. M. P. Devanath,Adv.
Mr. S. Nanda Kumar, Adv.
Mr. R. Sathish Kumar, Adv.
Ms. Tanu Priya Gupta, Adv.
Mr. M. Soundarasaran Kumar, Adv.
Ms. Deepika Nandkumar, Adv.
29
Mr. Sugum Kumar Jha, Adv.
Mr. V. N. Raghupathy,Adv.
Mr. Ravinder Narain, Adv.
Mr. Ajay Aggarwal, Adv.
Ms. Mallika Joshi, Adv.
Mr. Rajan Narain,Adv.
Mr. Baij Nath Patel, Adv.
Ms. Sweta, Adv.
Ms. Romila, Adv.
Mr. B. Krishna Prasad, AOR
Mr. Rajesh Kumar, AOR
Mr. Prashant Kumar, AOR
Mr. Mukesh Kumar Maroria, AOR
Mr. Nikhil Nayyar, AOR
Mr. Brij Bhushan, AOR
M/s. AP&J Chambers, AOR
Ms. Sheela Goel, AOR
Hon'ble Mr. Justice Ranjan Gogoi pronounced the
judgment of the Bench comprising His Lordship,
Hon'ble Mr. Justice N.V. Ramana, Hon'ble Mr. Justice
R. Banumathi, Hon'ble Mr. Justice Mohan M.
Shantanagoudar and Hon'ble Mr. Justice S. Abdul
Nazeer.
The reference is answered in terms of the signed
reportable judgment.
All these matters will now be listed before the
appropriate Bench for disposal on merits.
(NEETU KHAJURIA) (ASHA SONI)
COURT MASTER BRANCH OFFICER
(Signed reportable judgment is placed on the file.)
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