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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           ...Respondent (s)

WITH C.A.  Nos.2982-2985/2005,   C.A.  No.2986/2005,  C.A.  No.7143/2005,  C.A.  No.2261/2006,   C.A.  Nos.2246-2247/2008,  C.A.  Nos.2934-2935/2008,  C.A. No. 3528/2008, C.A. No.4820/2008, C.A. No.  6695/2008,  C.A.  No.2534/2009,  C.A.  No.8541/2009  ,  C.A.  No.  253/2010,   C.A.  No.445/2010,  C.A. No.1382/2010, C.A. Nos.2003- 2004/2010,   C.A.  No.2363/2010,  C.A.  No.2430/2010, C.A. Nos.7174-7175/2010, C.A. No.  4696/2011,  C.A.  No.2705/2012,  C.A.  No.3455/2004,   C.A.  No.6984/2011  and   C.A.  No.7272/2005.

O R D E R

1. By order dated 30.7.2009 the following questions have been  

referred for consideration by a larger Bench in terms of which the  

matters have been posted before us.    

“1.  Whether Section 4 of the Central Excise Act, 1944  (as  substituted  with  effect  from  01.07.2000)  and  the  definition of  "Transaction Value"  in Clause (d)  of  sub-

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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?”

2. The facts in brief are as follows:

The  respondents-assessees  are  manufacturers  of  dissolved  

and compressed industrial gases and allied products. These gases  

are  transported  and  supplied  to  the  customers  in  tonners,  

cylinders, carboys, paper cones and HDPE bags, BIBs, pipeline and  

canisters,  which  may  be  more  conveniently  referred  to  as  

Containers.  Some container items are provided by the assessees  

and  in  some  instances  the  customers  bring  their  own  

cylinders/containers.  For  providing  the  containers,  the  assessees  

charge  the  customers  certain  amounts  under  different  heads.  

These amounts are not reflected in the sale invoices for the purpose  

of computation of assessable value.  The assessees treat the said  

amounts as their income from ancillary or allied ventures.   

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3. The issue arising in all these appeals is whether the aforesaid  

charges  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 1.7.2000.

4. Section  3  of  the  Act  is  the  charging  section  and  reads  as  

follows:

“3. (1) 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 (excluding  goods  produced  or  manufactured  in  special  economic  zones)  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);                           …………………   

5. Section 4 (1)  (a)  of  the Act,  as  substituted with effect  from  

01.07.2000, reads as under:

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

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(a) in a case 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;”

6. “Transaction Value” as defined by Section 4 (3) (d) reads as  

follows:

“(d) "transaction value" means the prices 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 any, actually paid or actually payable on such goods.”

7. Prior  to  amendment  of  Section  4  (1)  (a)  with  effect  from  

1.7.2000 the unamended Section 4 (1) (a) read as follows:

“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

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with reference to value, such value, shall, subject to the  other provisions of this Section, be deemed to be--                                                                             

(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.”

8. Section 4 (1) (a) [prior to the substitution] was considered by a  

Three Judges Bench of this Court in  Union of India & Ors. Vs.  

Bombay Tyre International Ltd. & Ors.1.  While considering the  

interplay between Section 3 and 4, it was held as follows:

"...Section 3 of the Central Excises and Salt Act provides  for the levy of the duty of excise. It creates the charge,  and defines the nature of the charge. That it is a levy on  excisable goods, produced or manufactured in India, is  mentioned in terms in the Section itself. Section 4 of the  Act  provides  the  measure  by  reference  to  which  the  charge is to be levied. The duty of excise is chargeable  with reference to the value of the excisable goods, and  the value is defined in express terms by that Section. It  has long been recognized that the measure employed for  assessing a tax must not be confused with the nature of  the tax.                                 ...       ...      ...

It is apparent, therefore, that when enacting a measure  to  serve  as  a  standard  for  assessing  the  levy  the  

1 (1984) 1 SCC 467

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Legislature need not contour it along lines which spell  out  the  character  of  the  levy  itself.  Viewed from this  standpoint,  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  an  excisable  article must be limited to the manufacturing cost plus  the  manufacturing  profit.  We  are  of  opinion  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.  In our opinion, the  original Section 4 and the new Section 4 of the Central Excises and Salt Act satisfy this test.                               

...      ...      ...

A contention was raised for some of the assessees, that  the measure was to be found by reading Section 3 with  Section 4, thus drawing the ingredients of Section 3 into  the exercise. We are unable to agree. We are concerned  with  Section  3(1),  and  we  find  nothing  there  which  clothes the provision with a dual character, a charging  provision as well as a provision defining the measure of  the charge."

9. In Commissioner of Central Excise Vs. Acer Ltd.2, the scope  

and purport of Section 3 of the Act, Section 4 (1) (a) as substituted  

with effect from 1.7.2000 and Section 4 (3) (d) defining  “transaction  

value”  came  up  for  consideration  before  another  Three  Judges  

Bench of this Court.  In the said case, the question that arose is  

2 (2004) 8 SCC 173

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whether  value  of  software  attached  to  a  computer,  which  is  

otherwise  exempt  from  duty,  is  liable  to  be  included  in  the  

assessable value of the computer for the purposes of levy of duty.  

Paragraphs 67, 69 and 84 of the judgment in  Commissioner of  

Central  Excise Vs.  Acer Ltd.  (supra)  would be relevant  and is,  

therefore, noticed below:

“67. It  is not in dispute that operational  softwares are  available in the market separately.  They are separately  marketable  commodities.  The  essentiality  test  or  the  functional test cannot be applied for the purpose of levy  of Central excise inasmuch as the tax is on manufacture  of “goods”. The Act being a fiscal legislation an attempt  must be made to read the provisions thereof reasonably.  Computer comes within the definition of excisable goods.  So  is  a  software.  They  find  place  in  different  classifications.  The  rate  of  duty  payable  in  relation  to  these two different goods is also different.

69. While calculating the value of the computer the value  of the hard disc, value of the firmware, the cost of the  motherboard  as  also  the  costs  for  loading  operating  softwares is  included.  What  is  excluded from the total  value  of  the  computer  is  the  value  of  the  operating  softwares  like  Windows  2000,  Windows  XP  which  are  secondary  softwares.  Indisputably,  when  an  operating  software is loaded in the computer, its utility increases.  But does it mean that it is so essential for running the  computer that exclusion thereof would make a computer  a dead box? The answer to the said question as would  appear from the discussions made hereinafter must be

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rendered in the negative. It is not disputed before us that  even without  operational  softwares  a  computer  can be  put  to  use  although by  loading  the  same its  utility  is  enhanced.  Computers  loaded  with  different  operational  softwares  cater  to  the  specific  needs  of  the  buyer  wherefor he is  required to place definite  orders on the  manufacturer. It is also not in dispute that an operating  software loaded on the hard disc is erasable. It is also  accepted that the operating software despite being loaded  on to the hard disc is usually supplied separately to the  customers.  It  is  also  beyond  any  controversy  that  operating software can be updated keeping in view the  development in the technology and availability thereof in  the market without affecting the data contained in the  hard  disc.  Concededly,  even  in  the  case  of  hard  disc  crash the software contained in the CDs is  capable  of  being reloaded on to the hard disc and its utility by the  users  remains  the  same.  An  operational  software,  therefore,  does  not  form  an  essential  part  of  the  hardware.

84. In  other  words,  computers  and  softwares  are  different  and distinct  goods under  the said Act  having  been classified differently and in that view of the matter,  no  Central  excise  duty  would  be  leviable  upon  determination  of  the  value  thereof  by  taking  the  total  value  of  the  computer  and  software.  So  far  as  the  valuation of goods in terms of “transaction value” thereof,  as  defined  in  Section  4(3)(  d  )  of  the  Act  is  concerned,    suffice it to say that the said provision would be subject  to the charging provisions contained in Section 3 of the  Act as also sub-section (1) of Section 4. The expressions  “by  reason  of  sale”  or  “in  connection  with  the  sale”  contained in the definition of “transaction value” refer to  such goods which is excisable to excise duty and not the  one which is not so excisable. Section 3 of the Act being  the charging section, the definition of “transaction value”  must  be  read in the  text  and context  thereof  and not

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dehors the same. The legal text contained in Chapter 85,  as  explained  in  Chapter  Note  6,  clearly  states  that  a  software, even if contained in a hardware, does not lose  its  character  as  such.  When  an  exemption  has  been  granted from levy of any excise duty on software whether  it is operating software or application software in terms of  Heading 85.24, no excise duty can be levied thereupon  indirectly as it was impermissible to levy a tax indirectly.  In  that  view  of  the  matter  the  decision  in  PSI  Data  Systems must be held to have correctly been rendered.”

10. From  the  above,  it  clearly  appears  that,  though  in  the  

backdrop  of  different  factual  scenarios,  two  Coordinate  Benches  

(Three Judges) have taken what would appear to be contrary views  

with regard to purport and effect and the interconnection between  

Section 3 and 4 of the Central Excise Act, 1944.  

11. In  the  above  situation,  we  are  of  the  view  that  another  

Coordinate Bench should not  venture into the issues raised and  

even attempt to express any opinion on the merits of either of the  

views  expressed  in  Union  of  India  &  Ors.  Vs.  Bombay  Tyre  

International Ltd. & Ors. (supra)  and Commissioner of Central  

Excise  Vs.  Acer  Ltd.  (supra).   Rather,  according  to  us,  the  

questions referred should receive consideration of a Larger Bench

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for which purpose the connected papers may now be placed before  

the Hon’ble the Chief Justice of India for appropriate directions.

 …….…………………………...J.                         [RANJAN GOGOI]

………………………………….J.                                                                          [ARUN MISHRA]

         …………………………….……J.         [PRAFULLA C. PANT]

NEW DELHI; MARCH 30, 2016.