Holding

When the wholesale price approved by the excise authorities is genuine and the buyer is not a related person, it constitutes the ‘normal price’ under Section 4(1)(a) and clause (b) cannot be invoked to determine a nearest ascertainable equivalent.

Summary

The Collector of Central Excise issued a show‑cause notice to Guru Nanak Refrigeration Corp. alleging that the cost of production of its refrigeration parts exceeded the wholesale price and sought recovery of differential excise duty. The wholesale price had been approved by the excise authorities and the buyer was not a related person. The issue before the Supreme Court was whether this price could be treated as the "normal price" under Section 4(1)(a) of the Central Excise Act, 1944, or whether clause (b) should be invoked to determine a nearest ascertainable equivalent price. The Court held that, in the absence of any allegation of non‑arm’s‑length sale or flow‑back of money, the approved wholesale price is genuine and therefore constitutes the normal price; consequently clause (b) is inapplicable. Relying on Union of India v. Bombay Tyre International Ltd., the Court affirmed the Tribunal’s decision and dismissed the revenue’s appeal.

Issues considered

Whether the wholesale price approved by the excise authorities qualifies as the 'normal price' under Section 4(1)(a) of the Central Excise Act, 1944.
Whether clause (b) of Section 4(1) can be invoked to determine a nearest ascertainable equivalent price when the normal price is ascertainable.
Whether differential excise duty based on cost of production can be levied despite the existence of a normal wholesale price.

Legislation cited

Central Excise Act, 1944s. 4(1)(a), s. 4(1)(b), s. 4(4)

Subjects

Central Excisevaluationnormal pricewholesale tradedifferential dutySection 4cost of productionshow cause noticeexcise duty assessment

Judgment

.,_,
\

COLLECTOR OF CENTRAL EXCISE, NEW DELHI A
v.
. GURU NANAK REFRIGERATION CORPN.

MARCH 27, 2003

[SYED SHAH MOHAMMED QUADRI AND ASHOK BHAN, JJ.) B
"i

Central Excise Act, 1944:

Ss.4(/)(a) and (b) and 4(4)-Wholesale trade-Levy of excise duty--
('
Valuation of excisable goods-Assessee selling goods in wholesale trade at c
price approved by excise authorities-Show cause notice issued to assessee
stating that cost of production of goods was more than cost of wholesale
price-Differential duty on basis of cost ofproduction sought to be recovered-
Held, there is no valid reason to doubt genuineness of the sale price---(Joods
were sold at normal price within the meaning of s.4(/)(a) -Where normal D
i price within the meaning of clause (a) of sub section(!) is ascertainable, the
•
provisions of clause(b) cannot be resorted to-On.facts, Clause(b) of s.4(1)
would not be attracted to determine the nearest ascertainable equivalent of
the normal price of goods for assessment of excise duty.

Union of India and Ors. v. Bombay Tyre International Ltd. etc.,(1983) E
14 E.L.T. 1896, relied on.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 9140 of I 996.

From the Judgment and Order dated 3.11. I995 of the Central Excise,
Customs and Gold (Control) Appellate Tribunal New Delhi in A. No. E./ F
1745/83-A in F.O. No. 601 of 1995-A.

Ms. Nisha Baghi, K.C. Kaushik and B.K. Prasad for the Appellant.

- Rajendra Singhvi and Ashok K. Singh for the Respondent.

The following Order of the Court was delivered :
G

SYED SHAH MOHAMMED QUADRI, J. Heard the learned counsel
for the parties.

In this appeal against the final order No. 60 I of 1995-A of Customs H
~ 57
I
·"'(

58 SUPREME COURT REPORTS (2003] 3 S.C.R.

A Excise & Gold (Control) Appellate Tribunal, New Delhi (for short 'the
Tribunal') in appeal No.E/1745/83-A dated 03.11.1995, the only point that
arises for our consideration is : whethe.r the Tribunal is right in reversing the
order of the Assistant Collector as confirmed by the Collector.

To appreciate the controversy in this appeal it is necessary to refer to
B Section 4 of the Central Excise Act, 1944 (for short, 'the Act') as it stood
during 1975-76, which, insofar as it is relevant for our purpose, read as
follows :-

"4. Valuation of excisable goods for purposes of charging of duty of
excise-
c
(1) Where under this Act, the duty of excise is chargeable on any
excisable goods with ri~ference to value, such value shall, subject
to the other provisions of this section, be deemed to be-
(a) the normal price thereof, that is to say, the price at which such
D goods are ordinarily sold by the assessee to a buyer in the course
of wholesale trade for delivery at the time and places of removal,
where the buyer is not a related person and the price is the sole
consideration for the sale :
Provided that- xxx xxx xxx
E (b) where the normal pric1! 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 pr<escribed.
(2) xxx xxx xxx
F (3) xxx xxx xxx
(4) For the purposes of this section,-
(a) to (d) xxx xxx xxx

(e) "wholesale trade" means sales to dealers, industrial
G
consumers, Government, local authorities and other buyers,
who or which purchase their requirements otherwise than in
retail".

From a perusal of clause (a) of sub-section (1 ), quoted above, it is clear
H that the duty of excise is chargeable on any excisable goods with refere1:ce
).-,_

C.C.E. v. GURU NANAK REFRIGERATION CORPN. [QUADRI, J.] 59
~

to value which shall, subject to the provisions of that section, be deemed to A
be 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 provided that the buyer is not a related person and the price is the
sole consideration for the sale. It is not in dispute that the buyer is not a
related person and the price is the sole consideration for sale. It is also the B
common case that the respondent-assessee sold the refrigeration machinery
parts in wholesak trade at the price which was approved by the excise
authorities. Where normal price within the meaning of clause (a) of sub-
section ( 1) is ascertainable, the provisions of clause (b) cannot be resorted to.
The show cause qotice was issued to the assessee on the ground that the cost

- of production of the goods was more than the cost of wholesale price, so why
the differential duty on the basis of costs of production of the goods should
not be recovered from it. The reasoning in the show cause notice was adopted
C

by the Assistant Collector in confirming demand as well as by the Collector
in rejecting the appeal. But the Tribunal set aside the order of the Collector
and allowed the appeal by the order impugned in the appeal before us by the
Revenue. D

A perusal of the show-cause notice shows _that it does not contain an
allegation that the wholesale price to the buyers was for consideration other
than the one at which it purported to be sold or that it was not at arms length.
There is also no allegation that there was any_ flowback of the money from E
the buyer to the assessee. In the absence of these factors it cannot be contended
that normal price was not ascertainable. There is no valid reason to doubt the

-
genuineness of the sale price. It can therefore be safely be concluded that the
goods were sold at the normal price within the meaning of Section 4(l)(a) of
the Act In our view, the Tribunal is right in accepting the wholesale price
as the correct price following the judgment of this Court in Union of India F
and Ors., v. Bombay Tyre International Ltd. etc., (1983) 14 E.L.T. 1896. We
hold that clause (b) of sub-section (I) of Section (4) of the Act would not be
attracted to determine the nearest ascertainable equivalent of the normal price
of the goods for assessment of excise duty on the facts of this-case. We do
not find any illegality in the order of the Tribunal in setting aside the order' G
of the Collector. The appeal is therefore dismissed. No costs.

R.P. Appeal dismissed.