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REPORTABLE      

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL     APPEAL     NOS.     1648-1649     OF     2004   

Commissioner of Central      … Appellant(s) Excise, Mumbai

Versus

M/s. Fiat India (P) Ltd. & Anr.     …Respondent(s)

J     U     D     G     M     E     N     T   

H.     L.     DATTU,     J.   

1. These appeals, by special leave, are directed  

against the judgment and order dated  

21.11.2003 passed by the Customs, Excise and  

Service Tax Appellate Tribunal, West Regional  

Bench at Mumbai (hereinafter referred to as “the  

Tribunal”) in Appeal Nos. E/3695/02 &

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E/302/02. By the impugned judgment, the  

Tribunal has reversed the finding of the  

Commissioner (Appeals) and thereby, allowed the  

appeals filed by the respondents-assessees.  

2. Facts     in     nutshell     are:   The respondents-

assessees are the manufacturer of motor cars,  

i.e. Fiat Uno model cars. The said goods are  

excisable under chapter sub-heading No.  

8703.90 of the Central Excise Tariff Act, 1985.  

The said business was initially managed by M/s  

Premier Automobiles Ltd. However, M/s Premier  

Automobile surrendered its central excise  

registration on 6.4.1998. Thereafter, M/s Ind  

Auto Ltd. (now M/s Fiat India Ltd.) carried on the  

said business after obtaining fresh central excise  

registration. The assessees have filed several  

price declarations in terms of Rule 173C of the  

Central Excise Rules, 1944 (hereinafter referred  

to as ‘the 1944 Rules’) declaring wholesale price  

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of their cars for sale through whole sale depots  

during the period commencing from 27.05.1996  

to 04.03.2001.  

3. The authorities under the Central Excise Act,  

1944 (hereinafter referred to as ‘the Act’) had  

made enquiries on 20.12.1996 and 31.12.1996,  

under Sub-rule 3 of Rule 173C of the 1944 Rules  

read with Section 14 of the Act. They had prima  

facie found that the wholesale price declared by  

the assessees is much less than the cost of  

production and, therefore, the price so declared  

by them could not be treated as a normal price  

for the purpose of quantification of assessable  

value under Section 4(1)(a) of the Act and for levy  

of excise duty as it would amount to short  

payment of duty.  

4.  Since further enquiry was required to be  

conducted regarding the assessable value of the  

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cars, the Assistant Commissioner, Central Excise,  

Kurla Division, vide his order dated 03.01.1997,  

had inter alia directed for the provisional  

assessment of the cars at a price which would  

include cost of production, selling expenses  

(including transportation and landing charges,  

wherever necessary from 28.09.1996) and profit  

margin, on the ground that the cars were not  

ordinarily sold in the course of wholesale trade as  

the cost of production is much more than their  

wholesale price, but were sold at loss for a  

consideration, that is, to penetrate the market  

which has been confirmed by the assessee vide its  

letter dated 30.10.1996 and during the course of  

enquiry under Section 14 of the Act read with sub  

Rule (3) of Rule 173C of the 1944 Rules. He had  

further directed the respondents to execute B-13  

bond for payment of differential duty with surety or  

sufficient security, that is, 25% of the bond  

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amount. Thereafter, respondents executed B-13  

bond for Rs. 7.70 crores. However, the respondents  

showed their inability to submit 25% bond amount  

as a bank guarantee and requested the Revenue  

authorities to reduce the same. On such request,  

the Commissioner, vide letter dated 23.04.2007,  

directed the respondents to execute bank  

guarantee equivalent to 5% of the bond amount.  

Accordingly, the respondent furnished a bank  

guarantee of Rs. 38 lakhs which was subsequently  

renewed and later fresh bank guarantees in lieu of  

original were submitted by the respondents.  

5.  The Preventive and Intelligence Branch of the  

Kurla Division sometime in the year 1997-98 had  

conducted investigation into the affairs of the  

respondents, whereby it was found that the  

respondents were importing all the kits in  

CKD/SKD condition for manufacturing the cars  

and the cost of production of a single car was Rs.  

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3,98,585/- for manufacture from SKD condition  

and ` 3,80,883/- for manufacture from CKD  

condition against the assessable value of Rs.  

1,85,400/-.  In the investigation, it was also  

revealed that the respondents had entered into a  

spin-off agreement vide Deed of Assignment dated  

30.03.1998, whereby M/s Fiat India Ltd. would be  

liable for any excise liability accruing from  

29.09.1997 onwards, in respect of the Cars in  

issue.

6. After completion of the investigation, the  

Commissioner of Central Excise, Mumbai-II, had  

appointed Cost Accountant M/s Rajesh Shah and  

Associates on 25.01.1999 under Section 14A of the  

Act to conduct special audit to ascertain the  

correctness of the price declared by the  

respondents. The Cost Accountant had calculated  

the average price of the Fiat UNO Car by adding  

material cost (import, local, painting and others),  

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rejection at 1% of total cost and notional profit at  

5% of total cost for the period from April, 1998 to  

December, 1998 vide his report dated 31.03.1999,  

which came to Rs. 5,04,982/- per car.  

7. In the meantime, the Superintendent of Central  

Excise, Kurla Division had issued 11 show cause  

notices to assessees for the period from June 1996  

to February 2000, inter alia, making a demand of  

differential duty on the assessable value calculated  

on the basis of manufacturing cost plus  

manufacturing profit minus MODVAT availed per  

car, and the duty which the respondents were  

actually paying on the assessable value. It is  

alleged in the show cause notices that the  

respondents have failed to determine and pay the  

correct duty on Fiat UNO cars while clearing them.  

It is further stated that the assessees have not  

taken into account the cost of raw material, direct  

wages, overheads and profits for calculating the  

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assessable value of the cars which were declared in  

the invoices and declarations for the purpose of  

Section 4 of the Act. In this regard, the assessees  

were required to show cause as to why the correct  

duty due on the said goods along with interest  

should not be recovered from them under Rule 9 of  

the 1944 Rules read with Sections 11A and 11AB of  

the Act, the goods should not be confiscated and  

penalty imposed under Rule 9 read with Rule 52-A  

and Rule 173Q of the Rules, and further, penalty  

equal to the amount of duty should not be imposed  

under Section 11AC of the Act.

8. Assessees had replied in detail to the show  

cause-cum-demand notices. The assessees had  

submitted that they have declared assessable value  

or normal price in terms of Section 4(1)(a) of the  

Act. The assessees apart from others had  also  

stated that the proper interpretation of Section 4(1)

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(a) of the Act would mean that the assessable value  

should be the normal price at which such goods are  

ordinarily sold in wholesale trade where price is the  

sole consideration; that they are not getting any  

additional consideration over and above the  

assessable value declared by them; that there is no  

flow back of money from the buyers and dealings  

between the assessees and their buyers are at arms  

length and since the price declared by them is  

proper as per Section 4(1) (a) of the Act, the  

question of determining the assessable value as per  

Section 4(1)(b) read with Central Excise (Valuation)  

Rules, 1975 (hereinafter referred to as ‘the 1975  

Valuation Rules) would not arise. In other words,  

the assessees, relying on various decisions of this  

Court, had submitted that when normal price is  

available then recourse to any other method of  

valuation is incorrect and improper. They had also  

submitted that Section 4 of the Act nowhere  

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mandates that price should always reflect the  

manufacturing cost and profits and, therefore, the  

price declared by them requires to be accepted. The  

assessees had further submitted that since they  

have launched new models of the cars which  

require import of the cars in kit-form (CKD and  

SKD), thereafter they were assembled and sold.  

This cost of imports, assembly and overheads lead  

to increase in overall cost of production of their  

cars. Further, they were facing intense competition  

from Maruti car manufacturers which required  

them to keep the price of their cars at a lower price.  

Therefore, they were forced to sell their cars at a  

loss in order to compete and attract buyers in the  

market. The assessees had also stated that the  

amount quantified in the show cause-cum-demand  

notices is excessive since they were based on the  

initial costs in 1996 which has continuously come  

down due to the continuous process of  

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indigenisation of imported components. They would  

further submit that this strategy of indigenisation  

of imported components is very common to  

automobile industry. The assessees had further  

submitted, the order of provisional assessment was  

erroneous as well not sustainable in the eyes of the  

law.  They further submitted that the assessable  

value declared by them should be accepted even if  

it is below manufacturing cost. The assessees had  

also contended that there is no short levy or short  

payment of duty.  

9. After receipt of the reply so filed, the  

adjudicating authority vide his order-in-original  

dated 31.01.2002 has proceeded to conclude that  

the assessees’ main consideration was to penetrate  

the market, therefore, the price at which they were  

selling the Cars in the market could not be  

considered to be a normal price as per Section 4 of  

the Act. He has also observed that the cost of  

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production of the Fiat UNO Cars is much higher  

than the price at which the assessees are selling  

them to the general public; that the price is  

artificial and arrived at without any basis just to  

capture the market and drive out the opponents  

from business; that the Fiat UNO Cars in issue are  

equipped with powerful Fire Engine and superior  

quality gadgets and that when normal price cannot  

be ascertained as per Section 4(1) (a) of the Act, the  

alternate procedure under the Valuation Rules, i.e.  

cost of production and profit has to be applied. He  

also observed, by referring to the decisions of this  

Court in Bombay Tyre’s and MRF Tyre’s cases, that  

all costs incurred to make goods  

saleable/marketable should be taken into account  

for determining the assessable value and that the  

loss incurred by the assessees to penetrate the  

market should be borne by them and in the process  

Government should not lose revenue. He further  

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found the basis of the price arrived at by the Cost  

Accountant in its report as authentic and  

acceptable, but adopted the average price of  

Rs.4,53,739/- reached by the Range  

Superintendent for different models of Cars in the  

show cause-cum-demand notices as more  

reasonable and appropriate. Accordingly, he had  

confirmed the show cause-cum-demand notices  

issued and, thereby, had directed the respondents  

to pay the difference in duty.    

10. The assessees had carried the matter in appeal  

before the First Appellate Authority, being aggrieved  

by the order passed by adjudicating authority.  The  

appellate authority by its orders dated 11.09.2002  

and 30.09.2002 has sustained the order passed by  

the adjudicating authority and rejected the appeals.  

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11. The assessees, being aggrieved by the order so  

passed, had carried the matter in appeal before the  

Tribunal.  The Tribunal vide its judgment and order  

dated 21.11.2003, has reversed the findings and  

conclusions reached by the First Appellate  

Authority and the Adjudicating Authority and,  

accordingly, allowed the appeals on the ground that  

there is no allegation that the wholesale price  

charged by the assessee was for extra commercial  

consideration and that dealing of the assessees and  

their buyers was not at arms length or that there is  

a flow back of money from the buyers to the  

assessees and, therefore, the price declared by the  

assessees is the ascertainable normal price in view  

of the decision of this Court in Commissioner of  

Central Excise, New Delhi v. Guru Nanak  

Refrigeration Corporation, 2003 (153) ELT 249 (SC).  

It is the correctness or otherwise of the findings  

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and conclusions reached by the Tribunal is the  

subject matter of these appeals.  

SUBMISSIONS   

12. Before we proceed to examine the relevant  

provisions, it is necessary to notice the submissions  

made by learned counsel on both sides.  Shri.  

Bhattacharya, the learned ASG, contends that the  

assessees are not fulfilling the conditions  

enumerated in Section 4(1)(a) of the Act and  

therefore, the valuation has to be done in  

accordance with Section 4(1)(b) of the Act read with  

the 1975 Valuation Rules. He would contend that  

the price fixed by the assessees do not reflect the  

true value of the goods as manufacturing cost and  

the profit is much higher than the sale price. He  

would further contend that since the price of the  

cars sold by the assessees do not reflect the true  

value of goods and that sole reason for lowering the  

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price by the assessees below the manufacturing  

cost is just to penetrate the market and compete  

with other manufacturers and, therefore, such  

price cannot be treated as “normal price”  in terms  

of Section 4(1)(a) of the Act. He would submit that  

since the price of the cars sold by the assessees  

was not ascertainable, the Revenue is justified in  

computing the assessable value of the goods for the  

levy of excise duty under Section 4(1)(b) of the Act  

and the relevant rules. The learned counsel further  

contends that under Section 4(1)(a) of the Act,  

value shall be deemed to be the normal price.  A  

normal price, as per Section 4(1)(a), is the price at  

which the goods are ordinarily sold. A loss making  

price cannot be the price at which goods are  

ordinarily sold and the loss making price cannot be  

the normal price. Shri Bhattacharya would heavily  

rely on the decision of this Court in Union of India  

v. Bombay Tyre International, 1983 (14)  ELT 1896  

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(SC), and contends that the judgement makes it  

abundantly clear that for arriving at the assessable  

value, the department is entitled to take into  

account the manufacturing cost plus  

manufacturing profit.

    13. Per contra, Shri. Joseph Vellapally learned  

senior counsel would submit that the charging  

Section and the computation Section are  

independent to each other and should not be mixed  

up.  He would contend that the normal price as  

found in Section 4(1)(a) of the Act is nothing but the  

price at which the particular assessee sold his  

goods to his buyers in the ordinary course of  

business. He would state that the reason for the  

assessees for selling the Cars for lower price than  

the manufacturing cost was because the assessees  

had no foothold in the Indian market and,  

therefore, had to sell at a lower price than the  

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manufacturing cost in order to compete in the  

market. He would submit that the issue raised by  

the Revenue in the instant case is squarely covered  

by the decision of this Court in the case of Guru  

Nanak Refrigeration (supra). He submits that the  

case of Bombay Tyre International (Supra) would  

only assist the assessees and not the Revenue. He  

would submit that this Court in Bombay Tyre’s case  

has held that though the incident of excise is the  

manufacturing activity, the legislature was free to  

choose the time of collection and imposition of  

excise duty. He further points out that this Court in  

Bombay Tyre’s case (supra) has separated the levy  

from the collection, that being the case, the learned  

senior counsel would submit that the cost of  

manufacture is irrelevant for the purpose of  

valuation under Section 4 of the Act. He would  

submit that ‘normal price’  is the selling price at  

which that particular assessee has sold the goods  

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to all the buyers in the ordinary course of business.  

He would refute Shri Bhattacharya’s argument that  

the price is not the sole consideration, by stating  

the word ‘consideration’  is used in the Section in  

the same sense as used in the Section 2 (d) of the  

Indian Contract Act, and it is only the monetary  

consideration from the buyer to the assessee that  

requires to be taken note of for the purpose of  

valuation under the Act. He would point out from  

the show cause notice that the sole ground for  

rejecting the invoice price of the assessee is that  

the price was not the sole consideration. He would  

submit that the intention and consideration cannot  

be treated as same; it is only the intention of the  

assessee to penetrate the market and the only  

consideration for the assessee from the buyer was  

the sale price. He would further submit that the  

assessable value has to be gathered from the  

normal price and not from cost of manufacture  

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which is irrelevant when normal price is  

ascertainable.  Therefore, he would submit only  

when the normal price is not ascertainable in terms  

of Section 4(1)(a), then Section 4(1)(b) read with the  

1975 Valuation Rules would come into play to  

determine nearest equivalent assessable value of  

the goods. He would contend that the Valuation  

Rules have to be applied sequentially, namely,  

Rules 4 and 5 should be invoked first in order to  

determine the assessable value and if Rules 4 and  

5 of the 1975 Valuation Rules are not applicable or  

assessable value cannot be ascertained by applying  

the said Rules, then only Rule 6 can be invoked. He  

would further submit that it is only Rule 6(b)(ii) of  

the 1975 Valuation Rules which contemplates  

determination of assessable value on the basis of  

cost of manufacture only when the goods are  

captively consumed by the manufacturer and value  

of comparable goods manufactured by the assessee  

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or any other assessee is not available. In this  

regard, he would submit, relying on few decisions of  

this Court, that fiscal provisions have to be  

construed strictly and also where a statute  

prescribes that a particular thing has to be done in  

a particular manner, then, that thing has to be  

done only in that manner and not otherwise..  Shri  

Vellapally submits that when the normal price is  

not ascertainable under Section 4(1)(a) of the Act  

when transaction is between related persons or  

price is not the sole consideration, then nearest  

equivalent at the time of removal of the goods is the  

criteria for the purpose of computation of  

assessable value. He would contend that it is when  

there is no like or identical article available at the  

time or place of removal, only then, Rule 6 of the  

1975 Valuation Rules is invoked which deals with  

cost of manufacture. He would further submit by  

relying on the Bombay Tyre’s case (Supra) that even  

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old Section 4 (b) (prior to the 1973 amendment)  

suggests that in case wholesale price for the  

valuation is not ascertainable under old Section  

4(a), then, the value of nearest equivalent article of  

like kind and quality, which is sold or capable of  

being sold at the time and place of removal, is  

considered for the purpose of valuation.  He would  

further submit that it is not practical to go into cost  

of manufacture in each and every case in order to  

determine whether goods are sold below the cost of  

production. He would submit that if wholesale price  

under Section 4(1)(a) is not ascertainable, then,  

assessing authority can go to the nearest  

equivalent to determine assessable value for the  

purpose of levy of excise duty under the Act.

14. Shri Vellapally would further submit by  

referring to Section 2(d) of the Indian Contract Act,  

that the consideration should flow from buyer to  

the seller. He would submit that the meaning of the  

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expression ‘consideration’  in Section 4 should be  

determined by comprehensively reading Section 4  

along with the Valuation Rules. In this regard, he  

would submit by referring to Rule 5 that in case the  

price is not the sole consideration then the value of  

the goods can be determined by taking into account  

the monetary value of the additional consideration  

flowing directly or indirectly from the buyer to the  

seller. He would submit that any additional  

consideration should flow from buyer to seller. He  

would submit that intention of the assessee to  

penetrate the market cannot be treated as a  

consideration as no money consideration flows from  

the buyer to the seller. Therefore, there is no  

additional consideration flowing from buyer to seller  

and whole transaction is bonafide. He would submit  

that this Court has already answered this issue of  

‘sole consideration’  in the cases of Guru Nanak  

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Refrigeration (supra) and CCE v. Bisleri International  

Pvt.Ltd., 2005 (186) ELT 257 (SC).  

15. Shri. V. Lakshmi Kumaran, learned counsel,  

who also appears for the assessees but for the  

period April 1998 to June 2001, would submit that  

the Cost Auditor’s report has not been relied on or  

referred to in any of the show cause notices issued  

to the assessee, which are the basis of entire  

proceedings and, therefore, proceedings initiated by  

the assessing authority are contrary to the settled  

principles enunciated by this Court. He would  

submit that all the show cause notices are identical  

or verbatim the same while alleging that assessee  

has not adopted any basis to determine the price  

and goods are sold at loss in order to penetrate the  

market.  The allegations on the basis of Cost  

Auditors report amount to an issuance of new show  

cause notice. He would submit that the assessees’  

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declared price is based on the competitive price in  

the market at arms length and where price is the  

sole consideration.  He would submit that nothing  

as to sole consideration or transaction between  

related person has been alleged in the show cause  

notices, therefore, the show cause notices are  

without any basis. He would submit that the  

assessee has not been furnished with Cost  

Auditor’s report till date. He would submit that the  

Revenue is not justified in rejecting the assessee’s  

price as the price is a bench mark in order to sell  

the goods in market and it is even higher in  

comparison to other similar cars, although it is less  

than the cost of manufacture. He would further  

submit that the economic concept to penetrate the  

market is recognized by Article 6 of the WTO and  

Article VII of Customs Valuation Rules of WTO and  

further, Section 14 of the Indian Customs Act  

incorporates the above concept in harmony with  

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other countries. He would submit that when the  

price of assessee is higher than that of its  

competitors, it would mean that the assessee is  

bench marking his prices. He would submit that  

the price at which goods are sold by the assessee to  

the buyer is purely a competitive price and there is  

no allegation as to transactions are with related  

person(s) and price is not the sole consideration  

and that there is flow back from buyer to the  

assessee in any form.   He would further submit  

that whenever goods are sold in a competitive  

market at a price at arms length then it should be  

treated as assessable value. He would submit that  

value is a function of price and where price is not  

available, one of the methodology to determine it is  

cost. He would further submit, relying on Ship  

Breaker’s case that this Court while explaining the  

meaning of expression ‘Ordinary sale’  occurring in  

Section 14 of the Customs Act which is in pari  

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materia with Section 4 of the Act has observed that  

“Ordinary Sale’  would mean the sale where goods  

are sold to unrelated parties and price is the sole  

consideration.   

16. Shri. V. Lakshmi Kumaran would further  

submit that Section 4 of the Act was amended on  

1st April 2000 to incorporate ‘transaction value’  as  

an assessable value instead of ‘normal price’  and  

the expression ‘ordinarily’  was dropped. Therefore,  

the new Section 4 (after 2000 amendment) is  

applicable to the transactions which took place  

during the period from July, 2000 to June, 2001.  

He would further submit that the word ‘ascertain’  

and ‘determination’  have different meaning and  

connotation. He would submit that the word  

‘ascertain’  would mean to find a thing which  

already exists whereas determination mean to  

arrive at something by adding or subtracting. He  

would then submit that when ascertainment of  

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normal price is not possible under Section 4(1)(a)  

then that price has to be determined by the process  

of computation as provided under Section 4 (1) (b)  

of the Act read with the Rules framed thereunder.  

He would submit by relying on the decision of this  

Court in Elgi Equipment Pvt. Ltd. v. CCE,  

Coimbatore, 2007 (215) ELT 348 (SC) that the word  

‘Ordinary sale’  would mean the normal practice or  

the practice followed by majority of persons in the  

wholesale trade in the concerned goods. He would  

submit that in the present case, the assessee is  

better placed as the entire sale is at the same price  

or rate, so the condition of the expression  

‘ordinarily sold’ is being satisfied.  

17. Shri. V. Lakshmi Kumaran would further  

submit that certain considerations for fixing the  

price like quantity or volume, long term  

relationship and status of buyer are all commercial  

consideration. He would further contend that  

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consideration can be in any form but must flow  

from buyer to the seller.  He would submit relying  

on the decision of this Court in Philips India Ltd. v.  

Collector of Central Excise, Pune, 1997 (91) E.L.T.  

540 (SC), that where the buyer is taking  

responsibility on behalf of the seller, then it would  

be added in the sale price of seller while assessing  

him and in case where seller and buyer share  

expenditure, then, it cannot be added in the sale  

price of the seller-assessee.  He would further  

submit relying on the decision of this Court in VST  

Industries Ltd. v. Collector of Central Excise,  

Hyderabad, 1998 (97) E.L.T. 395 (SC) that this  

Court has distinguished Metal Box decision by  

observing that the notional interest on interest free  

deposit made by the buyer to the seller should not  

be included in the sale price of the seller-assessee  

as no extra commercial consideration is flowing  

from the buyer to the seller, there is no nexus  

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between the security deposit and sale price, and if  

department is not able to quantify the money value  

of the additional consideration, then Rule 7 of the  

Valuation Rules is not applicable.  

18. Shri. V. Lakshmi Kumaran would further  

submit that expression ‘sale and purchase’  is  

defined under Section 2(h) of the Act which would  

mean the transfer of possession of goods from one  

person to other in the ordinary course of trade for  

cash or deferred payment or other valuable  

consideration. He would submit by relying on the  

constitution bench decision of this Court in Devi  

Das Gopal v. State of Punjab, (1967) 20 STC 430,  

that the term ‘purchase’ would mean acquisition of  

goods for sale for cash or deferred payment or other  

valuable consideration. He would further submit  

that sale and purchase are different perspectives of  

same transaction and the price is defined in the  

Sale of Goods Act as “money consideration” and the  

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expression ‘cash’, ‘deferred payment’  and ‘other  

valuable consideration’  are consistently used as  

monetary consideration.  He further contended that  

Section 4(1)(a) of the Act has six ingredients and if  

any one of these ingredients is missing, then only  

the Revenue could invoke the Valuation Rules. He  

relies on Circular, issued by the Board,  

No.215/49/96-Cx., dated 27.05.1996, wherein the  

Board has clarified that if price was not the sole  

consideration then any additional consideration  

that flow from the buyer to assessee would have to  

be quantified in terms of money, if the Department  

was not in a position to determine the same, then  

Rule 7 would not be applicable. Learned counsel  

would state that Rule 7 was the only Rule which  

could be applied in case the price was not sole  

consideration and if that Rule was not applicable  

then no Rule of the Valuation Rules would apply.   

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19. Shri. V. Lakshmi Kumaran would further  

submit by relying on the decision of this Court in  

Basant Industries v. Addl. Collector of Customs,  

Bombay, 1996 (81) E.L.T. 195 (SC), that ordinarily  

Courts would not interfere in the price fixation by  

merely stating that there is undervaluation and  

proceed on such presumption. He further relied on  

the decision of this Court in CCE v. Rajasthan  

Spinning and Weaving Mills, (2007) 218 E.L.T. 641  

(SC), to contend that different methods prescribed  

under the Valuation Rules have to converge to a  

common valuation and it is not possible to accept  

wide variation in the results in order to ascertain  

the basis of assessable value. In conclusion, the  

learned counsel would submit that the Tribunal  

was justified in allowing the assessees’  appeals by  

relying on the decision of this Court in Guru Nanak  

Refrigeration’s case (supra). In nutshell, the  

arguments of both the learned senior counsel is  

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that in terms of Section 4 of the Act, duty liability is  

on the normal price at which the goods are sold in  

wholesale trade to the buyers when the sale price is  

the sole consideration.  The basis for valuation of  

excisable goods is the normal price at which the  

goods are sold.  Only if, such a sale price is not  

available, valuation based on cost production can  

be resorted to. In summarization, it is contended  

that once the normal price at which the goods are  

sold is available, the Revenue cannot reject the  

normal price merely because it is less than the cost  

of production, specially when the genuineness of  

the sale price is not in doubt.  Since the  

adjudicating authority does not question the  

genuineness of the sale price in the show cause  

notices issued, he cannot resort to Section 4(1)(b) of  

the Act read with relevant Rules for the purpose of  

quantification of assessable value.

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ISSUES:      

20. 1. Whether the Price declared by assessees  

for their cars which is admittedly below  

the Cost of manufacture can be regarded  

as “normal price” for the purpose of excise  

duty  in terms of  Section 4(1) (a) of the  

Act.  

2. Whether the sale of Cars by assessees at  

a price, lower than the cost of  

manufacture in order to compete and  

penetrate the market, can be regarded as  

the “extra commercial consideration”  for  

the sale to their buyers which could be  

considered as one of the vitiating factors  

to doubt the normal price of the wholesale  

trade of the assessees.   

21. The decision in the present case turns upon  

the interpretation of Section 4(1)(a) and Section 4(1)

(b) of the Act read with relevant Rules in order to  

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determine the correctness or otherwise of  

impugned judgment and order.

22. To begin with, we might like to state here that  

the facts of the case undoubtedly reveal that if the  

provisions of the Section 4(1)(b) were to apply, it  

may work serious hardship to the respondents-

asseessees as contended by learned senior counsel  

for the assessees, but as we are concerned with  

interpretation of a statutory provision, the mere  

fact that a correct interpretation may lead to  

hardship would not be a valid consideration for  

distorting the language of the statutory provisions.   

23. Section 3 of the Act is the charging provision.  

The taxable event for attracting excise duty is the  

manufacture of excisable goods.  The charge of  

incidence of duty stands attracted as soon as  

taxable event takes place and the facility of  

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postponement of collection of duty under the Act or  

Rules framed thereunder can in no way effect the  

incidence of duty.  Further, the sale or ownership of  

the end products is also not relevant for the  

purposes of taxable event under the central excise.  

Since excise is a duty on manufacture, duty is  

payable whether or not goods are sold. Duty is  

payable even when goods are used within the  

factory or goods are captively consumed within  

factory for further manufacture. Excise duty is  

payable even in case of free supply or given as  

replacement.  Therefore, sale is not a necessary  

condition for charging excise duty.

24. Section 3 of the Act provides for  levy of duty of  

excise and Section 3(i) thereof states that there  

shall be levied and collected in the prescribed  

manner, a duty of excise on excisable goods  

manufactured in India at the rates set forth in the  

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first Schedule.  Neither Section 3 nor the first  

Schedule lays down the manner in which ad  

valorem price of the goods has to be calculated.  

This is found in Section 4 of the Act.  Section 4 of  

the Act lays down the measure by reference to  

which the duty of excise is to be assessed.  The  

duty of excise is linked and chargeable with  

reference to the value of the exercisable goods and  

the value is further defined in express terms by the  

said Section.  In every case, the fundamental  

criterion for computing the value of an excisable  

article is the normal price at which the excisable  

article is sold by the manufacturer, where the  

buyer is not a related person and the price is the  

sole consideration. If these conditions are satisfied  

and proved to the satisfaction of the adjudicating  

authority, then, the burden which lies on the  

assessee under Section 4(1)(a) would have been  

discharged and the price would not be ignored and  

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the transaction would fall under the protective  

umbrella contained in the Section itself.

 25. Section 4 of the Act is the core provision  

containing statutory formula for assessment and  

collection at ad valorem basis of duty under Central  

Excise laws. Therefore, the Section requires to be  

noticed and some of the expressions contained  

therein, which are necessary for the purpose of the  

case, require to be analysed to appreciate the stand  

of the parties. Since the large part of the demand in  

question primarily pertains to the period after the  

year 1975, we will notice Section 4 of the Act, which  

has come into force with effect from 01.10.1975.

"4. Valuation of excisable goods for  

purposes of charging of duty of excise - (1)  

Where under this Act, the duty of excise is  

chargeable on any excisable goods with  

reference to value, such value shall,  

subject to the other provisions of this  

section be deemed to be -

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(a) the normal price thereof, that is to say,  

the price at which such goods are  

ordinarily sold by the assessee to a buyer  

in the course of wholesale trade for  

delivery at the time and place of removal,  

where the buyer is not a related person  

and the price is the sole consideration for  

the sale:

Provided that -

(i) where in accordance with the normal  

practice of the wholesale trade in such  

goods, such goods are sold by the assessee  

at different prices to different classes of  

buyers (not being related persons) each  

such price shall, subject to the existence of  

the other circumstances specified in clause  

(a), be deemed to be the normal price of  

such goods in relation to each such class  

of buyers;

(ii) where such goods are sold by the  

assessee in the course of wholesale trade  

for delivery at the time and place of  

removal at a price fixed under any law for  

the time being in force, or at a price, being  

the maximum fixed under any such law,  

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then, notwithstanding anything contained  

in clause (iii) of this proviso the price or  

the maximum price, as the case may be, so  

fixed,+ shall, in relation to the goods so  

sold, be deemed to be the normal price  

thereof;

(iii) where the assessee so arranges that  

the goods are generally not sold by him in  

the course of wholesale trade except to or  

through a related person, the normal price  

of the goods sold by the assessee to or  

through such related person shall be  

deemed to be the price at which they are  

ordinarily sold by the related person in the  

course of wholesale trade at the time of  

removal, to dealers (not being related  

persons) or where such goods are not sold  

to such dealers, to dealers (being related  

persons) who sell such goods in retail;

(b) where the normal price of such goods is  

not ascertainable for the reason that such  

goods are not sold or for any other reason,  

the nearest ascertainable equivalent  

thereof determined in such manner as may  

be prescribed.

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(2) Where, in relation to any excisable  

goods, the price thereof for delivery at the  

place of removal is not known and the  

value thereof 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 shall be excluded from  

such price.

(3) The provisions of this section shall not  

apply in respect of any excisable goods for  

which a tariff value has been fixed under  

sub-section (2) of Section 3.”

26.   Section 4 of the Act lays down the valuation of  

excisable goods chargeable to duty of excise.  The  

duty of excise is with reference to value and such  

value shall be subject to other provisions of Section  

4, that is the normal price at which such goods are  

ordinarily sold by the assessee to a buyer in the  

course of wholesale trade for delivery at the time  

and place of removal where the buyer is not a  

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related person and the price is the sole  

consideration for the sale.  To determine the value,  

the legislature has created a legal fiction to equate  

the value of the goods to the price which is actually  

obtained by the assessee, when such goods are sold  

in the market, or the nearest equivalent thereof.  In  

other words, the legal fiction so created by Section  

4 makes excise duty leviable on the actual market  

value of the goods or the nearest equivalent thereof.  

In Bangaru Laxman v. State (through CBI) and Anr.-  

(2012) 1 SCC 500, this Court relying on J.K. Cotton  

Spinning and Weaving Mills Ltd. v. U.O.I, (1987)  

Supp. (1) SCC 350, observed that a deeming  

provision creates a legal fiction and something that  

is in fact not true or in existence, shall be  

considered to be true or in existence.  Therefore,  

though the price at which the assessee sells the  

excisable goods to a buyer or the nearest  

ascertainable price may not reflect the actual value  

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of the goods, for the purpose of valuation of excise  

duty, by the deeming fiction created in Section 4(1),  

such selling price or nearest ascertainable price in  

the market, as the case may be, is considered to be  

the value of goods.   

 27. It is well settled that whenever the legislature  

uses certain terms or expressions of well-known  

legal significance or connotations, the courts must  

interpret them as used or understood in the  

popular sense if they are not defined under the Act  

or the Rules framed thereunder.  Popular sense  

means “that sense which people conversant with  

the subject matter, with which the statute is  

dealing, would attribute to it.”

28. The normal rule of interpretation is that the  

words used by the legislature are generally a safe  

guide to its intention.  Lord Reid in Westminster  

Bank Ltd. v. Zang [(1966) A.C. 182] observed that  

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‘no principle of interpretation of statutes is more  

firmly settled than the rule that the court must  

deduce the intention of Parliament from the words  

used in the Act.”  Applying such a rule, this Court  

observed in S. Narayanaswami v. G. Pannerselvam  

& Ors. (1973) 1 SCR 172 that ‘Where the statute’s  

meaning is clear and explicit, words cannot be  

interpolated.’  

 29. Section 4 of the Act, as we have already  

noticed, speaks of valuation of excisable goods, with  

reference to their value.  The `value’  subject to  

other stipulation in Section 4 is deemed to be the  

`normal price’  at which the goods are ‘ordinarily’  

sold to the buyer in the course of ‘wholesale trade’  

where the buyer is not `related  person’  and the  

`price’  is the `sole consideration’  for the sale.  

Against this background, for the purpose of this  

case, we have now to consider the meaning of the  

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words ‘value’, ‘normal price’, ‘ordinarily sold’  and  

‘sole consideration’, as used in Section 4(1) (a) of  

the Act.

  30. The `value’  in relation to excisable commodity  

means normal price or the price at which the goods  

are ordinarily sold by the assessee to a buyer in the  

course of wholesale trade at the time and place of  

removal where the buyer is not a related person  

and price is the sole consideration for sale. Stated  

another way, the Central Excise duty is payable on  

the basis of the value.  The assessable value is  

arrived on the basis of Section 4 of the Act and the  

Central Excise Valuation Rules.

31. Section 4(1) (a) deems the `normal price’ of the  

assessee for selling the excisable goods to buyers to  

be the value of the goods for purpose of levy of  

excise duty.  The expression ‘normal price’  is not  

defined under the Act.  In “Advanced Law Lexicon”  

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Page 46

by P. Ramanatha Aiyar, it is defined as the price  

which would have been payable by an ordinary  

customer of the goods.  This Court while construing  

the meaning of the aforesaid expression in Ashok  

Leyland Ltd. v. Collector of Central Excise, Madras  

(2002) 10 SCC 344 has stated “Generally speaking  

the expression ‘normal price’  occurring in Section  

4(1)(a) and (b) means the price at which goods are  

sold to the public.  Where the sale to public is  

through dealers, the ‘normal price’  would be the  

‘sale price’ to the dealer.

32. In Commissioner of Central Excise,  

Ahemedabad  v. Xerographic Ltd. (2006) 9 SCC 556,  

this Court has explained the concept of normal  

price.  That was in the context of transaction  

between the related persons.  It was observed “that  

the existence of any extra commercial consideration  

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while fixing a price would not amount to normal  

price.”   

33. In Burn Standard Co. Ltd. & Anr. v. Union of  

India (1991) 3 SCC 467, it is stated, “Section 3 of  

the Act provides for levy of the duty of excise.  It is a  

levy on goods produced or manufactured in India.  

Section 4 of the Act lays down the measure by  

reference to which the duty of excise is to be  

assessed. The duty of excise is linked and  

chargeable with reference to the value of the  

excisable goods and the value is further defined in  

express terms by the said section. In every case the  

fundamental criterion for computing the value of an  

excisable article is the normal price at which the  

excisable article or an article of the like kind and  

quality is sold or is capable of being sold by the  

manufacturer.”

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34. In Tata Iron and Steel Co. Ltd. v. Collector of  

Central Excise, Jamshedpur (2002) 8 SCC 338, it is  

held that “it is true to be seen that under the said Act  

excise duty is chargeable on the value of the goods.  

The value is the normal price i.e. the price at which  

such goods are ordinarily sold by the assessee to a  

buyer, where the buyer is not a related person and  

the price is the sole consideration for sale.”

35. In Union of India and others v. Bombay Tyre  

International Ltd & Ors.. (1984) 1 SCC 467, it is held  

that “it is true, we think, that the new Section 4(1)  

contains inherently within it the power to determine  

the true value of the excisable article, after taking into  

account any concession shown to a special or  

favoured buyer because of extra-commercial  

considerations, in order that the price be ascertained  

only on the basis that it is a transaction at arm’s  

length. That requirement is emphasised by the  

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provision in the new Section 4(l)(a) that the price  

should be the sole consideration for the sale. In every  

such case, it will be for the Revenue to determine on  

the evidence before it whether the transaction is one  

where extra-commercial considerations have entered  

and, if so, what should be the price to be taken as  

the value of the excisable article for the purpose of  

excise duty.”

36. In Metal Box India Ltd. v. CCE (1995) 2 SCC 90,  

this Court held:

“10. ... It has been laid down by Section 4(1)

(a) that normal price would be price which  

must be the sole consideration for the sale  

of goods and there could not be other  

consideration except the price for the sale of  

the goods and only under such a situation  

sub-section (l)(a) would come into play.”  

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37. In Calcutta Chromotype Ltd. v. CCE, (1998) 3  

SCC 681, it is held:

14. ... Law is specific that when duty of  

excise is chargeable on the goods with  

reference to its value then the normal price  

on which the goods are sold shall be  

deemed to be the value provided (1) the  

buyer is not a related person and (2) the  

price is the sole consideration. It is a  

deeming provision and the two conditions  

have to be satisfied for the case to fall under  

clause (a) of Section 4(1) keeping in view as  

to who is the related person within the  

meaning of clause (c) of Section 4(4) of the  

Act. Again if the price is not the sole  

consideration, then again clause (a) of  

Section 4(1) will not be applicable to arrive  

at the value of the excisable goods for the  

purpose of levy of duty of excise.”

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38. In Commissioner of Central Excise v. Ballarpur  

Industries Ltd., (2007) 8 SCC 89, it is observed:

“19. Under Section 4(1)(a) normal price was  

the basis of the assessable value. It was the  

price at which goods were ordinarily sold by  

the assessee to the buyer in the course of  

wholesale trade. Under Section 4(1)(b) it was  

provided that if the price was not  

ascertainable for the reason that such goods  

were not sold or for any other reason, the  

nearest equivalent thereof had to be  

determined in terms of the Valuation Rules,  

1975. Therefore, Rule 57-CC has to be read  

in the context of Section 4(1) of the 1944 Act,  

as it stood at the relevant time. Section 4(1)

(a) equated “value”  to the “normal price”  

which in turn referred to goods being  

ordinarily sold in the course of wholesale  

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trade. In other words, normal price, which in  

turn referred to goods being ordinarily sold  

in the course of wholesale trade at the time  

of removal, constituted the basis of the  

assessable value.”

39. In Siddhartha Tubes Ltd. v. CCE, (2005) 13 SCC  

564, at page 567, it is held:

“5..….The essential basis of valuation under  

Section 4 of the Act is the wholesale cash  

price charged by the appellant. Normal price  

under Section 4(1)(a) constituted a measure  

for levy of excise duty. In the present case,  

we are concerned with assessment and not  

with classification. Duty under Section 4  

was not leviable on the “conceptual value”  

but on the normal price charged or  

chargeable by the assessee. (See Union of  

India v. Bombay Tyre International Ltd.)”

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40. In CCE v. Bisleri International (P) Ltd., (2005) 6  

SCC 58, at page 61, it is held:

“10. At the outset, it may be mentioned that  

under Section 4(1)(a), “value”  in relation to  

any excisable goods is a function of the  

price. In other words, “value”  is derived  

from the normal price at the factory gate  

charged to an unrelated person on  

wholesale basis and at the time and place of  

removal.

11. It is for the Department to examine the  

entire evidence on record in order to  

determine whether the transaction is one  

prompted by extra-commercial  

considerations. It is well settled that under  

Section 4 of the said Act, as it stood at the  

material time, price is adopted as a measure  

or a yardstick for assessing the tax. The  

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said measure or yardstick is not conclusive  

of the nature of the tax. Under Section 4,  

price and sale are related concepts. The  

“value”  of the excisable article has to be  

computed with reference to the price  

charged by the manufacturer, the  

computation being made in accordance with  

Section 4. In every case, it will be for the  

Revenue to determine on evidence whether  

the transaction is one where extra-

commercial considerations have entered  

and, if so, what should be the price to be  

taken into account as the value of the  

excisable article for the purpose of excise  

duty. These principles have been laid down  

in the judgment of this Court in the case of  

Union of India v. Bombay Tyre International  

Ltd.”

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41. In Ashok Leyland Ltd. v. Collector of Central  

Excise, Madras, (2002) 10 SCC 344, at page 348, it  

is held:

“10. In our view, the provisions of the Act  

are very clear. Excise duty is payable on  

removal of goods. As there may be no sale  

at the time of removal, Section 4 of the Act  

lays down how the value has to be  

determined for the purposes of charging of  

excise duty. The main provision is Section  

4(l)(a) which provides that the value would  

be the normal price thereof, that is, the price  

at which the goods are ordinarily sold by  

the assessee to a buyer in the course of a  

wholesale trade. Section 4(4)(e) clarifies that  

a sale to a dealer would be deemed to be  

wholesale trade. Therefore, the normal price  

would be the price at which the goods are  

sold in the market in the wholesale trade.  

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Generally speaking, the normal price is the  

one at which goods are sold to the public.  

Here the sale to the public is through the  

dealers. So the normal price is the sale price  

to the dealer. The proviso, which has been  

relied upon by learned counsel, does not  

make any exception to this normal rule. All  

that the proviso provides is that if an  

assessee sells goods at different prices to  

different classes of buyers, then in respect  

of each such class of buyers, the normal  

price would be the price at which the goods  

are sold to that class. The proviso does not  

mean or provide that merely because the  

assessee sells at different prices to different  

classes of buyers, the price of that  

commodity becomes an unascertainable  

price. The price of that commodity will  

remain the normal price at which those  

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goods are ordinarily sold by the assessee to  

the public, in other words, the price at which  

they are sold in the market.”

42. In Procter & Gamble Hygiene & Health Care Ltd.  

v. Commissioner of Central Excise, Bhopal, (2006) 1  

SCC 267,  it is held :

“9. This case relates to valuation. At the  

outset, we would like to clarify certain  

concepts under the excise law. The levy of  

excise duty is on the “manufacture”  of  

goods. The excisable event is the  

manufacture. The levy is on the  

manufacture. The measure or the yardstick  

for computing the levy is the “normal price”  

under Section 4(l)(a) of the Act. The concept  

of “excisability” is different from the concept  

of “valuation”. In the present case, as stated  

above, we are concerned with valuation and  

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not with excisability. In the present case,  

there is no dispute that AMS came under  

Sub-Heading 3402.90 of the Tariff. There is  

no dispute in the present case that AMS was  

dutiable under Section 3 of the Act. In Union  

of India v. Bombay Tyre International Ltd.,  

this Court observed that the measure of levy  

did not conclusively determine the nature of  

the levy. It was held that the fundamental  

criterion for computing the value of an  

excisable article was the price at which the  

excisable article was sold or was capable of  

being sold by the manufacturer. It was  

further held that the price of an article was  

related to its value and in that value, we  

have several components, including those  

components which enhance the commercial  

value of the article and which give to the  

article its marketability in the trade.  

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Therefore, the expenses incurred on such  

factors inter alia have to be included in the  

assessable value of the article up to the date  

of the sale, which was the date of delivery.”

43. What can be  construed  from the plain  

reading of Section 4 of the Act and the  

interpretation that is given by this Court on the  

expression `normal value’  is, where excise duty is  

chargeable on any excisable goods with reference to  

value, such value shall be deemed to be the price at  

which such goods are ordinarily sold by the  

assessee to a buyer in the course of wholesale trade  

for delivery at the time and place of removal and  

where the assessee and the buyer have no interest  

directly or indirectly in the business of each other  

and the price is the sole consideration for the sale.  

Normal price, therefore, is the amount paid by the  

buyer for the purchase of goods. In the present  

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case, it is the stand of the revenue that ‘loss  

making price’ cannot be the ‘normal price’ and that  

too when it is spread over for nearly five years and  

the consideration being only to penetrate the  

market and compete with other manufacturers who  

are manufacturing more or less similar cars and  

selling at a lower price.  The existence of extra  

commercial consideration while fixing the price  

would not be the ‘normal price’ as observed by this  

Court in Xerographic Ltd.’s case (supra).  If price is  

the sole consideration for the sale of goods and if  

there is no other consideration except the price for  

the sale of goods, then only provisions of Section 4  

(1)(a) of the Act can be applied.  In fact, in Metal  

Box’s case (supra) this Court has stated that under  

sub-Section (1) (a) of Section 4 of the Act, the  

‘normal price’ would be the price which must be the  

sole consideration for the sale of goods and there  

cannot be any other consideration except the price  

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for the sale of goods and it is only under such  

situation Sub-Section (1) (a) of Section 4 would  

come into play.  In the show cause notices issued,  

the Revenue doubts the normal price of the  

wholesale trade of the assessees.  They specifically  

allege, which is not disputed by the assessees, that  

the `loss making price’ continuously for a period of  

more than five years while selling more than 29000  

cars, cannot be the normal price.  It is true that in  

notices issued, the Revenue does not allege that the  

buyer is a related person, nor do they allege  

element of flow back directly from the buyer to the  

seller, but certainly, they allege that the price was  

not the sole consideration and the circumstance  

that no prudent businessman would continuously  

suffer huge loss only to penetrate the market and  

compete with other manufacturer of more or less  

similar cars.  A prudent businessman or woman  

and in the present case, a company is expected to  

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act with discretion to seek reasonable income,  

preserve capital and, in general, avoid speculative  

investments.  This court in the case of Union of  

India v. Hindalco Industries 2003 (153) ELT 481, has  

observed that, `if there is anything to suggest to  

doubt the normal price of the wholesale trade, then  

recourse to clause (b) of sub-section(1) of Section 4  

of the Act could be made’. That the price is not the  

normal price, is established from the following  

three circumstances which the assessees  

themselves have admitted; that the price of the cars  

was not  based on the manufacturing cost and  

manufacturing profit, but have fixed at a lower  

price to penetrate the market;  though the normal  

price for their cars is higher, they are selling the  

cars at a lower price to compete with the other  

manufacturers of similar cars. This is certainly a  

factor in depressing the sale price to an artificial  

level; and, lastly, the full commercial cost of  

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manufacturing and selling the cars was not  

reflected in the lower price.  Therefore, merely  

because the assessee has not sold the cars to the  

related person and the element of flow back directly  

from the buyer to the seller is not the allegation in  

the show cause notices issued, the price at which  

the assessees had sold its goods to the whole sale  

trader cannot be accepted as ‘normal price’ for the  

sale of cars.   

44. We now deal with the second limb of the  

argument of Shri Bhattacharya, learned ASG that  

the loss price at which the goods are sold by the  

assessee clearly indicates or reflects that these  

goods are not “ordinarily sold” in terms of Section 4  

(1) (a) of the Act.   He submits that admittedly  

assessees are selling their goods at 100% loss  

continuously for five years i.e. from the year 1996  

to 2001 and therefore, the transactions of the  

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assessees cannot fit into description of expression  

‘ordinarily sold’.  While countering this argument,  

Shri Joseph Vellapally would submit that the  

selling price at which the goods are sold in the  

ordinary course of business by the assessee to all  

the buyers is the same or uniform without any  

exception.  He would, therefore, contend that the  

goods are ordinarily sold in terms of Section 4 (1)  

(a) of the Act.  While adopting the submission of  

Shri Vellapally, Shri Lakshmi Kumaran would  

further contend, relying on Ship Breaker’s case  

(supra) that this Court while explaining the  

meaning of the expression ‘ordinarily sold’,  

occurring in Section 14 of the Customs Act, 1962  

which is in pari materia with Section 4 of the Act,  

would mean the sale where the goods are sold to  

un-related persons and price is the sole  

consideration.  He would also contend that Section  

4 of the Act was amended with effect from 1stApril,  

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2000, to incorporate ‘transaction value’  as an  

‘assessable value’  instead of ‘normal price’  and the  

expression ‘ordinarily’  was omitted.  Therefore, the  

new Section is applicable to the transactions which  

took place for the period from July 2000 to June  

2001.  He would submit by relying on the decision  

of this Court in Elgi Equipment Pvt. Ltd.’s case  

(supra), that the word ‘ordinarily sold’  would mean  

the normal practice or the practice followed by  

majority of persons in the wholesale trade in the  

concerned goods.  He would submit that in the  

present cases, the assessees are better placed as  

the entire sale is at the same price or rate, so the  

condition of the expression ‘ordinarily sold’ is being  

satisfied.   

45. The expression ‘ordinarily sold’  is again not  

defined under the Act, but came up for  

consideration before this Court while construing  

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the said expression under the Customs Act. This  

Court in Eicher Tractors Ltd., Haryana v.  

Commissioner of Customs, Mumbai (2001) 1 SCC  

315 has held:

“6. Under the Act customs duty is  

chargeable on goods. According to Section  

14(1) of the Act, the assessment of duty is to  

be made on the value of the goods. The  

value may be fixed by the Central  

Government under Section 14(2). Where the  

value is not so fixed, the value has to be  

determined under Section 14(1). The value,  

according to Section 14(1), shall be deemed  

to be the price at which such or like goods  

are ordinarily sold, or offered for sale, for  

delivery at the time and place of importation  

- in the course of international trade. The  

word “ordinarily”  necessarily implies the  

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exclusion of “extraordinary”  or “special”  

circumstances. This is clarified by the last  

phrase in Section 14 which describes an  

“ordinary” sale as one “where the seller and  

the buyer have no interest in the business of  

each other and the price is the sole  

consideration for the sale ....”. Subject to  

these three conditions laid down in Section  

14(1) of time, place and absence of special  

circumstances, the price of imported goods  

is to be determined under Section 14(1-A) in  

accordance with the Rules framed in this  

behalf.”

46. In Ispat Industries Ltd. v. Commissioner of  

Customs, Mumbai, (2006) 12 SCC 583, it is held:

“14. From a perusal of the above provisions  

(quoted above), it is evident that the most  

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important provision for the purpose of  

valuation of the goods for the purpose of  

assessment is Section 14 of the Customs  

Act, 1962. Section 14(1), has already been  

quoted above, and a perusal of the same  

shows that the value to be determined is a  

deemed value and not necessarily the actual  

value of the goods. Thus, Section 14(1)  

creates a legal fiction. Section 14(1) states  

that the value of the imported goods shall be  

the deemed price at which such or like  

goods are ordinarily sold, or offered for  

sale, for delivery at the time and place of  

importation in the course of international  

trade. The word “ordinarily” in Section 14(1)  

is of great importance. In Section 14(1) we  

are not to see the actual value of the goods,  

but the value at which such goods or like  

goods are ordinarily sold or offered for sale  

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for delivery at the time of import. Similarly,  

the words “in the course of international  

trade” are also of great importance. We have  

to see the value of the goods not for each  

specific transaction, but the ordinary value  

which it would have in the course of  

international trade at the time of its import.”

47.  In Varsha Plastics Private Limited & Anr. v.  

Union of India & Ors., (2009) 3 SCC 365, at page37l,  

it is observed:

“19. Section 14(1) of the Act prescribes a  

method for determination of the value of the  

goods. It is a deeming provision. By legal  

fiction incorporated in this section, the value  

of the imported goods is the deemed price at  

which such or like goods are ordinarily sold  

or offered for sale for delivery at the time  

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and place of importation in the course of  

international trade.

20. The word “ordinarily” in Section 14(1) is  

a word of significance. The ordinary  

meaning of the word “ordinarily”  in Section  

14(1) is “non-exceptional” or “usual”. It does  

not mean “universally”. In the context of  

Section 14(1) for the purpose of “valuation”  

of goods, however, by use of the word  

“ordinarily”  the indication is that the  

ordinary value of the goods is what it would  

have been in the course of international  

trade at the time of import. Section 14(1),  

thus, provides that the value has to be  

assessed on the basis of price attached to  

such or like goods ordinarily sold or offered  

for sale in the ordinary course of events in  

international trade at the time and place of  

transportation.”

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48.   In Rajkumar Knitting Mills (P) Ltd. v. Collector of  

Customs, Bombay (1998) 3 SCC 163, at page 165, it  

is held:

“7. ... The words “ordinarily sold or offered  

for sale” do not refer to the contract between  

the supplier and the importer, but to the  

prevailing price in the market on the date of  

importation or exportation.”

49.  In Ashok Leyland Ltd. v. Collector of Central  

Excise, Madras, (2002) 10 SCC 344, at page 348, it  

is held :

“The price of that commodity will remain  

the normal price at which those goods are  

ordinarily sold by the assessee to the  

public, in other words, the price at which  

they are sold in the market.”

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50.   In the context of Section 4(1)(a) of the Act, the  

word ‘ordinarily’  does not mean majority of the  

sales; what it means is that price should not be  

exceptional.  In our considered opinion, the word  

‘ordinarily’, by no stretch of imagination, can  

include extra-ordinary or unusual.  In the instant  

cases, as we have already noticed, the assessees  

sell their cars in the market continuously for a  

period of five years at a loss price and claims that it  

had to do only to compete with the other  

manufacturers of cars and also to penetrate the  

market.  If such sales are taken as sales made in  

the ordinary course, it would be anathema for the  

expression ‘ordinarily sold’. There could be  

instances where a manufacturer may sell his goods  

at a price less than the cost of manufacturing and  

manufacturing profit, when the company wants to  

switch over its business for any other  

manufacturing activity, it could also be where the  

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manufacturer has goods which could not be sold  

within a reasonable time.  These instances are not  

exhaustive but only illustrative.  In the instant  

cases, since the price charged for the sale of cars is  

exceptional, we cannot accept the submission of  

the learned counsel to give a meaning which does  

not fit into the meaning of the expression ‘ordinarily  

sold’.  In other words, in the transaction under  

consideration, the goods are sold below the  

manufacturing cost and manufacturing profit.  

Therefore, in our view, such sales may be  

disregarded as not being done in the ordinary  

course of sale or trade.  In our view, for the purpose  

of Section 4(1) (a) all that has to be seen is: does  

the sale price at the factory gate represent the  

wholesale cash price. If the price charged to the  

purchaser at the factory gate is fair and reasonable  

and has been arrived at only on purely commercial  

basis, then that should represent the wholesale  

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cash price under Section 4(1)(a) of the Act. This is  

the price which has been charged by the  

manufacturer from the wholesale purchaser or sole  

distributor. What has to be seen is that the sale  

made at arms length and in the usual course of  

business, if it is not made at arms length or in the  

usual course of business, then that will not be real  

value of the goods.  The value to be adopted for the  

purpose of assessment to duty is not the price at  

which the manufacturer actually sells the goods at  

his sale depots or the price at which goods are sold  

by the dealers to the customers, but a fictional  

price contemplated by the section. This Court in  

Ram Kumar Knitting Mills case (supra), while  

construing  the said expression, has held that the  

word `ordinarily sold’   do not refer to contract  

between the supplier and the importer, but, the  

prevailing price in the market on the date of  

importation and exportation.  Excise duty is  

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leviable on the value of goods as manufactured.  

That takes into account manufacturing cost and  

manufacturing profit.

51. Excise is a tax on the production and  

manufacture of goods and Section 4 of the Act  

provides for arriving at the real value of such goods.  

When there is fair and reasonable price stipulated  

between the manufacturer and the wholesale  

dealer in respect of the goods purely on commercial  

basis that should necessarily reflect a dealing in  

the usual course of business, and it is not possible  

to characterise it as not arising out of agreement  

made at arms length. In contrast, if there is an  

extra-ordinary or unusual price, specially low price,  

charged because of extra-commercial  

considerations, the price charged could not be  

taken to be fair and reasonable, arrived at on  

purely commercial basis, as to be counted as the  

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wholesale cash price for levying excise duty under  

Section 4(1)(a) of the Act.

52. The next submission of Shri Bhattacharya,  

learned ASG, is that the price at which the cars  

sold by the assessees is not the sole consideration  

as envisaged under Section 4(1)(a) of the Act.  He  

would contend that admittedly there exists a  

consideration other than the price, that is, to  

penetrate the market. He would also submit that  

the lower price would enable the assessee to  

generate higher turnover and this higher turnover  

is monetary consideration for the assessee received  

directly from various buyers.  In other words, he  

would submit, the intention to penetrate the  

market is intertwined with receiving a higher  

monetary turnover.  Therefore, the price is not the  

sole consideration. However, it is contended by  

learned senior counsel Shri Vellapally that the  

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reason for the assessees for selling their cars at a  

lower price than the manufacturing cost was  

because the assessees had no foothold in the  

Indian market and, therefore, had to sell at a lower  

price than the manufacturing cost and profit in  

order to compete in the market.  He would submit  

that the intention of the assessees to penetrate the  

market cannot be treated as extra commercial  

consideration as it does not flow from the buyer to  

the seller.  Therefore, there is no additional  

consideration flowing from buyer to seller and  

whole transaction is bona fide.  

53. Now what requires to be considered is what is  

the meaning of the expression `sole consideration’.  

Consideration means something which is of value  

in the eyes of law, moving from the plaintiff, either  

of benefit to the plaintiff or of detriment to the  

defendant.  In other words, it may consist either in  

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some right,  interest, profit or benefit accruing to  

the one party, or some forbearance, detriment, loss  

or responsibility, given, suffered or undertaken by  

the other, as observed in the case of Currie v. Misa  

(1875)  LR 10 Ex. 153.   

54. Webster’s Third New International Dictionary  

(unabridged) defines, consideration thus:

“Something that is legally regarded as the  

equivalent or return given or suffered by  

one for the act or promise of another.”

55. In volume 17 of Corpus Juris Secundum  

(p.420-421 and 425) the import of ‘consideration’  

has been described thus:

“Various definitions of the meaning of  

consideration are to be found in the text-

books and judicial opinions. A sufficient  

one, as stated in Corpus Juris and which  

has been quoted and cited with approval is  

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“a benefit to the party promising or a loss  

or detriment to the party to whom the  

promise is made…..

At common law every contract not under  

seal requires a consideration to support it,  

that is, as shown in the definition above,  

some benefit to the promisor, or some  

detriment to the promisee.”  

56. In Salmond on Jurisprudence, the word  

‘consideration’  has been explained in the following  

words.  

“A consideration in its widest sense is the  

reason, motive or inducement, by which a  

man is moved to bind himself by an  

agreement. It is for nothing that he  

consents to impose an obligation upon  

himself, or to abandon or transfer a right.  

It is in consideration of such and such a  

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fact that he agrees to bear new burdens or  

to forego the benefits which the law  

already allows him.”

57.   The gist of the term ‘consideration’  and its  

legal significance has been clearly summed up in  

Section 2(d) of theIndian Contract Act which  

defines ‘consideration’ thus:

“When, at the desire of the promisor, the  

promisee or any other person has done or  

abstained from doing, or does or abstains  

from doing, or promises to do or to abstain  

from doing, something, such act or  

abstinence or promise is called a  

consideration to the promise.”

58. From a conspectus of decisions and dictionary  

meaning, the inescapable conclusion that follows is  

that ‘consideration’  means a reasonable equivalent  

or other valuable benefit passed on by the promisor  

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to the promisee or by the transferor to the  

transferee. Similarly, when the word ‘consideration’  

is qualified by the word ‘sole’, it makes  

consideration stronger so as to make it sufficient  

and valuable having regard to the facts,  

circumstances and necessities of the case.

59. To attract Section 4(1)(a) of the Act what is  

required is to determine the ‘normal price’  of an  

excisable article which price will be the price at  

which it is ordinarily sold to a buyer in the course  

of wholesale trade. It is for the Excise authorities to  

show that the price charged to such selling agent or  

distributor is a concessional or specially low price  

or a price charged to show favour or gain in return  

extra-commercial advantage. If it is shown that the  

price charged to such a sole selling agent or  

distributor is lower than the real value of the goods  

which will mean the manufacturing cost plus  

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manufacturing profit, the Excise authorities can  

refuse to accept that price.

60. Since under new Section 4(1)(a) the price  

should be the sole consideration for the sale, it will  

be open for the Revenue to determine on the basis  

of evidence whether a particular transaction is one  

where extra-commercial consideration has entered  

and, if so, what should be the price to be taken as  

the value of the excisable article for the purpose of  

excise duty and that is what exactly has been done  

in the instant cases and after analysing the  

evidence on record it is found that extra-

commercial consideration had entered into while  

fixing the price of the sale of the cars to the  

customers. When the price is not the sole  

consideration and there are some additional  

considerations either in the form of cash, kind,  

services or in any other way, then according to Rule  

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5 of the 1975 Valuation Rules, the equivalent value  

of that additional consideration should be added to  

the price shown by the assessee. The important  

requirement under Section 4(1)(a) is that the price  

must be the sole and only consideration for the  

sale. If the sale is influenced by considerations  

other than the price, then, Section 4(1)(a) will not  

apply. In the instant case, the main reason for the  

assessees to sell their cars at a lower price than the  

manufacturing cost and profit is to penetrate the  

market and this will constitute extra commercial  

consideration and not the sole consideration.   As  

we have already noticed, the duty of excise is  

chargeable on the goods with reference to its value  

then the normal price on which the goods are sold  

shall be deemed to be the value, provided: (1) the  

buyer is not a related person and (2) the price is the  

sole consideration.  These twin conditions have to  

be satisfied for the case to fall under Section 4(1)(a)  

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of the Act.  We have demonstrated in the instant  

cases, the price is not the sole consideration when  

the assessees sold their cars in the wholesale trade.  

Therefore, the assessing authority was justified in  

invoking clause(b) of Section 4(1) to arrive at the  

value of the exercisable goods for the  purpose of  

levy of duty of excise, since the proper price could  

not be ascertained.  Since, Section 4(1)(b) of the Act  

applies, the valuation requires to be done on the  

basis of  the 1975 Valuation Rules.  

61. After amendment of Section 4 :-  Section 4  

lays down that the valuation of excisable goods  

chargeable to duty of excises on ad-valorem would  

be based upon the concept of transaction value for  

levy of duty.  `Transaction value’  means the price  

actually paid or payable for the goods, when sold,  

and includes any amount that the buyer is liable to  

pay to the assessee in connection with the sale,  

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whether payable at the time of sale or at any other  

time, including any amount charged for, or to make  

provisions for advertising or publicity, marketing  

and selling, and storage etc., but does not include  

duty of excise, sales tax, or any other taxes, if any,  

actually paid or payable on such goods.  Therefore,  

each removal is a different transaction and duty is  

charged on the value of each transaction. The new  

Section 4, therefore, accepts different transaction  

values which may be charged by the assessee to  

different customers for assessment purposes where  

one of the three requirements, namely; (a) where  

the goods are sold for delivery at the time and place  

of delivery; (b) the assessee and buyers are not  

related; and (c) price is the sole consideration for  

sale, is not satisfied, then the transaction value  

shall not be the assessable value and value in such  

case has to be arrived at, under the Central Excise  

Valuation (Determination of Price of Excisable  

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Goods) Rules 2000 (‘the Rules 2000’  for short)  

which is also made effective from 1st July, 2000.  

Since the price is not the sole consideration for the  

period even after 1st July, 2000, in our view, the  

assessing authority was justified in invoking  

provisions of the Rules 2000.

62. Reference     to     the     Citations     :    

Shri Bhattacharya, learned ASG, submits that  

in view of the decision of this Court in Bombay Tyre  

International case (supra), the nominal price of the  

goods, even if it is sold for a loss price, for the  

purpose of assessable value under Section 4 of the  

Act, at least the manufacturing cost and  

manufacturing profit should be taken into  

consideration.  In view of this decision, the learned  

counsel goes to the extent of saying the judgements  

relied upon by the opposite side on the decision of  

this Court in Guru Nanak Refrigeration (supra) and  

Bisleri International (supra) should be treated as  

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per-incurium. We cannot agree.  In Bombay Tyre’s  

case, the issue before the Court was whether the  

value of an article for the purpose of excise duty  

had to be determined by reference exclusively to  

the manufacturing cost and manufacturing profit of  

the manufacturer or should be represented by the  

wholesale price charged by the manufacturer which  

would include post-manufacturing expenses and  

post-manufacturing profits arising between the  

completion of manufacturing process and the point  

of sale by the manufacturer.  It is relevant to notice  

at this stage, in the Bombay Tyre’s case, this Court  

considered the scope of Section 4 before its  

amendment and after the new section 4 was  

substituted with effect from 01.10.1975.  This  

Court in the said case, after detailed consideration  

of rival contentions and after referring to several  

precedents of this Court has concluded that the  

levy of excise duty was on the manufacture or  

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production of goods, the stage of collection need not  

in point of time synchronise with the completion of  

the manufacturing process while the levy had the  

status of a constitutional concept, the point of  

collection was located where the statute declared it  

would be.  The Court further went on to observe  

when enacting the measure to serve as a standard  

for assessing the levy, legislature need not contour  

it along lines which spell out the character of the  

levy itself.  From this stand point, it is not possible  

to accept the contention that because the levy of  

excise is a levy on goods manufactured or  

produced, the value of the excisable article must be  

limited to the manufacturing cost plus the  

manufacturing profit.  The Court further was of the  

opinion, that a broad-based standard of reference  

may be adopted for the purpose of determining the  

measure of levy.  Any standard which maintains a  

manner with the essential character of levy could  

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be regarded as a valid basis for assessing the  

measure of levy.  This Court in this decision also  

distinguished the view expressed in A.K. Roy & Anr.  

v. Voltas Ltd., 1977 (1) ELT 177 (SC), wherein this  

Court had held that the value for the purpose of  

Section 4 would include only the manufacturing  

cost plus manufacturing profit and exclude post-

manufacturing cost plus manufacturing profit but  

exclude post-manufacturing cost and profit arising  

from post-manufacturing operation by observing  

that this Court in the aforesaid decision intended to  

say was that entire cost of the article plus profit  

minus trade discount would represent the  

assessable value and in that decision there was no  

issue on the question of including the post  

manufacturing cost and post-manufacturing  

profits.  In conclusion, insofar as amended Section  

4 of the Act, the Court has observed that the  

assessable value will be the price at which the  

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goods are ordinarily sold by the assessee to the  

buyer in the course of wholesale trade at the  

factory gate.  However, firstly, the buyer should not  

be a related person and the price should be sole  

consideration for the same.  This proposition is  

subject to Section 4(1)(a).  Secondly, if the price of  

the excisable goods cannot be ascertained either  

because the goods are not sold or for any other  

reason, the value will have to be determined as per  

the Central Excise Valuation Rules.   

63. Our attention was also drawn by learned  

counsel Shri Bhattacharya to the decision of this  

Court in Assistant Collector of Central Excise & Ors..  

v. M.R.F. Ltd. 1987 (27) ELT 553 (SC), wherein the  

Court dealt with concept of post-removal expenses.  

64. Shri Vellapally and Shri Lakshmi Kumaran  

learned Counsel by placing reliance on Guru  

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Nanak’s case (supra) and Bisleri’s case (supra)  

contends that the issue raised in these appeals is  

no more res integra. We cannot agree.  In Guru  

Nanak’s case, the facts are: the assessee therein  

was engaged in the manufacture of refrigeration  

and air-conditioning machinery.  They had cleared  

the goods after approval of the price list by the  

department.  The adjudicating authority being of  

the view that the assessable value declared by the  

assessee was low as compared to the cost of  

material used in the manufacture of the said  

machinery, had issued a show cause, to show  

cause why the assessable value should not be re-

fixed and the duty fixed on the re-fixed assessable  

value after taking into consideration the cost of raw  

material plus manufacturing cost plus reasonable  

profit margin.  The adjudicating authority after  

considering the reply filed had confirmed the show  

cause notice and had directed the assessee to pay  

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the difference in excise duty.  In the appeal filed  

before the Tribunal, the assessee had succeeded.  

In the appeal filed by the department, this Court  

was of the view that since in the show cause notice  

issued by the adjudicating authority there was no  

allegation that the wholesale price to the buyers  

was for consideration other than the one at which it  

was purported to be sold or that it was not at arms  

length and further, there was no allegation that  

there was any flow back from the buyer to the  

assessee and therefore, the department cannot  

take a stand that the normal price was not  

ascertainable for the purpose of valuation under  

Section 4(1)(a) of the Act and therefore, the  

Tribunal was justified in accepting the whole sale  

price as the correct price.   

65. In Bisleri’s case, the issue as noted by the  

Court was, whether the assessee had undervalued  

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the aerated water (Beverages) by excluding two  

items, namely, the amounts received under credit  

notes as price support incentive and rent on  

containers as assessable value.  The Court after  

referring to provisions of Section 4(1)(a) of the Act  

and the decision of this Court in Bombay Tyre’s  

case (supra) has held that the amounts received  

under credit notes as price support incentives from  

supplier of raw materials cannot be included in the  

assessable value, since the department failed to  

prove that there was flow back of additional  

consideration from buyers of aerated waters to the  

assessee and further, the price was not uniformly  

maintained and favour of exra-commercial  

consideration was shown to the buyers of aerated  

waters (beverages).  The Court has also observed  

that under Section 4, the price and sale are related  

concepts.  The value of the excisable article has to  

be computed with reference to the price charged by  

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the manufacturer, the computation being made in  

accordance with Section 4.  In every case, it will be  

for the revenue to determine on evidence whether  

the transaction is one where  extra-commercial  

consideration have entered and if so, what should  

be the price to be taken into account as the value of  

the excisable article for the purpose of excise duty.   

66. In our considered view, either the decision of  

Guru Nanak’s case (supra) or the decision in  

Bisleri’s case (supra) would assist the assessee in  

any manner whatsoever.  We say so for the reason,  

that, in Guru Nanak’s case, the department had  

accepted the price declared by the assessee and the  

narration of the facts both by the Tribunal and this  

Court would reveal that it was one time transaction  

and lastly, this Court itself has specifically observed  

that the view that they have taken, is primarily  

based on the facts and circumstances of the case.  

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In the instant cases, the department never  

accepted the declared value.  It is for this reason,  

provisional assessments were completed instead of  

accepting declared price by the assessee under  

Rule 9B of the Rules inter alia holding that during  

the enquiry, the assessees had admitted that they  

did not have any basis to arrive at the assessable  

value but they are selling their goods at ‘loss price’  

only to penetrate the market. Secondly, as we have  

already noticed that for nearly five years the  

assessee was selling its cars in the wholesale trade  

for a ‘loss price’  and therefore, the conditions  

envisaged under Section 4(1)(a) of the Act, namely;  

the normal price, ordinarily sold and sole  

consideration are not satisfied.  We further hold  

that the decision in Bisleri’s case (supra) will also  

not assist the assessees for the reason that the  

issue that came up for consideration is entirely  

different from the legal issue raised in these civil  

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appeals.   Before we conclude on this issue,  we  

intend to refer to the often quoted truism of Lord  

Halsbury that a case is only an authority for what it  

actually decides and not for what may seem to  

follow logically from it.  We may also note the view  

expressed  by this Court in the case of Sushil Suri  

vs. Central Bureau of Investigation & Anr.  (2011) 5  

SCC 708, wherein this Court has observed, “Each  

case depends on its own facts and a close similarity  

between one case and another is not enough  

because either a single significant detail may alter  

the entire aspect.  In deciding such cases, one  

should avoid the temptation to decide cases (as  

said by Cardozo) by matching the colour of one case  

against the colour of another.  To decide, therefore,  

on which side of the line a case falls, the broad  

resemblance to another case is not at all decisive.”  

We do not intend to overload this judgment by  

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referring to other decisions on this well settled legal  

principle.

67. Reference     to     Valuation     Rules     :   

Shri. Bhattacharya, the learned ASG, contends  

that the assessees are not fulfilling the conditions  

enumerated in Section 4(1)(a) of the Act and  

therefore, the valuation has to be done in  

accordance with Section 4(1)(b) read with the 1975  

Valuation Rules.   He would submit that since the  

price of the cars sold by the assessee was not  

ascertainable, the Revenue is justified in computing  

the assessable value of the goods for the levy of  

excise duty under Section 4(1)(b) of the Act and the  

relevant rules.  He would further submit that the  

Valuation Rules need not be applied sequentially.  

He would contend that all the Rules 3, 4, 5, 6 and 7  

of the 1975 Valuation Rules specifically use the  

expression “shall…be determined”, “shall be based”  

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or “shall determine the value”  and nowhere word  

“sequentially”  occurs in these Rules, unlike Rule  

3(ii) of the Customs Valuation Rules, 1988.  He  

would submit that merely the presence of word  

“shall”  does not imply that all the Rules has to be  

applied sequentially.  He would further submit that  

in the facts and circumstances of the present  

cases, Rule 7 is the only applicable Rule in view of  

the decision in Bombay Tyre’s case and assessing  

authority as well as the first appellate authority  

correctly adopted the application of this Rule.

68. Per Contra, Shri Joseph Vellapally, would  

submit that only when the normal price is not  

ascertainable in terms of Section 4(1)(a), then  

Section 4(1)(b) read with the 1975 Valuation Rules  

would come into play to determine the nearest  

equivalent assessable value of the goods.  He would  

contend that the Valuation Rules have to be applied  

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sequentially, i.e. first, Rules 4 and 5 should be  

invoked in order to determine the assessable value  

and if Rules 4 and 5 are not applicable or  

assessable, value cannot be ascertained by  

applying the said Rules, and then only Rule 6 can  

be invoked.  He would further submit that it is only  

Rule 6(b)(ii) of the 1975 Valuation Rules which  

contemplates determining of assessable value on  

the basis of cost of manufacture, only when the  

goods are captively consumed by the manufacturer  

and value of comparable goods manufactured by  

the assessee or any other assessee are not  

available.

69. Under Section 4(1)(b) of the Act, 1944, any  

goods which do not fall within the ambit of Section  

4(1)(a) i.e. if the ‘normal price’  cannot be  

ascertained because the goods are not sold or for  

any other reason, the ‘normal price’  would have to  

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be determined in the prescribed manner i.e. prior  

to 1st day of July, 2000, in accordance with Rules,  

1975 and after 1st day of July 2000, in accordance  

with Rules, 2000.

70. Rule 2 of the 1975 Valuation Rules provides  

for definition of certain terms, such as “proper  

officer”, “value”  etc., Rule 3 of the above Rules,  

provides that the value of any excisable goods, for  

the purposes of Clause (b) of Sub-Section (1) of  

Section 4 of the Act be determined in accordance  

with these Rules.  Rule 4 provides that the value of  

the excisable goods shall be based on the value of  

such goods by the assessee for delivery at any other  

time nearest to the time of removal of goods under  

assessment.  Rule 5 provides that when the goods  

are sold in the circumstances specified in Clause  

(a) of Sub-Section (1) of Section (4) of the Act except  

that the price is not the sole consideration, the  

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value of such goods shall be based on the aggregate  

price and the amount of the money value of any  

additional consideration flowing directly or  

indirectly from the buyer to the assessee.  Rule 6  

provides, that, if the value of the excisable goods  

under assessment cannot be made, then to invoke  

provisions of Rule 6 of the Rules, wherein certain  

adjustments requires to be made as provided  

therein.  Rule 7 is in the nature of residuary clause.  

It provides that if the value of excisable goods  

cannot be determined under Rule 4, 5 and 6 of the  

Rules, the adjudging authority shall determine the  

value of such goods according to the best of his  

judgment and while doing so, he may have regard  

to any one or more methods provided under the  

aforesaid Rules.  A bare reading of these rules does  

not give any indication that the adjudging authority  

while computing the assessable value of the  

excisable goods, he had to follow the rules  

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sequentially.  The rules only provides for arriving at  

the assessable value under different contingencies.  

Again, Rule 7 of the Valuation Rules which provides  

for the best judgment assessment gives an  

indication that the assessing authority while  

quantifying the assessable value under the said  

Rules, may take the assistance of the methods  

provided under Rules 4, 5 or 6 of the Valuation  

Rules. Therefore, contention of the learned counsel  

that the assessing authority before invoking Rule 7  

of the 1975 Valuation Rules, ought to have invoked  

Rules 4, 5 and 6 of the said Rules cannot be  

accepted.  In our view, since the assessing  

authority could not do the valuation with the help  

of the other rules, has resorted to best judgment  

method and while doing so, has taken the  

assistance of the report of the ‘Cost Accountant’  

who was asked to conduct special audit to  

ascertain the correct price that requires to be  

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adopted during the relevant period.  Therefore, we  

cannot take exception of the assessable value of the  

excisable goods quantified by the assessing  

authority.  

71. In the result, the appeals require to be allowed  

and, accordingly, they are allowed and the  

impugned order is set aside and the order passed  

by the adjudicating authority is restored.  No order  

as to costs.  

......................................J.                    (H. L. DATTU)

......................................J.     (ANIL R. DAVE)

NEW DELHI; AUGUST 29, 2012.

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