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REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL No.3159 OF 2004

COMMISSIONER OF CENTRAL EXCISE,  INDORE  …APPELLANT(S)

    VERSUS

M/S GRASIM INDUSTRIES LTD. THROUGH ITS SECRETARY   …RESPONDENT(S)

WITH

C.A.  Nos.3455/2004,  7272/2005,  2982-2985/2005,  2986/2005, 7143/2005,  2261/2006,  2246-2247/2008,  2934-2935/2008,  3528/2008, 4820/2008,  6695/2008,  2534/2009,  253/2010,  8541/2009,  445/2010, 1382/2010,  2003-2004/2010,  2430/2010,  2363/2010,  7174-7175/2010, 4696/2011, 6984/2011, 2705/2012

J U D G M E N T

RANJAN GOGOI, J.

1. First, the facts:

The respondent – Assessees are manufacturers of dissolved and

compressed industrial  gases,  liquid  chlorine  and  other  allied  products.

Cotton  yarn  and  Post  Mix  Concentrate  manufactured  by  two  other

individual assessees are also in issue.  These articles are supplied to the

customers in tonners, cylinders, carboys, paper cones and HDPE bags,

BIBs, pipeline and canisters, which may be more conveniently referred to

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as  “containers”.   In  some  cases  the  containers  are  provided  by  the

Assessees to the customers on rent  whereas in  others the customers

bring  their  own  containers.   For  making  available  or  for  filling  up  the

containers  provided  by  the  customers  the  Assessees  charge  the

customers certain amounts under different heads viz. packing charges,

wear  and tear  charges,  facility  charges,  service charges,  delivery  and

collection  charges,  rental  charges,  repair  and  testing  charges.  The

Assessees treat the said amounts as their income from ancillary or allied

ventures.   

2. The issue arising is whether the aforesaid charges realised by the

Assessees are liable to be taken into account for determination of value

for the purpose of levy of duty in terms of Section 4 of the Central Excise

Act,  1944 (hereinafter referred to as “the Act”)  as amended with effect

from 1st July, 2000.  

3. Perceiving  a  conflict  between  the  two  decisions  of  this  court  in

Union of India and Ors. v. Bombay Tyre International Ltd. and Ors.  1

and Commissioner of Central Excise, Pondicherry  v. Acer India Ltd.2,

a two judge Bench of this Court by order dated 30th July, 20093 referred

the following questions for an answer by a larger bench: 1 (1984) 1 SCC 467 2 (2004) 8 SCC 173 3 (2009) 14 SCC 596

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“1. Whether Section 4 of the Central Excise Act, 1944 (as  substituted  with  effect  from  1-7-2000)  and  the definition  of  “transaction  value”  in  clause  (d)  of  sub- section (3) of Section 4 are subject to Section 3 of the Act?

2.  Whether  Sections 3 and 4 of  the Central  Excise Act, despite being interlinked, operate in different fields and what is their real scope and ambit?

3. Whether the concept of “transaction value” makes any material  departure  from the  deemed normal  price concept of the erstwhile Section 4(1)(a) of the Act?”

4. As the decisions in  Bombay Tyre International Ltd. (supra) and

Acer  India  Ltd.  (supra)  were  rendered  by  Benches  of  Three  Hon’ble

Judges of this Court, the above questions were referred by order dated

30th March, 20164 to an even larger Bench.  This is how we are in seisin of

the matter.

5. What is excise duty and what is the relationship between the nature

of the duty and the measure of the levy are the two precise questions that

would arise for determination in the present reference.    

6. On first principles, there can be no dispute.   Excise is a levy on

manufacture and upon the manufacturer who is entitled under law to pass

on the burden to the first purchaser of the manufactured goods.  The levy

of excise flows from a constitutional authorisation under Entry 84 of List I

4 (2016) 6 SCC 391

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of  the  Seventh  Schedule  to  the  Constitution  of  India.   The  stage  of

collection of  the levy and the measure thereof is,  however, a statutory

function.  So  long  the  statutory  exercise  in  this  regard  is  a  competent

exercise of legislative power, the legislative wisdom both with regard to

the stage of collection and the measure of the levy must be allowed to

prevail.   The measure of the levy must not be confused with the nature

thereof  though there must  be some nexus between the two.   But  the

measure cannot  be controlled by the rigors of  the nature.   These are

some  of  the  settled  principles  of  laws  emanating  from a  long  line  of

decisions  of  this  Court  which  we  will  take  note  of  shortly.   Do  these

principles  that  have withstood the test  of  time require  a rethink is  the

question that poses for an answer in the present reference.  

7. At this stage, it may be necessary to specifically take note of the

provisions of Sections 3 and 4 as originally enacted and as amended from

time to time.

Section 3

Section  3  of  the  Act  in  force prior to amendment by Finance Act 2000 (Act 10 of 2000)

Relevant portion of Section 3 as substituted/amended (with effect from 12th May, 2000) by Section 92  of  the  Finance  Act,  2000 (No.10 of 2000)

3. Duties specified in the First 3.  Duties  specified in  [the First

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Schedule to be levied. –  

(1)  There  shall  be  levied  and collected in such manner as may be prescribed,-

(a)  a  duty  of  excise  on  all excisable  goods  which  are produced  or  manufactured  in India  as,  and  at  the  rates,  set forth in the First Schedule to the Central Excise Tariff Act, 1985;  

(b)…………  

Schedule  and  the  Second Schedule] to the Central Excise Tariff Act, 1985] to be levied.-

There shall be levied and collected in  such  manner  as  may  be prescribed,-

(a)   a duty of excise to be called the  Central  Value  Added  Tax (CENVAT)  on  all  excisable  goods which  are  produced  or manufactured  in  India  as,  and  at the  rates,  set  forth  in  the  First Schedule  to  the  Central  Excise Tariff Act, 1985 (5 of 1986);

(b)………….

Section 4  

Section 4 as originally enacted  (in  the Central  Excise  and Salt Act, 1944),  

Section 4 as amended by  Amendment  Act No.22 of 1973

Section  4  as amended by Finance Act,  2000  with  effect from 1.7.2000

Determination  of value  for  the purposes  of  duty – Where under this Act any  article  is chargeable  with  duty at  a  rate  dependent on  the  value  of  the article,  such  value shall  be  deemed  to be  the  wholesale cash  price  for  which an  article  of  the  like kind  and  quality  is sold or  is  capable of being sold for delivery

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-

(a)  the  normal  price

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  their value,  then,  on  each removal of the goods, such value shall -

(a)  in  a  case

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at  the  place  of manufacture  and  at the  time  of  its removal  therefrom, without  any abatement  of deduction  whatever except trade discount and  the  amount  of duty then payable.

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

where  the goods are  sold  by  the assessee,  for delivery  at  the time and place of the  removal,  the assessee and the buyer  of  goods are  not  related and  the  price  is the  sole consideration  for the  sale,  be  the transaction value;

(b)  in  any  other case,  including the  case  where the goods are not sold, be the value determined  in such  manner  as may  be prescribed.   

(2)  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.

(3)  For  the purpose  of  this

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price  fixed  under  any law for  the time being in  force  or  at  a  price, being  the  maximum, fixed  under  any  such law,  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

section,-  

(a)  "assessee" means  the person  who  is liable  to  pay  the duty  of  excise under  this  Act and  includes  his agent;

(b)  persons  shall be deemed to be "related" if -  

(i)   they are inter- connected  undertakings;

(ii)   they are  relatives;

(iii)  amongst  them the  buyer  is  a relative  and distributor  of  the assessee, or a sub- distributor  of  such distributor; or

(iv)   they  are  so associated that they have  interest, directly or indirectly, in  the  business  of each  other.    Explanation. -  In this clause -  

(i)“inter-connected

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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.

(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.

(4)  For  the  purposes of this section,-

undertakings” shall have  the  meaning assigned  to  it  in clause  (g)  of section  2  of  the Monopolies  and Restrictive  Trade Practices  Act, 1969 (64 of 1969); and

(ii)“relative”  shall have  the  meaning assigned  to  it  in clause  (41)  of section  2  of  the Companies  Act, 1956 (1 of 1956);

(c)  “place  of removal” means –  (i)  a factory or any other  place  or premises  of production  or manufacture of the excisable goods; (ii) a warehouse or any other place or premises  wherein the  excisable goods  have  been permitted  to  be deposited  without payment  of  duty, from  where  such goods  are removed;

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(a) " assessee" means the  person  who  is liable to pay the duty of excise  under  this  Act and includes his agent;  (b) " place of removal" means-  (i)  a  factory  or  any other  place  or premises of production or  manufacture  of  the excisable goods; or  (ii)  a  warehouse  or any  other  place  or premises  wherein  the excisable  goods  have been  permitted  to  be deposited  without payment of duty,  

from where such goods are removed;  (c)  "related  person" means a person who is so associated with the assessee  that  they have  interest,  directly or  indirectly,  in  the business of each other and includes a holding company,  a  subsidiary company,  a  relative and a distributor of the assessee,  and  any sub- distributor of such distributor.  

Explanation.-  In  this clause"  holding company","  subsidiary company and" relative" have  the  same

(d)   “transaction value”  means  the price  actually  paid or  payable  for  the goods,  when sold, and  includes  in addition  to  the amount  charged as  price,  any amount  that  the buyer  is  liable  to pay  to,  or  on behalf  of,  the assessee,  by reason  of,  or  in connection  with the  sale,  whether payable at the time of  the  sale  or  at any  other  time, including,  but  not limited  to,  any amount  charged for,  or  to  make provision  for, advertising  or publicity, marketing and  selling organization expenses, storage, outward  handling, servicing, warranty, commission or any other  matter;  but does  not  include the amount of duty of excise, sales tax and other taxes, if

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meanings  as  in  the Companies Act, 1956 ; (1 of 1956 ) (d)  "value",  in  relation to  any  excisable goods,-  (i)  where  the  goods are  delivered  at  the time  of  removal  in  a packed  condition, includes  the  cost  of such  packing  except the cost of the packing which  is  of  a  durable nature  and  is returnable by the buyer to the assessee.

Explanation.-  In  this sub-  clause,"  packing" means  the  wrapper, container, bobbin, pirn, spool,  reel  or  warp beam  or  any  other thing  in  which  or  on which  the  excisable goods  are  wrapped, contained or wound;  (ii)  does  not  include the amount of the duty of excise, sales tax and other  taxes,  if  any, payable on such goods and,  subject  to  such rules as may be made, the  trade  discount (such  discount  not being  refundable  on any  account whatsoever) allowed in accordance  with  the normal  practice  of  the

any,  actually  paid or actually payable on such goods.

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wholesale trade at  the time  of  removal  in respect  of  such goods sold  or  contracted  for sale.  

(e)  “wholesale  trade” means  sales  to dealers,  industrial consumers, Government,  local authorities  and  other buyers,  who  or  which purchase  their requirements/otherwise than in retail.

8. It may be appropriate, at this stage, to make a brief narration of the

developments in the particular branch of fiscal jurisprudence which is in

issue in the present cases.   The Central Provinces and Berar Sales of

Motor Spirit and Lubricants Taxation Act, 1938, (Central Provinces

and Berar Act No.XIV of 1938) authorised the levy and collection from

every retail dealer, as defined by the Act, a tax on the retail sales of motor

spirits and lubricants at  the rate of  five per cent on the value of  such

sales.  The levy was challenged and what arose for decision before the

Federal  Court  on  a  reference,  made  by  the  Governor  General  under

Section 213 of the Government of India Act, 1935 (often referred to as

“the Constitution Act”) is the question whether the said levy was a duty of

excise under Entry 45 of List-I in the Seventh Schedule to the Constitution

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Act  or  a  tax  on  sale  of  goods  under  Entry  48  of  List  II  of  the  said

Schedule.  While the eventual answer in the reference holding the levy to

be a tax on sale of goods and therefore within the competence of the

Provincial Legislature is of no consequence to the present issue, what

may  require  a  specific  notice  is  that  Entry  45  which  empowered  the

Federal  Legislature  to  make laws with  respect  to  “duties  of  excise on

tobacco and other goods manufactured or produced in India; except…”

corresponds  to  Entry  84  of  List-I  of  the  Seventh  Schedule  to  the

Constitution of India.   

9. Some extracts from the opinion rendered by Chief Justice Gwyer(all

the Judges on the Bench gave their own opinions while agreeing to the

eventual conclusion) would throw light on the nature of the levy of excise

and is therefore being recollected below:-  

“The federal legislative power extends to making laws with  respect  to  duties  of  excise  on  goods manufactured or produced in India. "Excise" is stated in  the  Oxford  Dictionary  to  have  been  originally accise", a word derived through the Dutch from the late Latin accensare, to tax; the modern form, which ousted accise" at an early date, being apparently due to a mistaken derivation from the Latin excidere, to cut out. It was at first a general word for a toll or tax, but  since  the  17th  century  it  has  acquired  in  the United  Kingdom  a  particular,  though  not  always precise, signification. The primary meaning of “excise duty” or “duty of excise” has come to be that of a tax on certain articles of luxury (such as spirits, beer or

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tobacco)  produced  or  manufactured  in  the  United Kingdom,  and  it  is  used  in  contradistinction  to customs duties on articles imported into the country from  elsewhere.  At  a  later  date  the  licence  fees payable by persons who produced or sold excisable articles also became known as duties of excise; and the expression was still later extended to licence fees imposed  for  revenue,  administrative,  or  regulative purposes on persons engaged in a number of other trades  or  callings.  Even  the  duty  payable  on payments for admission to places of entertainment in the United Kingdom is called a duty of excise; and, generally speaking, the expression is used to cover all  duties  and  taxes  which,  together  with  customs duties,  are  collected  and  administered  by  the Commissioners  of  Customs  and  Excise.   But  its primary and fundamental meaning in English is still that of a tax on articles produced or manufactured in the  taxing  country  and  intended  for  home consumption.  I  am  satisfied  that  that  is  also  its primary and fundamental  meaning in  India;  and no one has suggested that it has any other meaning in Entry (45).

xxx xxx xxx

xxx xxx xxx

…There can be no reason in theory why an excise duty should not be imposed even on the retail sale of an  article,  if  the  taxing  Act  so  provides.  Subject always to the legislative competence of the taxing authority,  a  duty on home produced goods will obviously  be  imposed  at  the  stage  which  the authority find to be the most convenient and the most lucrative, wherever it may be; but that is a matter of the machinery of collection, and does not  affect  the  essential  nature  of  the  tax. The ultimate incidence of an excise duty, a typical indirect tax, must always be on the consumer, who pays as he consumes or expends; and it continues to be an excise  duty,  that  is,  a  duty  on  home-produced  or home-manufactured goods, no matter at what stage it is  collected.  The  definition  of  excise  duties  is

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therefore of little assistance in determining the extent of the legislative power to impose them; for the duty imposed by  a  restricted  legislative  power  does  not differ  in  essence  from  the  duty  imposed  by  an extended one.

It  was  argued  on  behalf  of  the  Provincial Government  that  an  excise  duty  was  a  tax  on production or manufacture only and that it could not  therefore  be  levied  at  any  later  stage. Whether or not there be any difference between a tax  on  production  and  a  tax  on  the  thing produced,  this  contention,  no  less  than that  of the Government of India, confuses the nature of the duty with the extent of the legislative power to impose it.   Nor, for the reasons already given, is it  possible  to  agree  that  in  no  circumstances could  an  excise  duty  be  levied  at  a  stage subsequent to production or manufacture.”

(Underlining and bold is ours)

10. The issue was considered further in  The Province of Madras     vs.

Messrs. Boddu Paidanna & Sons  5.     The following observation would

be relevant.

“In  1939 F.C.R.  18 the opinions expressed were advisory opinions only, but we do not think that we ought to regard them as any less binding upon us on that account. We accept, therefore, the general division  between  the  Central  and  Provincial spheres of taxation which commended itself to the majority of the Court in that case…………….. They recognized that the expression 'duty of  excise'  is wide enough to include a tax on sales ; but where power  is  expressly  given  to  another  authority  to levy a tax on sales, it is clear that “duty of excise”

5 A.I.R. (29) 1942 Federal Court 33 (from Madras)

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must be given a more restricted meaning than it might otherwise bear. On the other hand the fact that “duty of excise” is itself an expression of very general  import  is no reason at  all  for  refusing to give to the expression “tax on sales” the meaning which it  would ordinarily and naturally convey.  In these circumstances the question at  issue in the present appeal appears to us to lie within a very small compass.

The  duties  of  excise  which  the  Constitution  Act assigns exclusively to the Central Legislature are,- according to the 1939 F.C.R 18, duties levied upon the  manufacturer  or  producer  in  respect  of  the manufacture or production of the commodity taxed. The tax on the sale of goods, which the Act assigns exclusively to the Provincial Legislatures, is a tax levied on the occasion of  the sale of  the goods. Plainly  a tax  levied on the first  sale  must  in  the nature  of  things  be  a  tax  on  the  sale  by  the manufacturer or producer ; but it is levied upon him qua seller and not qua manufacturer or producer.

……………If the taxpayer who pays a sales tax is also  a  manufacturer  or  producer  of  commodities subject to a central duty of excise, there may no doubt be an overlapping in one sense ; but there is no overlapping in law. The two taxes which he is called on to pay are economically two separate and distinct imposts.  There is in theory nothing to prevent the Central Legislature from imposing a duty of excise on a commodity as soon as it comes into existence, no matter what happens to it afterwards, whether it be sold, consumed, destroyed,  or  given away.   A taxing authority will not ordinarily impose such a duty, because it is much more convenient administratively to collect the duty (as in the case of most of the Excise  Acts)  when  the  commodity  leaves  the

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factory for the first time, and also because the duty is intended to be an indirect duty which the manufacturer or producer is to pass on to the ultimate consumer, which he could not do if the  commodity  had,  for  example,  been destroyed in the factory itself. It is the fact of manufacture  which  attracts  the  duty,  even though it may be collected later ; and we may draw attention to the Sugar Excise Act in which it is specially provided that the duty is payable not  only  in  respect  of  sugar  which  is  issued from the factory but  also in  respect  of  sugar which is consumed within the factory.   In the case of a sales tax, the liability to tax arises on the  occasion  of  a  sale,  and  a  sale  has  no necessary  connexion  with  manufacture  or production.   The  manufacturer  or  producer cannot of course sell his commodity unless he has first manufactured or produced it; but he is liable, if at all, to a sales tax because he sells and not because he manufactures or produces; and he would be free from liability if he chose to give away everything which came from his factory.”

11. The early views on the nature of excise duty as a levy and the stage

of collection thereof would make it clear that though the impost is on the

manufacture of  an article the point  of  collection of  the same need not

necessarily coincide with the time of manufacture.  The stage of collection

can and usually is a matter of administrative convenience and such stage,

normally,  is the stage of clearance of article when it,  for the first  time,

enters the trade for sale.  The above position was affirmed by the Privy

17

Council  in  Governor-General  in  Council v.  Province  of  Madras  6

wherein it was, inter alia, held as follows:

“The term " duty of excise " is a somewhat flexible one:  it  may,  no  doubt,  cover  a  tax  on  first  and, perhaps, on other sales: it  may in a proper context have  an  even  wider  meaning.    An  exhaustive discussion of this subject, from which their Lordships have obtained valuable assistance, is to be found in the judgment of the Federal Court in 1939 F. C. R. 18.  Consistently  with  this  decision,  their  Lordships are of opinion that a duty of excise is primarily a duty levied upon a manufacturer or producer in respect of the commodity manufactured or produced. It is a tax upon goods not upon sales or the proceeds of sale of goods. Here again, their Lordships find themselves in complete accord with the reasoning and conclusions of  the Federal  Court  in  the Boddu Paidanna case. The two taxes, the one levied upon a manufacturer in respect  of  his  goods,  the  other  upon  a  vendor  in respect of his sales, may, as is there pointed out, in one sense overlap. But in law there is no overlapping. The taxes are separate and distinct imposts. If in fact they  overlap,  that  may  be  because  the  taxing authority,  imposing  a  duty  of  excise,  finds  it convenient to impose that duty at the moment when the exciseable article leaves the factory or workshop for the first time on the occasion of its sale.  But that method  of  collecting  the  tax  is  an  accident  of administration; it is not of the essence of the duty of excise, which is attracted by the manufacture itself.”

12. The above views received the consideration of this Court in  R.C.

Jall Parsi   v.     Union of India and anr  7  . wherein this Court held that while

excise duty is essentially a duty on manufacture which is passed on to the

6  [A.I.R. (32) 1945 Privy Council 98] 7 AIR 1962 SC 1281

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consumer, the stage of collection, subject to legislative competence of the

taxing authority, could be at any stage convenient so long the character of

the levy i.e. duty on manufacture is not altogether lost.  The further view

expressed was to the effect that “the method of collection does not affect

the essence of the duty, but only relates to the machinery of collection for

administrative convenience.”

13. It  will  hardly  be  necessary  to  reiterate  the  long  lines  of

pronouncements that have consistently followed the  above  view,

except to make a little detailed reference to Bombay Tyre International

Ltd. (supra), not only because the true ratio of the decision in the said

case has to be understood for the purpose of this reference so as to deal

with  the  perceived  conflict  with  Acer  India  Ltd.  (supra)  but  also  on

account  of  the  fact  that  the  subject  in  issue  had  received  a  full  and

detailed consideration of this Court.

14. In  Bombay Tyre International Ltd. (supra) the issue, shortly put,

was whether determination of assessable value for the levy of excise duty

can be only on the manufacturing cost and the manufacturing profit.  It

was contended before this Court, by relying on the decision of this Court

in A.K. Roy and Another vs. Voltas Limited  8, that having regard to the

8 (1973) 3 SCC 503

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character  of  the  levy  the  measure  must  be  restricted  thereto.   The

contention was rejected by referring to a long line of precedents including

those referred to herein above to hold that “the levy of a tax is defined

by its nature, while the measure of the tax may be assessed by its

own standard.  It is true that the standard adopted as the measure of

the levy may indicate the nature of the tax but it does not necessarily

determine  it.”.   The  further  view  expressed  in  Bombay  Tyre

International  Ltd. (supra)  is  that  merely  because excise is  a  levy on

manufactured goods the value of the excisable article for the purpose of

levy cannot be limited to only the manufacturing cost plus manufacturing

profit.  This Court  went on to hold that “a broader based standard of

reference  may  be  adopted  for  the  purpose  of  determining  the

measure of the levy.  Any standard which maintains a nexus with the

essential character of the levy can be regarded as a valid basis for

assessing the measure of the levy.”  

15. A reading of Section 4 of the Act, as originally enacted; as amended

by 1973 Amendment; and as further amended by 2000 Amendment would

clearly show that the value of the article for the purposes of levy of ad

valorem duty was with reference to the price i.e. ‘normal price’ prior to the

2000 Amendment and thereafter with reference to the ‘transaction value’

which has been defined (already extracted) to mean “the price actually

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paid or payable for the goods, when sold, and includes in addition to the

amount charged as price……”

16. The measure for the purpose of the levy is, therefore, essentially the

price charged in respect of a transaction which must necessarily be at

arm’s length.  Inclusions and additions that enrich the value of the Article

till its clearance are permissible additions to the price that can be taken

into account to determine ‘value’ under the old Section 4 (prior to 2000) as

well as the ‘transaction value’ under the amended section effective from

1.7.2000. While such additions have been judicially held to be permissible

under the old Act in  Bombay Tyre International Ltd. (supra) the very

same heads have been statutorily engrafted by the amendment made in

2000.  

17. The price charged for a manufactured article at the stage when the

article  enters  into  the  stream  of  trade  in  order  to  determine  the

value/transaction value for  computation of  the quantum of  excise duty

payable does not come into conflict with the essential character or nature

of the levy.  The measure is the value and value is related to price.  The

price charged at the stage of clearance, in addition to manufacturing cost

and  manufacturing  profit,  can  include  certain  value  additions  and

inclusions which enrich the value of the product to make it suitable for

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sale or to facilitate such sale.  At this stage, impost has nothing to do with

the sale.  The impost is on manufacture.  But it is the value upto the stage

of the first sale that is taken as the measure. Doing so does not introduce

any inconsistency between the nature and character of the levy and the

measure adopted.   

18. The  above  aspect  had  been  considered  in  Bombay  Tyre

International Ltd. (supra) on a specific contention advanced on behalf of

the Assessees that the deductions under the following heads should be

made from the sale price in the following terms:

“48. We now proceed to the question whether any post-manufacturing expenses are deductible from the price when determining the “value” of the excisable article. The old Section 4 provided by the Explanation thereto  that  in  determining  the  price  of  any  article under that section no abatement or deduction would be allowed except in respect of  trade discount and the amount of duty payable at the time of the removal of the article chargeable with duty from the factory or other  premises  aforesaid.  The  new  Section  4 provides by sub-section (2)  that  where the price of excisable goods for delivery at the place of removal is not known and the value is determined with reference to the price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery has to be excluded from such  price.  The  new Section  4  also  contains sub-section  (4)(d)(ii)  which  declares  that  the expression “value” in relation to any excisable goods, does not include the amount of  the duty of  excise, sales tax  and other  taxes,  if  any,  payable  on such goods and, subject to such rules as may be made,

22

the  trade  discount  (such  discount  not  being refundable  on  any  account  whatsoever)  allowed  in accordance with the normal practice of the wholesale trade at the time of removal in respect of such goods sold  or  contracted  for  sale.  Now  these  are  clear provisions expressly providing for deduction, from the price,  of  certain  items  of  expenditure.  But  learned counsel for the assessees contend that besides the heads  so  specified  a  proper  construction  of  the section  does  not  prohibit  the  deduction  of  other categories of post-manufacturing expenses. It is also urged  that  although  the  new  Section  4(4)(d)(i) declares that in computing the “value” of an excisable article,  the  cost  of  packing  shall  be  included,  the provision should be construed as confined to primary packing and as not extending to secondary packing. The  heads  under  which  the  claim  to  deduction  is made are detailed below:

(1) Storage charges. (2)  Freight  or  other  transport  charges,  whether

specific or equalised. (3) Outward handling charges, whether specific or

equalised. (4)  Interest  on inventories  (stocks carried by the

manufacturer after clearance). (5) Charges for other services after delivery to the

buyer. (6) Insurance after the goods have left the factory

gate. (7) Packing charges. (8) Marketing and Selling Organisation expenses,

including advertisement and publicity expenses. (Underlining is ours)

19. The above issue was answered by saying -   

“50.  We  shall  now  examine  the  claim.  It  is apparent  that  for  the purpose of  determining  the “value”, broadly speaking both the old Section 4 (a) and the new Section 4(1)(a) speak of the price for sale in the course of wholesale trade of an article

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for  delivery  at  the  time  and  place  of  removal, namely,  the  factory  gate.  Where  the  price contemplated under the old Section 4 (a) or under the new Section 4(1)(a)  is  not  ascertainable,  the price is determined under the old Section 4(b) or the new Section 4(1)(b). Now, the price of an article is related to its value (using this term in a general sense),  and  into  that  value  have  poured  several components, including those which have enriched its value and given to the article its marketability in the  trade.  Therefore,  the  expenses  incurred  on account  of  the  several  factors  which  have contributed to its value upto the date of sale, which apparently would be the date of delivery, are liable to  be  included. Consequently,  where  the  sale  is effected at the factory gate, expenses incurred by the assessee upto the date of delivery on account of  storage  charges,  outward  handling  charges, interest  on  inventories  (stocks  carried  by  the manufacturer  after  clearance),  charges  for  other services after delivery to the buyer, namely after- sales  service  and  marketing  and  selling organisation  expenses  including  advertisement expenses cannot be deducted. It will be noted that advertisement  expenses,  marketing  and  selling organisation  expenses  and  after-sales  service promote the marketability of the article and enter into its value in the trade. Where the sale in the course  of  wholesale  trade  is  effected  by  the assessee through its sales organisation at a place or  places outside the factory  gate,  the expenses incurred by the assessee upto the date of delivery under  the  aforesaid  heads  cannot,  on  the  same grounds,  be  deducted.  But  the  assessee  will  be entitled to a deduction on account of  the cost  of transportation  of  the  excisable  article  from  the factory gate to the place or places where it is sold. The cost of transportation will  include the cost of insurance  on  the  freight  for  transportation  of  the goods from the factory gate to the place or places of delivery.”

(Underlining is ours)

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20. We find no room whatsoever for any disagreement with the above

view taken by this court in Bombay Tyre International Ltd. (supra).  It is

a view consistent with what was held by the Federal Court and the Privy

Council  in  Central  Provinces  and  Berar  (supra),Boddu  Paidanna

(supra) and Province of Madras (supra) and the decisions that followed

thereafter  including  the  decision  in  Voltas  Limited (supra)  and  Atic

Industries Limited vs. H.H. Dewa, Asstt. Collector of Central Excise

and  ors  9 the  true  purport  of  which  was  explained  in  Bombay  Tyre

International  Ltd. (supra).  Both  the  above  opinions  were  clarified  to

mean that neither of them lay down any proposition to the effect that the

excise  duty  can  be  levied  only  on  the  manufacturing  cost  plus  the

manufacturing profit only.  

21. At  this stage, the amendment to Section 3 by substitution of  the

words “a duty of excise on all excisable goods” by the words “a duty of

excise  to  be  called  the  Central  Value  Added  Tax  (CENVAT)  on  all

excisable goods” is conspicuous. The amendment of Section 3 to the Act

not only incorporates the essentials of a changed concept of charging of

tax  on additions to the value of  goods and services at  each stage of

production but also engrafts in the statute what was judicially held to be

permissible additions to the manufacturing cost and manufacturing profit

9 (1975) 1 SCC 499

25

in Bombay Tyre International Ltd. (supra).  This fundamental change by

introduction  of  the  concept  underlying  value-added  taxation  in  the

provisions of Section 3 really find reflection in the definition of ‘transaction

value’ as defined by Section 4(3)(d) of the Act besides incorporating what

was explicitly held to be permissible in Bombay Tyre International Ltd.

(supra).  Section 4(3)(d),  thus,  defines ‘transaction value’ by specifically

including all value additions made to the manufactured article prior to its

clearance, as permissible additions to be price charged for purpose of the

levy.  

22. This would bring us to a consideration of the decision of this Court

in  Acer India Ltd (supra).  The details need not detain us.  Softwares

which were duty free items and could be transacted as softwares came to

be combined with the computer hardware which was a dutiable item for

purposes of  clearance.  The Revenue sought to take into account the

value  of  the  computer  software  for  the  purposes  of  determination  of

‘transaction value’ with regard to the computer.  This Court negatived the

stand of the Revenue taking the view that when software as a separate

item was not dutiable its inclusion in the hard-disk of the computer cannot

alter the duty liability of the software so as to permit the addition of the

price/value of  the software for  the purpose of  levy of  duty.  It  is  in  the

26

above context that the decision of this Court in  Acer India Ltd.  (supra)

has to be understood. The observations made in paragraph 84 thereof to

the effect  that  ‘transaction value’ defined in  Section 4(3)(d)  of  the Act

would be subject to the charging provisions contained in Section 3 of the

Act will have viewed in the context of a situation where an addition of the

value of a non-dutiable item was sought to be made to the value of a

dutiable item for the purpose of determination of the transaction value of

the composite item. This is the limited context in which the subservience

of Section 4(3)(d) to Section 3 of the Act was expressed and has to be

understood.  If so understood, we do not see how the views expressed in

paragraph 84 of Acer India Ltd. (supra) can be read to be in conflict with

the decision of Bombay Tyre International Ltd. (supra).

23. Accordingly, we answer the reference by holding that the measure

of the levy contemplated in Section 4 of the Act will not be controlled by

the nature of the levy. So long a reasonable nexus is discernible between

the  measure  and  the  nature  of  the  levy  both  Section  3  and  4  would

operate in their respective fields as indicated above. The view expressed

in Bombay Tyre International Ltd.(supra) is the correct exposition of the

law in this regard. Further, we hold that “transaction value” as defined in

Section 4(3)(d) brought into force by the Amendment Act, 2000, statutorily

27

engrafts the additions to the ‘normal price’ under the old Section 4 as held

to  be permissible  in  Bombay Tyre International  Ltd. (supra)  besides

giving effect to the changed description of the levy of excise introduced in

Section 3 of the Act by the Amendment of 2000. Infact, we are of the view

that  there  is  no  discernible  difference  in  the  statutory  concept  of

‘transaction value’ and the judicially evolved meaning of ‘normal price’.

24. The  above  answers  would  comprehend  the  issues  specifically

arising in all the three questions that have been referred for our opinion.  

…........................J.            (RANJAN GOGOI)

........................J.            (N.V. RAMANA)

........................J.            (R. BANUMATHI)

........................................................J.      (MOHAN M. SHANTANAGOUDAR)

….............................J.            (S. ABDUL NAZEER)

NEW DELHI MAY 11, 2018.