Collector of Central Excise & Ors Vs. Data India Ltd.  INSC 665 (7 May 1996)
S.C. (J) Sen, S.C. (J) Ahmadi A.M. (Cj) Hansaria B.L. (J)
1996 SCC (4) 563 JT 1996 (5) 230 1996 SCALE (4)508
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 up to or below the limit set by the notification, the assessee will be
entitled to the benefit of the notification.
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.
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 up to 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 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:
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 ".
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).
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 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.
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.
(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
(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.
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
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.
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
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.
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.
construction suggested by Mr.Shanti Bhushan will also defeat the purpose of the
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.
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 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).
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.
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:
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.
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 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.
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.
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 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.
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.
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.
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
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.
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
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.
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.
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.