COMMNR. OF CENTRAL EXCISE, MUMBAI Vs M/S. FIAT INDIA (P) LTD.
Bench: H.L. DATTU,ANIL R. DAVE
Case number: C.A. No.-001648-001649 / 2004
Diary number: 3369 / 2004
Advocates: Vs
RAJESH KUMAR
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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 &
Page 2
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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Page 35
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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Page 36
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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Page 37
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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Page 38
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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Page 39
(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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Page 41
(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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Page 42
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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Page 43
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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Page 44
‘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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Page 45
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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Page 47
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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Page 48
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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Page 49
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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Page 50
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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Page 51
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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Page 53
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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Page 55
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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Page 56
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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Page 59
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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Page 103
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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