Aircraft Batteries Ltd. Vs. Commissioner of Central Excise, Hyderabad  Insc 353 (5 May 2004)
& G.P.Mathur. Rajendra Babu, Cji. :
appellants are the manufacturers of silver oxide zinc batteries (hereinafter
referred to as "batteries") supplied to Ministry of Defence
(hereinafter referred to as 'MOD') and Hindustan Aeronautics Limited
(hereinafter referred to as 'HAL'). The issue in this appeal relates to the
excise duty in respect of the batteries supplied to the 'MOD'. The appellants
supplied the batteries to 'HAL' at a higher price than the price charge to
'MOD'. The price charged to 'MOD' was Rs.33,393/- and to 'HAL' was Rs.53,993/-.
The prices charged were in terms of the contract entered into by the appellants
with the respective buyers. Silver is one of the raw materials used in the
manufacture of the "batteries". In the case of supplies to MOD, there
was a stipulation in the contract that the appellants would be supplied with
the silver. MOD was holding the stock of silver in Bombay and Calcutta Mints and supplied the
same to various manufacturers of batteries from whom it was purchasing the
used to obtain silver at Rs.2,500/- per Kg. from the Mints. After sometime, MOD's
stock of silver at Bombay and Calcutta Mints got depleted.
Hence, they supplied the old life expired batteries to various manufacturers to
recover the silver from those batteries and use the recovered silver in the
manufacturing of the fresh batteries and the appellants were to give a rebate
to the MOD in the price to be charged per battery. The appellants while
invoicing the goods to the MOD, took the value of the silver used in those
batteries as was recovered from the life expired batteries at the rate of Rs.2,500/-
per kg. as against Rs.6,666/- per kg. which was adapted for the batteries
supplied to HAL. According to appellants, the reason for taking the value of
silver at Rs.2,500/- per kg. was that the MOD was allowed to purchase the
silver from the mint at the rate of Rs.2,500/- per kg. and according to the
contract, the stipulation was that the price of the silver to be adapted for
arriving at the price to be charged was to be Rs.2,500/- per kg. The Collector
of Central Excise, Hyderabad, after noticing the difference in
the price charged on the batteries supplied to MOD and HAL issued a show cause
notice demanding differential duty on batteries supplied by appellants to MOD,
on the ground that the market value of silver should be taken as the basis for
determining the assessable value. Inspite of demur the said demand was
appeal, the Appellate Tribunal held that the price determined by the appellants
for the batteries by adapting the lower silver price at the rate of Rs.2,500/-
per kg. as against the open market price of Rs.6,666/- was a notional workout
and the price indicated by the MOD is not reflective of the true value of the
Tribunal held that as per Section 4 of the Central Excise Act, 1944 the price
that is to form the basis for assessment is the price at which the goods are
sold in the ordinary course of business and the sale to MOD cannot be taken to
be the sale in the ordinary course of business. The sale of batteries to MOD
was held to be a special arrangement and a notional price of silver was
adapted. The Tribunal held that this cannot be considered as transaction in the
ordinary course of business and the price which is chargeable in the open
market should form the basis of assessment. It was held that price based on
comparable goods was to be adapted as the price of the silver i.e. at the rate
of Rs.6,666/- per kg. as was adapted in case of supply of batteries to HAL and
dismissed the appeal. Hence this appeal.
question that arises for consideration is as to what is the assessable value of
silver which is used in the manufacture of silver oxide zinc batteries supplied
to MOD. Is it the price at which MOD got silver from the mint or the market
price of the silver? The contention of the appellant is that the contract price
at which the batteries are sold to MOD is the sole consideration of the sale of
batteries to the MOD and on that contract price the assessable value of silver
has to be determined.
on the first proviso to Section 4(1)(a), which speaks about sale of goods, two
classes of buyers and the price at which the goods are sold to each buyer
should be taken as the normal price of such goods in relation to each such
class of buyers, the appellants contend that the price at which the batteries
are sold to "MOD" shall be taken as the 'normal price' of the
batteries. Appellants also rely on rule 5 of the Central Excise (Valuation)
appellants contend that even if it is assumed that price is not the sole
consideration in the transaction with MOD, the money value of the silver
flowing from MOD to the appellant, i.e., Rs. 2500/- per kg. should be taken
into account while determining the assessable value. Appellants contend that
the comparable price taken by the silver in determining the value of silver is
not correct. Comparable value under Rule 6(b)(ii) could be taken into account
when the value of the excisable goods cannot be ascertained under Rule 4 or
Rule 5. Reliance is placed on Ashok Madras, 2002 (146)ELT 503 (SC), in which it
was held that sale of goods to different classes of buyers does not make normal
price unascertainable as to attract Section 4(1)(b). It is contended that the
normal price of battery is the price at which it is sold to MOD and accordingly
the value of silver is to be ascertained.
contend that normal price should be ascertained by reference to the
transaction. Since the transaction with MOD is a special arrangement, the
contract price cannot be taken into account as such transaction is not done in
the ordinary course of business. Therefore, the market value of the silver
should be taken into account. It is contended that in order to claim the
benefit of the proviso, the appellant should show "normal practice"
of whole sale trade.
the supply of old life expired batteries to retrieve the silver forms a special
arrangement it will not constitute a "normal practice". It is
contended that even if some raw material is supplied free of cost for the
purpose of excise duty, the market value should be taken into account.
4 of the Central Excise and Salt Act deals with valuation of excisable goods
which are chargeable to duty with reference to the value.
is based ordinarily on the price thereof that is at the price at which goods
subject to excise duty are sold by manufacturer to a buyer. In exceptional
circumstances when the valuation cannot be so more that closest equivalent
thereof is determined in the manner prescribed in the valuation Rules. 'Value'
for the purpose of the said Rules is value under Section 4 of the Act and is to
be determined under Rules 4 and
Rule 6 has to be invoked only in situation when assessment of value of goods
subject to excise duty cannot be determined under Rules 4 & 5. When the
goods are not sold by the manufacturer but are used or consumed in the
manufacture of other goods, the value is to be determined upon the value of compatable
goods manufactured, and if that cannot be done on the cost of production, if
any, which he would have normally earned as the sale of such goods.
view, we have set out above finds support CCE Calcutta, 2003 (158) ELT 15,
Burn_ Standard The assessable value of the silver should be taken at Rs. 2500/-
per kg. which is the rate at which MOD used to get the silver from the mint.
The price charged by the appellants was in terms of the contract entered into
by them with MOD. As per the terms of the contract, MOD was to supply the
silver to manufacture the batteries. Since the stock of silver in the mint
depleted, MOD supplied the old life expired batteries to retrieve the silver
and to use the recovered silver in the manufacture of new batteries. As per
terms of the contract, the appellants were to give a rebate to the MOD in the
price to be charged per battery and this was the reason for the difference in
prices between the batteries supplied to MOD and HAL.
value of the silver supplied to the appellants is determinable. Had the stock
of silver in the mint did not deplete, MOD would have supplied silver from the
mint. Since the stock depleted, MOD supplied old life expired batteries for the
recovery of silver. This will not make the value of silver undeterminable. The
value of the silver supplied would be Rs. 2500/- per kg., the price at which
MOD would get the silver from the mint. The question of determining the assessable
value of silver based on the value of the comparable goods would arise only
when the value is undeterminable. In the present case that question does not
supply of silver by MOD being one of the stipulation in the contract between
MOD and the appellant, would constitute a 'normal practice' of the wholesale
trade in such goods. As per the first proviso to Section 4(1)(b), where in
accordance with the normal practice of the wholesale trade, goods are sold at
different prices to different classes of buyers, each such price shall be
deemed to be the normal price of such goods in relation to each such class of
the normal price of battery sold to MOD by the appellants is Rs. 33,393/- and
the assessable value of silver used in the manufacture of such battery is at Rs.
2500/- per kg. and cannot take the market value of silver.
contract between the MOD and the assessee provided for supply of sliver from
the mint at a particular rate and had to be supplied by the MOD and in lieu
thereof the appellants were allowed to retrieve silver from old used batteries,
and their special feature cannot be ignored. Batteries of the nature in
question are largely used only by MOD. Hence the view taken by the Tribunal
down to adjudicating authority cannot be sustained.
we allow this appeal and set aside the order of the Tribunal and thereby the
order for differential demand cannot be enforced.