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Commissioner Of Central Excise,Indore vs M/s Grasim Industries Ltd. Through Its Secretary
June, 27th 2018
                                                                                      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
                                                                              6


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
                                                                           11


                        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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