Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 8
PETITIONER:
THE ASSTT. COLLECTOR OF CENTRALEXCISE & ORS.
Vs.
RESPONDENT:
DATA INDIA LTD.
DATE OF JUDGMENT: 07/05/1996
BENCH:
SEN, S.C. (J)
BENCH:
SEN, S.C. (J)
AHMADI A.M. (CJ)
HANSARIA B.L. (J)
CITATION:
1996 SCC (4) 563 JT 1996 (5) 230
1996 SCALE (4)508
ACT:
HEADNOTE:
JUDGMENT:
J U D G M E N T
The only point that falls for determination in this
appeal is whether the benefit of exemption given to footwear
can be claimed by the manufacturer even where the wholesale
price of the footwear exceeds the limit of the exemption
specified in the notification. There can be no dispute that
if the assessable Vague calculated according to Section 4 of
the Central Excise and Salt Act, comes upto or below the
limit set by the notification, the assessee will be entitled
to the benefit of the notification.
The notification which was originally issued under
sub-rule (1) of Rule 8 of Central Excise Rules, 1944
exempted footwear the value of which did not exceed Rs.5/-
per pair from the whole of the duty of excise leviable
thereon The exemption limit of Rs.5/- per pair - has been
enhanced from time to time and at the material time, for
the purpose of this case, the exemption was limited to
footwear the value of which was upto Rs.60/ per pair.
Mr. Shanti Bhushan on behalf of the respondent has
contended that if excise duty was payable on these shoes,
the amount of excise duty had to be deducted from the
wholesale price in order to determine the assessable value
of the shoes which was less than the limit set by the
exemption notification. If this is not allowed, the
Department will claim excise duty even on shoes which would
otherwise qualify for benefit of exemption notification
because of the lower value. To illustrate this point, Mr.
Shanti Bhushan has argued that when the exemption
notification was limited to Rs.60/- per hair of shoes,
there would be no difficulty in cases where the wholesale
price was upto Rs.60/- or less. There can be no dispute that
in respect of these types of shoes, no excise duty will be
leviable. If the shoes were priced at Rs.60/- and above,
the excise duty will be levied. But, if the whole sale
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 8
price was at Rs.62/- or Rs.66/-, in such a case, after
deduction of excise duty at the rate of 10%, the value of
the goods will be in the range of Rs.56.36 to Rs.60.00. Mr.
Shanti Bhushan has contended that even in such cases when by
deducting excise duty payable on goods, the value has been
arrived at the price of Rs.60/-.or less, the question of
levying excise duty will not arise. To demonstrate his
argument, he has given a chart:
Wholesale Price Rate Deduction Value
after discounts of on account as per
etc. Duty of duty Section 4
--------------- ------ -------- ---------
Rs.56.00 10% Rs.5.09 Rs.50.91
Rs.58.00 10% Rs.5.27 Rs.52.73
Rs.60.00 10% Rs.5.45 Rs.54.55
Rs.62.00 10% Rs.5.64 Rs.56.36
Rs.64.00 10% Rs.5.82 Rs.58.18
Rs.66.00 10% Rs.6.00 Rs.60.00
Rs.68.00 10% Rs.6.18 Rs.61.82
Rs.70.00 10% Rs.6.36 Rs.63.64
Rs.72.00 10% Rs.6.55 Rs.65.45
It was argued that in respect of the first three items
of which wholesale price (after trade discount etc.) was
Rs.56.00, Rs.58.00 or Rs.60.00, there was no controversy
that these were exempted. There was also no controversy in
respect of the last three items of which the wholesale price
(after trade discount etc.) was Rs.68.00, Rs.70.00 or
Rs.72.00. The controversy is restricted to the items in the
second category, where the wholesale price after trade
discount etc. was in the range of Rs. 62.00, Rs.64.00 or
Rs.66.00. In these cases, if the excise duty element was
taken away, the value will become Rs.60.00 or less Applying
rules of valuation laid down in Section 4 of the Act, no
duty was payable even on shoes under this category
Mr. Shanti Bhushan has contended that if excise duty is
payable on these shoes, then the duty element has to be
deducted from the wholesale price in order to ascertain the
assessable value under Section 4. Once excise duty at the
rate of 10% is taken out from the wholesale price of the
shoes falling under the disputed category, the assessable
value would come to less than Ps.60.00 and the benefit of
exemption notification cannot be denied to the manufacturer
in these cases
We are unable to uphold this contention because the
normal price charged by the manufacturer at the time and
place of removal of goods to the wholesaler is treated by
the Act to be the value of the goods. Subsection (l)(a) of
Section 4 makes it clear that "such value shall . . . be
deemed to be 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 ".
Therefore, the normal wholesale price of the goods must be
deemed to be the value of the goods. It is not necessary to
refer to the various types of prices that may be charged
from the buyer set out in the proviso to Section 4(1)(a).
But there cannot be any dispute that excise duty will be
levied on the value of the excisable goods and the basic
rule is that the normal wholesale price is the value of the
goods. The normal wholesale price is the cum-duty price
which the wholesaler has to pay to the manufacturer. The
cost of production, estimated profit and the taxes on
manufacture and sale of the goods are usually included in
the wholesale price of the goods. It is only because the
wholesale price is usually the cum-duty price that sub-
section (4)(d) lays down that ’value’ will not include duty
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 8
of excise, sales tax and other taxes, if any, payable on the
goods. But if a manufacturer includes in the wholesale price
any amount by way of tax, even when no such tax is payable,
then he is really including something in the price which is
not payable as duty at all. He is really increasing the
profit element included in the wholesale price in another
guise. In such a situation, there cannot be any question of
deduction of duty payable on the goods from the wholesale
price because as a matter of fact, no duty has actually been
included in the wholesale price.
In the chart given by Or. Shanti Bhushan the
controversy relates to the second category of price-list
after discounts etc. But, these prices - Rs.62.00, Rs.64.00
or Rs.66.00 are not inclusive of any duty. If that be so,
these are the values of goods on which excise duty would be
leviable in usual course without any further deduction.
Clause (d) of sub-section (4) of Section 4 lays down that
’value’ will include the cost of packing of the goods when
the goods are sold pin packed condition in certain cases.
Sub-clause (ii) of clause (d) provides that the value will
not include "the amount of duty of excise,....... if any,
payable on such goods." Otherwise, there will be tax upon
the amount of tax which forms-part of the price of the
goods. But in a case where the wholesale price is not
inclusive of any duty payable on the goods, then no question
of deduction of any duty for determination of value will
arise. Subclause (ii) of clause (d) specifically states that
what will not be included in the value "is the amount of
duty of excise, . . .if any payable on -such goods". The
phrase "if any" signifies that if no duty is payable,
nothing will be deducted from the wholesale price. It is
only when excise duty is actually payable that the duty
element can be excluded from the wholesale price. Sabyasachi
Mukharjee, J. (as his Lordship then was) pointed out in the
case of Hindustan Polymers v. Collector of Central Excise
(1989) 4 SCC 323 that the two sub-clauses of Section 4(4)(d)
dealt-with abatements or deductions in respect of actual
burdens, either by way of an expenditure or discount, borne
by the assessee. If the assessee has not allowed any trade
discount, he cannot ask for deduction of the same from his
price. If he does not have to pay any tax as a matter of
fact, he cannot ask for it to be deducted from the Wholesale
price for Calculating the value of the goods. In such a
case, the normal price, that is the wholesale price will be
deemed to be the value of the goods.
To revert back to the chart, if value of the goods
exclusive of any duty is Rs.56.36 or Rs.58.18 or Rs. 60.00,
no duty is payable on such goods at all. The wholesale price
need not be higher than the value of the goods in such
cases. These values are inclusive of profit intended to be
made by the manufacturer. The manufacturer can sell these
goods at the aforesaid prices and enjoy the tax exemption.
But if the manufacturer with full knowledge that no duty is
payable when the value of the goods are below Rs.60.00,
raises the prices to above Rs.60.00, then he has included in
the wholesale price something which is not the anticipated
duty of excise payable on such goods but an extra amount of
profit in another guise.
For the purpose of excise duty, the manufacturer has to
submit a price-list to the excise authority before removal
of the goods from the factory. He has to indicate in the
forms and documents relating to assessment, the value of the
goods and the amount of duty which will form part of the
prices at which such goods are to be sold. Costs and
estimated profits are included in the price of the goods.
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 8
Inclusion of the anticipated amount of the excise duty in
the wholesale price is the last part of the pricing
mechanism. The manufacturer has to calculate the value on
which duty would be payable, estimate the amount of duty
payable and add that amount to the value of the goods to
arrive at the wholesale price. It is on the value of the
goods and not the cum-duty-price that the duty is paid to
the excise authority before the clearance of the goods. If,
as in this case, before adding any amount by way of excise
duty, the manufacturer found that the value of the footwear
was Rs.60.00 per pair or less, no question of payment of
excise duty could arise. There was no necessity to add
anything on account of tax to raise the price of the goods
to above Rs.60.00 per pair. The wholesale price of Rs.62.00,
Rs.64.00 and Rs.66 given in the chart included costs,
estimated profits,etc, but could not have included any
amount by way of excise duty because footwear valued upto
Rs.60.00 per pair was exempt from duty.
It has not been explained in the chart how the
wholesale price has been fixed at Rs.62.00 or Rs.64.00 or
Rs.66 00 as inclusive of dully. Did these prices contain any
amount on account of estimated excise duty payable? If so,
what were the values on which the manufacturer estimated the
amounts at the duties payable? For example, if Rs.62.00 is
the price, the manufacturer will have to explain by giving
the breakup, how was this price fixed. If 10% was the rate
of duty and footwear valued upto Rs.60.00 per pair was
exempt from duty, Rs.6 could not be added to the value for
fixation of the price. If Rs.66.00 is an ex-duty price, then
duty has not been included in the price. In such a
situation, no question of any deduction of duty from the
wholesale price under Section 4(4)(d)(ii) could arise.
The construction suggested by Mr.Shanti Bhushan will
also defeat the purpose of the exemption notification.
Exemption from duty has been given to footwear valued at
Rs.60.00 or less per pair. Excise duty is usually passed on
to the consumer by including the duty in the price of the
goods. The obvious intention behind the notification was to
give relief to the consumers who could not afford to buy
higher priced footwear. If the argument on behalf of the
manufacturer is upheld, he will be entitled to sell footwear
at a price of more than Rs.60.00 per pair and yet will be
able to claim the benefit of the exemption notification and
not pay any duty. An anomalous situation will arise. The
consumer will pay ex-duty price of more than Rs.60/- per
pair and bear the brunt of a tax burden which is not payable
by the manufacturer in law. The manufacturer will enjoy the
benefit of the exemption notification by deducting an amount
on account of nonpayable exciss duty from the price and
thereby make profit in the guise of payment of tax. At the
same time, the revenue will be deprived of the duty which is
payable on footwear valued at above Rs.60.00.
If the ex-duty value of the footwear given in the chart
was Rs.60.00 or less, then that should have been the excise
value. There could be no reason for fixing the price at
above Rs.60.00 except for the purpose of making a larger
profit. A manufacturer at the time of clearance of the goods
has to indicate in all the documents relating to assessment,
the amount of duty which will form part of the price at
which such goods are to be sold. In the instant case, the
manufacturer could not have included any amount by way of
excise duty as part of the price of the goods, if the ex-
duty value of the goods was Rs.60.00 or less per pair. A
manufacturer has to fix the wholesale price of the goods
before removal of the goods from factory. The price will
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 8
include costs, planned profit and taxes, if any. If, as in
the chart given by Mr. Shanti Bhushan, the ex-duty price of
the footwear manufactured by the Company, after all other
permissible adjustments, fell short of Rs.60.00, there could
be no reason for the manufacturer to price the goods at a
rate above Rs.60.00 by including an amount as duty even when
no such duty was payable. Sub-section (1) of Section 4 lays
down that ’value’ shall be deemed to be the normal price
which is the wholesale price of the goods. But, if any
amount payable as excise duty or sales tax formed part of
the normal price that will have to be excluded from the
’value’ of the goods under the provision of sub-clause (ii)
of clause (d) of sub-section (J) of Section 4. If the
values of the goods as given in the chart were Rs.60.00 or
less, then these values should have been the normal prices
of the goods, that is to say, the prices at which such
goods were sold to the wholesale - market. but, if even in
such cases, the wholesale prices were fixed at Rs.62.00,
Rs.64.00 or Rs.66.00, per pair, then these prices were not
inclusive of any tax. In such a situation, provisions of
Section 4(4)(d)(ii) are not attracted at all. The value of
the goods shall be deemed to be the normal price of the
goods under Section 4(1) of the Act (Rs.62.00 or Rs.64.00
or Rs.66.00 as the case may be).
Unless it is shown by the manufacturer that the price
of the goods includes an amount of excise duty payable by
him, no question of exclusion of the duty element from the
price for determination Of value under Section 4(4)(d)(ii)
will arise. What the manufacturer has really done in the
instant case is to increase the profit element in the
wholesale price. In the chart given by Mr. Shanti Bhushan,
in the second category the wholesale price of goods after
discounts etc. has been shown to be Rs.62.00, Rs.64.00 and
Rs.66.00 inclusive of duty at 10%. These are self-
contradictory figures. If the Corresponding ex-duty figures
come to Rs.60.00 or less, then no excise duty was payable
on the goods. If the ex-duty price of the footwear
manufactured by the Company fell short of Rs.60.00 per
pair, then by virtue of the exemption notification no duty
was payable on the goods. In such a situation, a
manufacturer could not include in the price of the goods
any amount by way of excise duty.
Any doubt about this position in law has been
dispelled by the Explanation added by Act 14 of 1982 to
sub-clause (ii) of clause (d) which is as under:
"Explanation-For the purposes of
this sub-clause, the amount of the
duty of excise payable on any
excisable goods shall be the sum
total of -
(a) the effective duty of excise
payable on such goods under this
Act; and
(b) the aggregate of the effective
duties of excise payable under
other Central Acts, if any.
providing for the levy of duties of
excise on such goods,
and the effective duty of excise on
such goods under each Act referred
to in clause (a) or clause (b)
shell be,
(i) in a case where a notification
or order providing for any
exemption (not being an exemption
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 8
for giving credit with respect to,
or reduction of duty of excise
under such Act on such goods equal
to, any duty of excise under such
Act, or the additional duty under
Section 3 of the Customs Tariff
Act, 1975 (51 of 1975), already
paid on the raw material or
component parts used in the
production or manufacture of
such goods from the duty of excise
under such Act is for the time
being in force, the duty of excise
computed with reference to the rate
specified in such Act in respect of
such goods as reduced so as to
give full and complete effect to
such exemption; and
(ii) in any other case, the duty of
excise computed with reference to
the rate specified in such Act in
respect of such goods "
The Explanation makes it clear that the amount of
duty of excise on any excisable goods shall only be the
effective duty of excise payable as defined under the Act.
Therefore, before deducting any amount claimed to - be
payable on account of excise duty, it has to be seen what
is the duty of excise in force at the material point of
time. Any notification granting exemption will have to be
taken into account; full and complete effect to such
notification will have to be given. In the instant case at
the material point of time, there was a notification
granting exemption from duty to a pair of footwear upto the
value of Rs.60.00. This means that if the value of a pair
of shoes came to Rs.60.00 or less no excise duty was
leviable; it was not open to the manufacturer to claim any
deduction on account of any duty which was not payable.
We are unable to uphold the contention of Mr.Shanti
Bhushan that the Explanation to Section 4(4)(d)(ii) comes
into operation only when there is a variation in the rate
of duty and not otherwise. The duty of excise under Schedule
I of the Act was imposable on- various bases. It could but
imposed unitwise as in T.I.33AA (Parts of Wireless
Receiving Sets) or lengthwise as in T.I.37 (Cinematograph
Films) or on the basis of weight as in the case of T.I.25
(Iron in any Crude Form). The duty has to be calculated at
the rates prescribed in the Schedule on the basis of number
of units, length or weight or some other basis, as laid
down in the Schedule. When the duty is imposed ad valorem,
calculation of duty at the prescribed rate will have to be
made on the basis of the value of the goods. Section 4
deals with value of excisable goods where the duty of
excise is chargeable with reference to value. It has
nothing to do with the rate of duty. Sub-clause (ii) of
sub-section (d) of Section 4 lays down the ’value’ will
not include the amount of duty of excise, if any, payable
on such goods. This is a rule of valuation, What is the
amount of duty excise payable will depend on this
valuation. The Explanation has been inserted "for the
purpose of this sub-clause" i.e. sub clause(ii). The amount
of excise duty payable has been explained to be the
effective duty of excise Payable on such goods, in other
words, not the duty of excise calculated in the manner laid
down in Schedule I only. Regard must be had to any relief
or abatement of duty given by any statutory notification or
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 8
order. It has been made clear by the Explanation that if a
notification or order providing for any exemption from duty
of excise under the Act is in force, full and complete
effect to such exemption will have to be granted for the
purpose of Computation of the value. "The duty of excise
computed with reference to the rate specified" has to be
calculated first. Thereafter the duty of excise so computed
will have to be reduced in accordance with the exemption
notification. For example, if duty on ’Footwear’ is 10 per
cent ad valorem per pair then the duty payable on Footwear
valued at Rs 60 will be Rs 6. Since there is a notification
exempting Footwear valued upto Rs 60 per pair from duty,
under the Explanation or even otherwise the dutiable amount
of Rs 6 will have to be reduced in terms of the exemption
notification. To give full and complete effect to exemption,
the taxable amount will have to be reduced to nil. The
argument of Mr. Shanti Bhushan that the Explanation is
attracted only when the rate of duty is reduced is not
supported either by clear words of the Explanation or by
necessary implication. The amount of duty payable has to be
computed by reference to the rate of duty in force on the
value of the Footwear. The duty payable may be reduced by
any notification or order by lowering the rate of duty or by
exempting any excisable goods from duty wholly or in part.
The Explanation will apply to every case "where a
notification or order providing for exemption from the duty
of excise under such Act is for the time being in force" and
not only to a case where the rate of duty is lowered. The
effective duty of excise on the notified goods shall be the
duty of excise computed with reference to the specified rate
in the First Schedule "as reduced" so as to give full and
complete effect to such exemption. "As reduced" in this
context means the duty of excise as reduced by a
notification granting exemption.
There is yet another way of looking at the problem. The
notification by exempting footwear upto the value of Rs 60
from duty of excise has not removed "footwear" from the list
of excisable goods in the first schedule. It has in effect
reduced the ad veloram duty of 10 per cent payable on such
footwear upto the value of Rs 60 to nil.
The construction suggested by Mr. Shanti Bhushan will
lead to anomaly and should be avoided. It will have to be
held that "the amount of duty payable, if any" in sub-clause
(ii) of clause (d) will mean the amount of duty payable as
computed in accordance with the provisions of the First
Schedule which will stand reduced only when relief is
granted by reduction in the rate of duty and not otherwise.
"A notification or order providing for exemption" in the
Explanation will have to be read as a notification or order
granting exemption by reduction in the rate of ad valorem
duty only. The object of the statute is clearly to exclude
the actual burden of excise duty from the wholesale price
for determining the value of any excisable good. The
construction suggested by Mr.Shanti Bhushan will defeat the
object of the statute altogether.
The assessee has adopted a scheme which can easily be
seen through. After valuing the footwear at less than
Rs.60.00, he has fixed the price et above Rs.60.00. He is
entitled to make asmuch profit as he can. But he has tried
to claim deduction of a part of the profit as excise duty
payable for the goods. In order to claim this deduction,
the assessee will have to show that the ’value’ of the
goods became more than Rs.60.00 per pair because of
inclusion of excise duty. If that Cannot be done, there
is no question of deducting any duty payable on the goods
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 8
manufactured by the assessee. The conundrum spoken of
by Mr. Shanti Bhushan does not exist. Once the principle
underlying the mechanism of valuation of excisable goods
is borne in mind, this becomes a straight forward case. No
intriguing conundrum perplexes our mind. We can easily
behold what lies behind the assessee’s scheme.
Strong reliance was placed on behalf of the assessee
on the decision of this Court in the case of Bata Shoe Co
v. Central Excise, (1985) 3 SCR 960, and particularly, on
the passage below:-
".............. It is, therefore,
plain that before determining the
question of availability of the
exemption under Notification
dated July 24, 1967, the first
essential step is to determine the
’value’ of the article in the
manner prescribed in Section 4 of
the Act. The fact that on such a
computation the article may
ultimately be found to be exempted
from excise duty does not have any
bearing on the question of
applicability of Section 4 of the
Act for determining the ’value’,
for purpose of duty."
Section 4 has undergone drastic changes since this case
was decided. The concept of receive duty of excise was also
not there at that time.
The appeal is, therefore, allowed. The judgment dated
5th March, 1993 passed by the Punjab and Haryana High Court
is set asides There will be no order as to costs.