Holding

When a normal price to unrelated dealers is available, that price must be used as the assessable value for all sales, and the Tribunal erred in invoking the first proviso; the demand based on the buyer's resale price is set aside.

Summary

The appellant, SACI Allied Products Ltd., sold detergent powder to independent dealers across India at a uniform price and also sold the same goods to Syndet (SCIL) in Uttar Pradesh at a lower price; Syndet then resold the goods to dealers at a higher price. The Revenue treated Syndet as a related person and, under the third proviso of Section 4(1)(a) of the Central Excise and Salt Act, demanded excise duty based on Syndet's resale price. The Collector confirmed this demand, but the Appellate Tribunal upheld it on a new ground, invoking the first proviso and treating Uttar Pradesh dealers as a different class of buyers – a ground not raised in the show‑cause notice. The Supreme Court held that the Tribunal exceeded its jurisdiction, the first proviso was inapplicable, the third proviso could not be invoked because a normal price to unrelated dealers was available and circulars barred such treatment, and Syndet was not a related person under Section 4(4)(c). Consequently, the assessable value must be the price to independent dealers for all sales, and the demand based on Syndet's resale price was set aside.

Issues considered

Whether the Tribunal could rely on the first proviso to Section 4(1)(a) when the show‑cause notice and Collector's order were based on the third proviso.
Whether the price to independent, unrelated dealers constitutes the normal price for valuation of sales to a related buyer.
Whether Syndet qualifies as a "related person" under Section 4(4)(c) of the Central Excise and Salt Act.
Whether the third proviso to Section 4(1)(a) is invokable in view of the Central Board of Excise and Customs circulars.
Whether Section 4(1)(b) applies where a normal price under Section 4(1)(a) is ascertainable.

Legislation cited

Central Excise and Salt Act, 1944s. 4(1)(a), s. 4(1)(b), s. 4(4)(c)
Central Excise (Valuation) Rules, 1975s. Rule 5, s. Rule 7

Subjects

excise dutyvaluationSection 4related personsnormal pricefirst provisothird provisocircularsassessable valuetribunal jurisdiction

Judgment

M/S. SACI ALLIED PRODUCTS LTD., U.P. A
v.
COMMISSIONER OF CENTRAL EXCISE, MEERUT

APRIL 26, 2005

[S.N. VARIAVA, DR. AR. LAKSHMANAN AND S.H. KAPADIA, JJ.] B-

Central Excises and Salt Act, 1944-Section 4(J)(a) and (b)-Sale of
goods by manufacturer to a company in one State and to independent dealers
in other Stat~s-Sale price to the Company lower than the price charged from
independent dealers-Previously resale price by the company to the dealers C
declared as assessable value for payment of excise duty as the Company was
treated by Revenue, as related to the manufacturer-Central Board of Excise
as
and Customs held that dealers in different regions cannot be treated different
class of buyers-Notice by Revenue to the manufacturer to take the highest
price, at which the goods were sold as assessable value-Excise duty paid on D
the basis of price at which goods sold to independent dealers-Show cause
notice by Revenue under third proviso to Section 4(J)(a) proposing to take
resale price of company as the basis for determining assessable value and
demanding differential duty-Demand confirmed by Collector holding that
assessable value to be uls. 4(J)(b)-Appellate Tribunal, invokingfirs~proviso
to Section 4(/)(a), held that the dealers purchasing through the Company and E
the dealers directly purchasing from the manufacturer being different class of
buyers, price to the independent dealers cannot be the basis for assessing sale
to the Company-On appeal, held: Normal price to independent dealers being
available, same to be treated as basis for arriving at the assessable value to
Company also-First proviso to the Section is inapplicable as the sale to F
related buyer is not covered by the Section and since the dealers, as per the
Circulars, cannot be treated as different class of buyers-Tribunal having
invoked first proviso to Section 4(/)(a) has gone beyond the show cause
notice and order of Collector-Section 4(/)(b) also not applicable-Central
Excise Valuation Rules, 1975-Rules 5 and 7.

Appellant-manufacturer used to sell its goods to independent dealers
G
throughout the country except State of Uttar Pradesh. It sold the goods
in the State of Uttar Pradesh though Company 'S' at a lower price.
Company 'S' was also an independent manufacturer. Appellants used to
tile two sets of price list, one in respect of the sale to the independent
881 H
882 SUPREME COURT REPORTS [2005] 3 S.C.R.

A dealers and other in respect of sale to 'S'. In the price list for sales to 'S',
the resale price of 'S' to dealers was declared as assessable value for
payment of e.xcise duty because the Revenue treated 'S' as related to the
appellant. Pursuant to a Circular issued by Central Board of Excise and
Customs, to the effect t_hat the wholesale dealers in India could not be
considered as belonging':to different classes, Revenue issued notices
B proposing to take the highest price at which the goods were sold by the
appellants. Appellant filed single price list in Part-I u/s. 4(1)(a) of Excise
Act, 1944 in respect of their Sales made to independent dealers based on
the sale price charged to these dealers. The price list also covered sales in
Uttar Pradesh made to 'S'. Excise duty was paid on the appellant's price
C to independent dealers including sales made to 'S'.

Show cause notice was issued by Revenue in relation to applicability
of Section 4(1)(b), proposing to take resale price of 'S' as the basis for
determining the assessable value in respect of sales made by the appellant
to 'S' in Uttar Pradesh. On this basis, differential duty was demanded.
D Respondent-Collector confirmed the demand holding that 'S' was a related
person and, therefore, in view of third proviso to Section 4(1)(a) of the
Act, excise duty was to be paid by the appellants based on the price at
which the goods were resold by 'S' to its dealers; and that assessable value
has to be only u/s. 4(1)(b). In appeal, the Tribunal upheld the order of
E Collector relying on first proviso to SectiOn 4(1)(a) holding that Section
4(l)(b) was not applicable; and that dealers of 'S' in Uttar Pradesh
constitu_te a different Class of buyers than the dealers in other regions and
therefore, the price of 'S' to its dealers should be the value under first
proviso to _Section 4(1)(a) in respect of sales made by appellant to 'S'.

F In appealto this Court, appellant-a-ssessee contended that Tribunal,
by deciding the dispute under first .proviso to Section 4(1)(a) had gone
beyond the show cause notice and the order of the Collector, as the same
were passed under third proviso to Section 4(1)(a); that when wholesale
price to independent dealers satisfying the requirements ()f Section 4(1)(a)
is available, even sales to related persons should have been assessed on
G the wholesale price to independent dealers; and that first proviso to Section
40)(a) was also not invokable in the present case.

Respondent-Revenue contended that Section· 4(l)(a) was not
applicable as there was no comparable sale price available for independent
H buyers as in the State of U.P. no sale was affected directly; that when the
SAC! ALLIED PRODUCTS LTD., U.P. v. C.C.E. 883

goods were not offered for sale to any dealer nor supplied in U.P. except A
the Company, then the wholesale price charged at the depot when the
goods enter the wholesale market for the first time, would be the normal
price u/s. 4(l)(b) r/w. Rules 7 and 5 of the Central Excise Valuation Rules,
1975; that though the Circulars are binding on the Department, the same
could be ignored, having been held invalid by judicial order; and that the B
Tribunal having held that Section 4(l)(b) was not applicable, it was not
open for it to hold that Section 4(l)(a) was applicable.

Allowing the appeal, the Court

HELD : l. As the first proviso to Section 4(l)(a) of Central Excise C .
and Salt Act, 1944 was never invoked by the Department either in the show
cause notice or in the impugned order and it was for the first time that
the appellate Tribunal in the impugned order has sought to sustain the
impugned order by invoking the first proviso to Section 4(l)(a) of the Act,
the Tribunal has gone totally beyond the show cause notice and the order
of the Collector, which is impermissible. The appellate Tribunal cannot D
sustain the case of the Revenue against the appellants on a ground not
raised by the Revenue either in the show cause notice or in the order.
• [894-C-DI

Reqkitt and Colman ofIndia ltd v. CCE, (1996) 88 ELT 641 SC, relied E
on.

2.1. Where sales are made by the assessee to wholesale buyers who
are unrelated and also to buyers who are related, then the price to
unrelated buyers should be adopted as the basis for payment of excise duty
even in respect of sales to related buyers. In such a situation, third proviso F
to Section 4(l)(a) of the Act will not come into play at all. Since in the
present case, normal price to independent dealers is available, same should
be treated as the basis for arriving at the assessable value in respect of
sales to 'S' also. 1895-C, DI

Union of India v. Kanti Lal Chunilal and Ors., 119861 Suppl. SCC 345; G
Collector of Central Excise, Madrasv. The Enfield India Ltd, (1988) 34 ELT
654 and Escorts Tractors Ltd. v. Collector of Central Excise, Delhi, (1998)
103 ELT 533, relied on.

2.2. In view of the Circulars issued by Central Board of Excise and H
Customs also, third proviso to Section 4(1)(a) is not invokable in the
884 SUPREME COURT REPORTS [2005] 3 S.C.R.

A present case. (897-FJ
2.3. The Tribun~I having accepted the sale as a genuine sale and
having accepted that p1ice to independent dealers is available under
Section 4(1)(a) of the Act, the appellate Tribunal ought not to have rejected
the submission of the appellants regarding the acceptance of price to
B independent dealers for sales to. 'S' also. (897-H; 898-AI

•
3.1. The most important criteria for invoking the first proviso to
Section 4(1)(a) is that each such price at which goods are sold by the
assessee to different class of buyers should satisfy the requirement of
--
C Section 4(1)(a) and if the price does not satisfy the requirements of Section
4(1)(a) of the Act, then the proviso cannot apply. One of the circumstances
specified in Section 4(1)(a) of the Act is that the sale should be to unrelated
buyers. If the sale is effected to a related buyer, then this requirement of
the proviso is not satisfied. The proviso would apply only when the assessee
sells the goods at different prices to different class of buyers. In the present
D case, sales to dealers in Uttar Pradesh which is being considered as
different class by the Tribunal, is not made by assessee-appellant, but by
'S' after purchasing the goods from the appellant. Hence, first proviso to
Section 4(1)(a) of the Act is wholly inapplicable. The impugned order of
the appellate Tribunal which is solely based on the first proviso to Section
E 4(1)(a) therefore, cannot be sustained. (898-F-H; 899-A]
Commissioner ofCentral Excise, Calcutta-II v. TISCO Ltd, (2004) 174
ELT 307 SC, relied on.

3.2. During the disputed period in question in the present case, the
F .Central Board of Excise and Customs by its Circulars itself has held that
dealers in different regions cannot be treated as different classes of buyers
and, t:terefore, the first proviso to Section 4(1)(a) cannot be invoked in
such circumstances. Having issued such a Circular which is binding on
the Department, the Revenue cannot now say that dealers in different
regions constitute different classes of buyers and, therefore, price to
G independent dealers cannot be adopted for sales to 'S' in Uttar Pradesh.
Further, Department having issued show cause notices to the effect that
it was not permissible to have different prices for dealers in different
regions and seeking to take highest price as the assessable value based on
theCircular which held the field then , it is not open to the Revenue or to
H the appellate Tribunal to hold that dealers in different regions constitute
SACI ALLIED PRODUCTS LTD., U.P. v. C.C.E. 885
different classes of buyers and, therefore, the price to independent dealers A
in other regions cannot .be adopted as the basis for sales to 'S' in Uttar
Pradesh. [899-C-F)

4. The appellant and 'S' are distinct private limited companies and
have been separately assessed to Income-Tax and Sales-Tax and by all ·
other Government Departments. There is no inter se shareholding by either B
company in each other. 'S' has its own factory. Thus, in these
circumstances, it cannot be said that the appellants and 'S' are related
persons within the meaning of Section 4(4)(c) of the Act. [899-G-H)

5.1. Section 4(1)(b) will apply only when Section 4(1)(a) is not
applicable. The said Section will apply only when goods are sold only C
through related persons and the normal price at which such gocds are
resold to unrelated dealers is not ascertainable. Since, the Collector has
given a finding that there exists a factory gate price and a substantial
percentage of goods are sold as well as to independent dealers throughout
India at that uniform price, and the collector is not disputing that the 0
normal price for such goods is ascertainable at the factory gate, in such
an event, recourse to section 4(1)(b) is not permissible. The Collector could
not have confirmed the demand under Section 4{l)(b) when there are
significant sales at the factory gate to the independent buyers throughout
India. (900-C-D; 900-F)
E
Union of India v. Kanti Lal Chunni Lal and Ors., [1986) Suppl. SCC
345; Cosmos (India) Rubber Works Pvt. Ltd and Ors. v. Union ofIndia, (1988)
36 ELT 102 (Born) and Racold Appliances v. CCE, (1994) 69 ELT 312;
(1998) 100 ELT A.64, relied on.

5.2. It is not permissible on the part of the Tribunal to change the F
basis of the demand since the assessee was asked to show cause only in
relation' to applicability of Section 4(1)(b). [900-GI

C.C.E. v. Ashok Ark, (2005) 179 ELT 513( SC) and Hindustan Polymers
Co. Ltd. v. Collector ofC. Ex. Guntur, (1999) 106 E.L.T. 12(S.C.), referred
to. G
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 5854 of 1999.

From the Judgment and Order dated 22.6.99 of the Central Excise,
Customs and Gold (Control) Appellate Tribunal, New Delhi in F.O. No. 879/
99-A in A. No. E/I225 of 1995-A. H
886 SUPREME COURT REPORTS (2005) 3 S.C.R.

A V. Lakshmikumaran, R.K. Hasija, Alok Yadav and V. Balachandran
• for the Appellant.

A. Subba Rao, Rupesh Kumar, P. Parmeswaran and B. Krishna Prasad
for the Responden~.

B The Judgment of the Court was delivered by

DR. AR. LAKSHMANAN, J. This appeal is preferred against the
Final Order of the Customs Excise and Gold (Control) Appellate Tribunal,
New Delhi dated 22.6.1999 in Final Order No. 879/99-A in Appeal No. E/
1225/95-A holding that the appellants are liable to pay excise duty on the
C basis of the sale price of the buyer to its dealers in Uttar Pradesh and not
based on the appellants' sale price to independent dealers. .

The appellant is a company manufacturing detergent powder and allied
products in its factory near Ghaziabad i~ the State of Uttar Pradesh. The
appellant sells its goods from the factory to dealers spread throughout the
D country other than Uttar: Pradesh at a particular price. It has paid excise duty
for these sales on this price. No dispute has been raised by the Excise
Department in respect of these s.ales.

The appellants also sold the goods in the State of Uttar Pradesh to a
E company called Syndet & Chemical Industries Ltd. (for short 'Syndet') at a
price which was lower. Syndet, in tum, sold the goods to its dealers in Uttar
Pradesh at a price which was higher than the price at which the appellants
sold the product outside Uttar Pradesh. Roughly 35% of the goods are sold
to independent dealers and 65% of the goods are sold to Syndet by the
appellants. Syndet is also the owner of trademark. "Fena" for detergent powder
F and allied products. According to the appellants, they have paid excise duty
for sales made to Syndet also at the price charged by the appellants from the
independent dealers situated all over the country, other than in Uttar Pradesh,
since according to the Department, the appellants (SACI Allied products Pvt.
Ltd.) and buyer Syndet are related persons as per Section 4(4)(c) of the
G Central Excise and Salt Act, 1944 (hereinafter referred to as "the Act").

The respondent-Collector passed an order dated 30.3.1995 to the effect
that Syndet is a related person and, therefore, in view of third proviso to
Section 4(1 )(a) of the Act, excise duty is to be paid by the appellants based
on the price at which the goods are resold by Syndet to its dealers in the State
H of Uttar Pradesh. The appellate Tribunal has upheld the above order of the
SAC! ALLIED PRODUCTS LTD., U.P. v. C.C.E. [LAKSHMANAN, J.] 887

Collector on a totally new and different basis by holding that the dealers of A
Syndet in the State of Uttar Pradesh constitute a different class of buyers than.
the dealers in other regions and, therefore, Syndet's price to its dealers should
be the value under first proviso to Section 4(l)(a) in respect of sales made
by the appellants to Syndet.

- The appellants had earlier filed two sets of price lists, one in respect, of .B
the sales effected to dealers in all the States other than the State of Uttar
Pradesh and the other in respect of sales effected to Syndet in Uttar Pradesh.
In this price list for sales in Uttar Pradesh, the resale price of.t.Syndet was
declared as the assessable value for payment of excise duty, since the
Department was treating Syndet as related to the appellants. These price lists C
were provisionally approved by the Department. Based on the circular issued
by the CBEC, show cause notices were issued by the Department all relating
to price lists filed before 4.10.1991 proposing to take the highest price at
which the goods are sold by the appellants which incidently happened to be
the price at which the goods are sold in Uttar Pradesh where appellants'
related person effects sales to dealers. The appellants filed a single price list D
in Part-f under Section 4(1)(a) of the Act in respect of their sales made to
independent dealers based on the sale price charged to these dealers. Price
list also covered sales in Uttar Pradesh made to Syndet. Excise duty was paid
on the appellants' price to independent dealers including for sales made to
Syndet. This price list was finally approved by the Assistant Collector on E
26.12.1991 accepting the price declared by the appellants.

lne appellants filed another single price list in Part-I in respect of alt
their sales including the sales made to independent dealers and sales in Uttar
Pradesh made to Syndet. Excise duty was being paid accordingly on the
appellants' price to independent dealers. This price list was finally approved F
by the Assistant Collector on 26.12.1991 accepting the price declared by the
appellants. A show cause notice was issued by the Collector of Central Excise,
Meerut proposing to take Syndet's resale price as the basis for determining
the assessable value in respect of sales made by the appellants to Syndet in
Uttar Pradesh. On this basis, differential duty was demanded for the period
from 13.12.1990 to November, 1994. The Collector of Central Excise, Meerut G
passed an order on 30.3.1995 confirming the proposals made in the show
cause notice and demanding differential duty accordingly. The appellants
filed appeal before the appellate Tribunal and submitted that since sale price
to independent dealers are available, the same should be taken as the basis
for determining the assessable value in respect of sales to related persons H
888 SUPREME COURT REPORTS [2005) 3 S.C.R.

A also. The Tribunal passed the impugned order on 22.6.1999 upholding the
order of the Commissioner entirely on a new and different basis. On the issue
of quantification of duty demand, the appellate Tribunal remanded the matter
to the Collector for de novo consideration. Aggrieved by the impugned final
order passed by the Tribunal, the appellants preferred the above appeal before
this Court.
B
We heard Mr. V. Lakshmikumaran, learned counsel, appearing for the
appellants and Mr. A. Subba Rao, learned counsel, appearing for the
-
respondent.

Mr. V. Lakshmikumaran made the following submissions :
c
(I) The impugned order of the appellate Tribunal has gone beyond
the show cause notice and the order of the Collector and is,
therefore, unsustainable.
(2) When wholesale price to independent dealers satisfying the
D requirements of Section 4(l)(a) of the Act is available, even sales
to related persons should be assessed based on the wholesale
price to independent dealers.
(3) First proviso to Section 4(l)(a) of the Act is also not invokable
in the present case and hence order of the appellate Tribunal on
E this score is unsustainable.

While elaborating the above submissions, learned counsel appearing
for the appellants, invited our attention to the relevant portions of the Tribunal's
order, the order of the Commissioner and other related documents, Circulars
and Annexures.
F
To appreciate the arguments of the learned counsel, it is beneficial to
reproduce Section 4 of the Act :

"Section 4. Valuation ofexcisable goods for purposes ofcharging
of duty of excise - (I) Where under this Act, the duty of excise is
G chargeable on any excisable goods with reference to value, such value,
shall, subject to the other provisions of this section, be deemed to be-

(a) the nonnal 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
H where the buyer is not a related person and the price is the sole
SA.CI ALLIED PROpUCTS LTD., U.P. v. C.C.E. [LAKSHMANAN, J.] 889
consideration for the sale : A
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 otlu!._r
B
circumstances specified in clause (a), be deem~d 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 c
price, being the maximum, fixed under any such law, 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; D
(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 rel3ted ·person in the E.
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 F
reason, that such goods are not sold or for any other reason, the
nearest ascertainable equivalent thereof determined in such manner
as they may be prescribed.
(2) Where, in relation to any excisable goods the price thereof for
delivery at the place of removal is not well known and the value G
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 H
890 SUPREME COURT REPORTS [2005] 3 S.C.R.

A excisable goods for which a tariff value has been fixed under
sub-section (2) of section 3.
(4) For the purposes of this section, -
(a) "assessee" means the person who is liable to pay the duty of
excise under this Act and includes his agent;
B
(b) "place of removal" means-

(i) a factory or any other place or premises of production or
manufacture of the excisable goods; or

(ii) a warehouse or any other place or premises wherein the
c excisable goods have been permitted to be deposited without
payment of duty,

from where such goods are removed;
(c) "related person" means a person who is so associated with the
D assessee that· they have interest, directly or indirectly, in the
business of each other and includes a holding company, a
subsidiary company, a relative and a distributor of the assessee,
and any sub-distributor of such distributor.
Explanation - In this clause "holding company:, "subsidiary company"
E and "relative" have the same meanings as in the Companies Act,
1956 (1 of 1956);
(d) "value", in relation to any excisable goods, -

(i) where the goods are delivered at the time of removal in a
packed condition, includes the cost of such packing except
F
the cost of the packing which is of a durable nature and is
returnable by the buyer to the assessee.

Explanation - In this sub-clause, "packing" means the wrapper,
container, bobbin, prin, spool, reel or wrap beam or any other thing
G in which or on which the excisable goods are wrapped, contained or
wound;

(ii) does not include the amount of the duty of excise, sales tax
and other taxes, if any, payable on such goods and, subject
to such rules as may be made, the trade discount (such
H discount not being refundable on any account whatsoever)
SACI ALLIED PRODUCTS LTD., U.P. v. C.C.E. [LAKSHMANAN, J.] 891

allowed in accordance with the normal practice of the A
wholesale trade at the time of removal in respect of such
goods sold or contracted for sale.

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
~- B
(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 C
such goods,
and the effective duty of excise on such goods under each Act
referred to in clause (a) or clause (b) shall 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 D
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 E
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. F
(e) "wholesale trade" means sales to dealers, industrial consumers,
Government, local authorities and other buyers, who or which
purchase their requirements otherwise than in retail."

Mr. A. Subba Rao, learned counsel appearing for the respondent G
submitted that dealers in different parts of the country are to be considered
constituting different class of buyers and in this case also, the dealers located
in other parts of the country other than the State of Uttar Pradesh would
constitute different class of buyers. However, the dealers of Uttar Pradesh
being in different region would fonn a different class of buyers since in Uttar
Pradesh, there was no independent buyer to whom the goods were directly H
892 SUPREME COURT REPORTS (2005] 3 S.C.R.

A sold by the appellants, the question of comparing price does not arise.
According to Mr. A. Subba Rao, Section 4(1 )(a) of the Act is not applicable
as there is no comparable sale price available for independent buyers as in
Uttar Pradesh no sale has been effected directly to dealers and the entire sale
has been effected through SCIL who has been held as related to the appellant.
He would further submit that if the goods have not been genuinely offered
B to all other dealers at the same price then it would be reasonable to conclude
that the price under Section 4(1)(a) of the Act main clause cannot be
determined. Therefore, when no goods have been offered for sale to any
person nor supplied in Uttar Pradesh except to Syndet then the wholesale
price charged at the depot when the goods enter the wholesale warket for the
C first time, would be the normal price under Section 4(1)(b) of the Act read
with Rules 7 and 5 of the Central Excise Valuation Rules, 1975.

Mr. Subba Rao further submitted that though the circulars are binding
on the Department once that part of the Circular which is relevant for the
purpose of this case is declared as invalid by the Delhi High Court in the case
D of Indian Rayon & Industries ltd. v. Union of India, (1994) 73 ELT 25
(Delhi), the appeal against which was dismissed by this Court in 2002 (143)
EL T A269, it is permissible to the Department to take note of the fact of the
judgment of the Delhi High Court which is confirmed by this Court and
ignore the Circular for the purpose of arriving at assessable value in regard
E to the Uttar Pradesh. It was further submitted that it is open to the Department
to contend before this Court not to take note of the two circulars and that the
circulars are binding on the Department but not on quasi-judicial authority
and this Court. It was also submitted that no appeal lies against a finding, as .
it was contended that the Department has not filed any appeal against the
finding of the Collector that the assessable value has to be only under Section
F 4(l)(b) of the Act and once the Tr;i-·mal comes to the conclusion that Section
4(l)(b) of the Act is not applicable, the appeal of the assessee has to be
allowed and it is not open to the Tribun~l or for the Department to contend
that Section 4( I)(a) of the Act is applicable. It is open to the party-respondent
to sustain the judgment of the Tribunal though it has not filed any appeal or
cross objection. Concluding his arguments, Mr. A. Subba Rao submitted that ,
G the decision arrived at by the Tribunal is correct in law and, therefore, is not
liable to be interfered with.

We have carefully considered the rival submissions with reference to
the pleadings, orders, annexures and other relevant records.
H
SACI ALLIED PRODUCTS LTD., U.P. v. C.C.E. [LAKSHMANAN, J.] 893

Regarding Submission No. /. A
In the instant case, the proceedings were initiated against the appellants
by the respondent-Collector on the ground that Syndet, to whom the appellants
sold the goods in Uttar Pradesh, should be treated as a related person of the
appellants in terms of Section 4(4)(c) of the Act and, therefore, in respect of
sales made by the appellants to Syndet, excise duty should be paid on the .B
basis of Syndet's resale price to its dealers in terms of third proviso to
Section 4(1)(a) of the Act. In other words, according to show cause notice
and the order of the respondent-Collector, since Syndet is related to the
appellants, excise duty should be paid for sales to Syndet in terms of third
proviso to Section 4(l)(a) of the Act, i.e. based on Syndet's resale price to C
its dealers.

The following extract from the impugned order of the appellate Tribunal
reveals this position :

"The adjudicating authority ordered the assessment of the goods D
sold in the State of Uttar Pradesh through SCIL on the basis of the
prices charged by SCIL from the wholesale buyers in U.P. The prices
charged by the SCIL from the stockists/distributors in U.P. were taken
to be the normal prices for determining the assessable value and for
levying the central excise duty after giving the benefit of admissible
deductions." E
The appellate Tribunal, by the impugned order, has upheld the order of
the respondent-Collector, however, on a totally new and different basis which
was never the case of the Department either in the show cause notice or in
the impugned order. The appellate Tribunal, in the impugned order, has held F
as under:

"All the wholesale dealers and all the wholesale buyers in the
whole of the country would not be taken to form a single class of
buyers. Mis SACI and SCIL were related persons. Mis SACI sold
their goods in the State ofU.P. through SCIL and no direct sales were G
eftkted by SACI in the State of U.P. Seen in the light of the Tribunal's
decision in the case of Goramal Hari Ram Ltd., the prices at which
SCIL were disposing of the goods of SACI in the State of U.P. had
been correctly taken as the normal price for. determining the duty
liability of SACI under Section 4 of the Act."
H
894 SUPREME COURT REPORTS [2005) 3 S.C.R.

A Thus according to the appellate Tribunal, since the dealers in Uttar
Pradesh who purchased the goods from Syndet, and independent dealers in
other parts of the country to whom the appellants directly sold the goods are
different class of buyers, appellants' price to the independent dealers cannot
be taken as the basis for assessing appellants' sales to Syndet in Uttar Pradesh.
B This finding of the appellate Tribunal is based on first proviso to Section
4(l(a) of the Act. While the show cause notice and the order of the Collector
proceeded on the basis of the invocation of third proviso to Section 4(1)(a) --
of the Act, the appellate Tribunal for the first time in the impugned order has
sustained the proceedings on the basis of first proviso to Section 4(l)(a) of
the Act. It was argued that the first proviso to Section t(I)(a) of the Act was
C never invoked by the Department either in the show cause notice or in the
impugned order and it was for the first time that the appellate Tribunal in the
impugned order has sought to sustain the impugned order by invoking the
first proviso to Section 4( I )(a) of the Act. It is thus seen that the Tribunal has
gone totally beyond the show cause notice and the order of the Collector,
D which is impermissible. The appellate Tribunal cannot sustain the case of the
Revenue against the appellants on a ground not raised by the Revenue either
in the show cause notice or in the order.

In this context, we may usefully refer to the judgment of this Court in
the case of Reckitt and Colman of India Ltd v. CCE, (1996) 88 EL T 641 SC.
E This Court held that it is beyond the competence of the Tribunal to make out
in favour of the Revenue a case which the Revenue had never convassed arid
which the appellants had never been required to meet.

The impugned order of the Tribunal which had gone beyond the show
cause notice and the order of the respondent-Collector is, therefore, liable to
F be set aside.

Regarding Submission No.2

We shall now consider the second submission made by Mr. V.
Lakshmikumaran. We have already extracted Section 4(1)(a) of the Act and
G the third proviso to Section 4(1)(a) of the Act in paragraph supra. In the
present case, normal price satisfying the requirements of Section 4(l)(a) of
the Act is available and there is no dispute on this factual position. About
35% of the production of the goods is sold by the appellants to independent
and unrelated dealers spread through the country other than in Uttar Pradesh.
H There is no dispute raised by the Central Excise Department with regard to
SAC! ALLIED PRODUCTS LTD., U.P. v. C.C. E. [LAKSHMANAN, J.) 895

these sales. Appellants' sale price to these independent dealers duly satisfy A
the requirements of Section 4(I)(a) of the Act in every respect and there is
no dispute on this factual position. In respect of these sales to independent
dealers located other than in U.P., appellants have paid excise duty based on
their sale price to these dealers. This factual position is not disputed by the
respondent. It was argued that once such a wholesale price to an unrelated
buyer satisfying the requirements of Section 4(l)(a) of the Act is available, B
then that price alone should be treated as the normal price in respect of all
the sales made by the appellants including the sales made to related persons.
In other words, where sales are made by the assessee to wholesale buyers
who are unrelated and also to buyers who are related, then the price to
unrelated buyers should be adopted as the basis for payment of excise duty C
even in respect of sales to related buyers. In such a situation, third proviso
to Section 4(l)(a) of the Act will not come into play at all. Since in the
present case, normal price to independent dealers is available, same should
b.e treated as the basis for arriving at the assessable value in respect of sales
to Syndet also. This submission of Mr. V. Lakshmikumaran is duly supported D
by the judgment of this Court in Union of India v. Kanti Lal Chunilal and
Ors., (1986] Suppl SCC 345 = (1986) 26 ELT 289 SC. This judgment dealt
with a situation when 34% to 40% of sales were effected by the assessee to
a related buyer namely, Alok Textiles and balance sales were to unrelated
buyers. Excise Department sought to levy excise duty, in respect of sales
made to Alok Textiles, based on Alok Textiles' resale price to its buyers. E
This Court negatived such an approach and held that the value for the purpose ·
of excise duty even in respect of sales effected to the related buyer Alok
Textiles should be the price at which the goods were sold to unrelated buyers.
The relevant portion of the judgment is reproduced hereinbelow :

"The respondents sold only 34 to 40% of the total production to F
the firm of M/s Alok Textiles and the remaining production was sold
to other wholesale dealers. The assessing authorities were, therefore,
clearly wrong in taking the wholesale cash price at which the excisable
goods were sold by the wholesale traders as the value of excisable
goods for the purpose of levy of excise duty. The wholesale cash G
price at which the excisable goods were sold by the respondents to
Mis Alok Textiles and other wholesale dealers was the only price
liable to be taken for determination of the value for the purpose of
levy of excise duty."

The appellate Tribunal itself has consistently taken the view that if the H
896 SUPREME COURT REPORTS [2005] 3 S.C.R.

A price to independent wholesale dealers, satisfying the requirements of Section
. 4(l)(a) of the Act is available, then that price should be treated as the assessable
value even in respect of sales to related persons also.

In paragraph 5 of the judgment in the case of Collector of Central
Excise, Madras v. The Enfield India Ltd, ( 1988) 34 EL T 654 (Tribunal), the
B Tribunal held as under :

"We have given the matter our earnest consideration. Sale of one-
one Motor- Cycle to direct users in the public cannot be called a
wholesaJe·sale. It was a retail sale, as already held by this Tribunal
in the case of Mis Escorts Ltd. aforesaid. Before a resort is made to
c the retail price, we have to see whether some other basis of assessment,
which in law has precedence over retail price assessment under the
Valuation Rules, is available or not.We find that there were two sets
of wholesale sales available in this case. The first was to Mis Enfield
Sales Ltd. They were admittedly a 'related person' of the respondents,
D and, therefore, the respondent's sale price to them was not acceptable.
The other set of wholesale sales was to about 150-200 dealers all
over India outside Tamil Nadu. The Department has now shown us
. anything wrong with these sales except saying that they constituted
the minority sales. But 20. l % is not an insignificant quantity. Even
though it was the minority sale, it becomes important because the rest _.,..-
E of the sales were either retail sales or they were sales made to a
'related person'. There is nothing to show that ifthe dealers outside
Tamil Nadu wanted to buy more Motor-Cycles, larger quantities would
not have been available to them. We hold thatthese 20.1% sales w~re
bona fide sales and they were made in the normal course of wholesale
F trade. They satisfied all the conditions of'normal price' under Section .
4(l)(a). Accordingly, the price charged by the respondents from these
dealers should constitute the basis of valuation for all the Motor
Cycles removed from the respondents' factory during the material
period. There is no need.to resort to the Valuation Rules for working
out the assessable value."
G
In paragraph 6 of the judgment in the case of Escorts Tractors Ltd. v.
Collector of Central Excise, Delhi, (1998) 103 EL T 533 (Tr.ibunal), it was
held as under :

"The Department has no case that the appellant, during the period
G in question, h.as so arranged that the tractors were not generally sold
SACI ALLIED PRODUCTS LTD., U.P. v. C.C.E. [LAKSHMANAN, J.] 897
in the course of wholesale trade except to or through Mis Escorts Ltd. A
and hence consequently proviso (iii) to Section 4(l(a) has not been
invoked. According to Section 4(1 )(a), the assessable value should be
deemed to be the normal price of the goods, 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 B
sole consideration for the sale. Since Mis Escorts Ltd. is a "related
person", the price charged to Mis Escorts Ltd. cannot be regarded as
the normal price under Section 4(1 )(a) of the Act. There were sales
to independent wholesalers at lesser discount. Those wholesalers we;e
not "related persons", therefore, the lower authorities were justified C
in holding that the assessable value of the goods sold to Mis Esc.0$
Ltd. should be based on the wholesale price charged by appellant to
independent wholesalers."

Mr. V. Lakshmikumaran submitted that though the above judgments
were duly relied upon before the Tribunal during the course of the arguments D
as also before the Collector, the Tribunal in the impugned order has failed to
deal with any of the aforesaid judgments. Therefore, he submitted that the
impugned order of the appellate Tribunal taking a view totally contrary to the
well settled legal position, as laid down by this Court is, therefore, liable to
be set aside. We see merit and substance in this contention.
E
Mr. V. Lakshmikumaran invited our attention to the Circulars issued by
the Central Board of Excise and Customs and submitted that th9 Revenue is
bound by the circulars issued by it and cannot contend to the contrary.
Therefore, in view of the circular, third proviso to Section 4(l)(a) of the Act
is not invokable in the present case. In this view of the matter, the argument F
advanced by Mr. A Subba Rao, learned counsel appearing for the respondent,
has no merits.

As a matter of fact, the Tribunal, by its order, has not questioned the
genuineness of the sale between the appellants and Syndet. The appellants
submitted before the Tribunal and also before the Collector that the depot of G
Syndet was existing right from 1976 and it was not created only after the
appellants started selling the products to Syndet in 1990. The appellants, in
support of this submissions, also filed affidavits of dealers, transporters,
employees of Syndet. The Tribunal having accepted the sale as a genuine
sale and having accepted that price to independent dealers is available under
H
898 SUPREME COURT REPORTS [2005] 3 S.C.R.

A Section 4(l)(a) of the Act, the appellate Tribunal ought not to have rejected
the· submission of the appellants regarding the acceptance of price to
independent dealers for sales to Syndet also. As could be seen from the
records produced before the authorities below, Syndet also manufactures the
goods in its Okhla factory in Delhi and sells the goods on its own and the
Central Exdse Department at Delhi has accepted the price at which Syndet
B _has been selling to its dealers and paying excise duty accordingly without
any dispute. It was submitted that the assessable value on which the duty has
been paid by the appellants, in the present case, even in respect of transactions
with Syndet in Uttar Pradesh is higher than the approved assessable value for
-
Okhla factory of Syndet and this itself proves the bona fide of the appellant
C and the genuineness of the price particularly when the goods are only 'Fena'
brand sold practically to the same dealers.

Regarding Submission No.3

The only reason given by the appellate Tribunal in the impugned order
D for adopting Syndet's resale price to its dealers as the basis for payment of
excise duty in respect Qf sales made by the appellants to Syndet is that
dealers in different region~ constitute different classe of buyers and in view
of the first proviso to Section 4(l)(a) of the Act, each such price shall be
taken as the normal price and duty should be paid accordingly. We have
.E already .extracted the findings of the Tribunal in paragraph supra. It was
submitted that the first proviso to Section 4(1)(a) of the Act is totally
inapplicable to the present case and, therefore, the question of taking different
prices to dealers in different regions as the assessable value cannot arise. We
have already reproduced the first proviso to Section 4(1)(a) of the Act. Thus
the first proviso to Section 4(1)(a) ofthe Act merely says that where the
F goods are sold by the assessee to different classes of buyers at different
prices, each such price, subject to the same satisfying the requirements of
Section 4(1)(a) of the Act be deemed to be the normal price of such goods.
Thus, the most important criteria_for invoking the proviso is that each such
price should satisfy the requirement of Section 4(l)(a) of the Act and if the
G price do not satisfy the requirements of Section 4(1)(a) of the Act, then the
proviso cannot apply. Ohe of the circumstances specified in Section 4(1)(a)
of the Act is that the sale should be to unrelated buyers. If the sale is effected
to a related buyer, then this requirement of the proviso is not satisfied. The
proviso would apply only when the assessee sells the. goods at different
prices to different class of buyers. In the present case, sales to dealers in Uttar
H Pradesh which is being considered as different class by the Tribunal, is not
SACI ALLIED PRODUCTS LTD., U.P. v. C.C.E. [LAKSHMANAN, J.] 899

made by assessee appellant, SACI, but by Syndet after purchasing the goo~s A
from the appellant. Hence, first proviso to Section 4{l){a) of the Act is
wholly inapplicable. The impugned order of the appellate Tribunal which Is
solely based on the first proviso to Section 4(l){a) of the Act is, therefore,
in our view, cannot be sustained.

Our attention was invited to the circular No.3/90-CX. l dated 25.1.1990 B
issued by the Central Board of Excise and Customs (at page 18 of Vol.II of
the paper book) taking the view that the wholesale dealers in India cannot be
considered as belonging to different classes simply because they are located
in different places. This position was again reiterated by the CBEC vide its
further Circular No. 24/14/93 dated 31.12.1993. Thus, during the disputed C
period in question in the present case, the CBEC itself has held that dealers
in different regions cannot be treated as different classes of buyers and,
therefore, the first proviso to Section 4(l){a) of the Act cannot be invoked in
such circumstances. Having issued such a circular which is binding on the '
Department, the Revenue cannot now contend to the contrary and say that
dealers in different regions constitute different classes of buyers and, therefore, ,D
price to independent dealers cannot be adopted for sales to Syndet in Uttar
Pradesh. Further, during the disputed period, when the appellants were filing
price lists regionwise declaring different prices for different dealers located
in different regions, based on the above circular dated 25.1.1990, show cause
notices were issued by the Department contending that it is not permissible E
to have different prices for dealers in different regions. The show cause
notices sought to take the highest price as the assessable value which incidently
was the price at which the goods were sold by Syndet to its dealers. Having
taken such a stand based on the circular of CBEC; which held the field then
, it is not open to the Revenue or to the appellate Tribunal to hold that dealers
in different regions constitute different classes of buyers and, therefore, the F
price to independent dealers in other regions cannot be adopted as the basis
for sales to Syndet in Uttar Pradesh.

It was contended that Syndet is not related to the appellants within the
meaning of Section 4(4)(c) of the Act. The appellants and the Syndet are
distinct private limited companies and have been separately assessed to G
Income-Tax and sales tax and by all other Government Departments. There
is no inter se shareholding by either company in each other. Syndet has its
own factory at Okhla. Thus, in these circumstances, it cannot be said that the
appellants and the Syndet are re.lated persons within the meaning of Section
4(4)(c) of the Act. Therefore, excise duty is payable by the appellants based H
900 SUPREME COURT REPORTS [2005) 3 S.C.R.

A on its sale price to Syndet. Therefore, the finding of the appellate Tribunal
to the contrary is liable to be set aside.

It has been argued that sales were effected at the factory gate to a
number of independent dealers throughout India at the uniform price of Rs.100
and the Department has not questioned the correctness of the sale. IO fact,
B there is no demand of duty for sales made to independent dealers throughout
India. The Collector also has given a specific finding in this regard and that
the Department is distributing the assessable value only in respect of sales
price to Syndet. Arguing further, Mr. V. Lakshmikumaran, submitted that
Section 4(1)(b) of the Act will apply only when Section 4(l)(a) is not
C applicable. Section 4(1 )(b) has already been extracted above. The said section
will apply only when goods are sold only through related persons and the
normal price at which such goods are resold to unrelated dealers is not
ascertainable. Since, the Collector has given a finding that there exists a
factory gate price and a substantial percentage of goods are sold as well as
to independent dealers throughout India at that uniform price, and the Collector
D · is not disputing that the normal price for such goods is ascertainable at the
factory gate, in such an event, recourse to Section 4( I )(b} of the Act is not
permissible. These submissions merits acceptance. '

We have already referred to the judgment of.this Court in Union of
India v. Kanti Lal Chunni Lal and Ors., (supra) which has been followed by
E the Bombay High Court in the case of Cosmos (India) Rubber Works Pvt.
ltd and Ors. v. Union of India, ( 1988) 36 ELT· 102 (Born)~ The Tribunal has
also passed the judgment to the similar effect in the case of Racold Appliances
v. CCE, (l 994) 69 E.L. T. 312 which has. been affirmed by this Court in
1998(100) ELT A64. This issue, therefore, is no longer res integra and,
F therefore, the Collector could not have confirmed the demand under Section
4( 1)(b) of the Act when there are significant sales atthe factory gate to the ·
independent buyers throughout India.

We have already referred to the certain findings of the Tribunal applying
the first proviso to Section 4(l)(a) of the Act, confirmed the same demand.
G In our view, it is not permissible on the part of the CEGAT to change the
basis of the demand since the assessee was asked to show cause only in
relation to applicability of Section 4( l )(b) of the Act.

In the case of Commissioner of Central Excise, Calcutta-II v. TISCO
Ltd, (2004) 174 ELT 307 (SC) (S.N. Variava and Dr. AR. Lakshmanan,JJ.),
H it was held that in order to attract the first proviso to Section 4(l)(a) of the
SACI ALLIED PRODUCTS LTD., U.P. v. C.C.E. [LAKSHMANAN, J.] 901

Act, there has to be an averment and the proof of the existence of a trade A
practice in that trade that the goods are being sold at different prices to
different class of buyers. This Court, further, held that to claim benefit of
proviso to Section 4(l)(a) of the Act, a trade practice must be averred and
shown to exist and it must be shown that there is a different class of buyer$
and only on basis of facts averred and proved, a conclusion can be reached
for
that the sale is to a different class of buyers. This is a condition precedent B
invoking the first proviso to Section 4(1 )(a) of the Act. As already noticed,
neither the show cause notice nor the Collector's order nor the CEGAT order
makes any such averment let alone proving the same with evidence. On this
ground alone the invocation of First Proviso to Section 4(lJ(a) of the Act
must fail. Further, the first proviso to Section 4(l)(a) specifically states that . C
the sale to different class of buyers should not be to related persons. In view
of the specific provision contained in the first proviso to Section 4(1Xa) of
the Act, it is difficult to understand as to how the CEGAT applied this
provision.

In the case ofC.C.E. v. AshokArk, (2005) 179 ELT 513 SC, a Bench D
of S.N. Variava, Dr. AR. Lakshmanan and S.H. Kapadia, JJ. observed as
under:

"6. We are unable to agree with the view expressed by the
Tribunal. The Tribunal has ig~ored the proviso to Rule 173C(ll). It
is true that in cases where, having regard to the nature of the goods E
and frequent fluctuations of the price of the goods, an assessee or
class of assessee may be allowed to declare price of goods on the
basis of the challan and advice note. But those are cases where it is
not possible to determine the value in accordance with Section 4.
Under Section 4, as it then read, the value of the goods is the nonnal F
price, i.e. the price at which the goods are ordinarily sold by an
asses5ee 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. Thus, if it is found that
there is a normal price at which goods are sold at the factory gl)te
then even though earlier the assessee was permitted to clear under G
rule l73C(l I) the re~assessment would be on the basis of the normal
price as determined under Section 4.

7. We are unable to accept the submission that such an
interpretation would negate rule 173C(l I). A Rule cannot override or
·be contrary to a Section. Under Section 4 the normal price has to be H
902 SUPREME COURT REPORTS [2005) 3 S.C.R.

A the value at which the goods are ordinarily sold. Thus clearly Rule
173C(l l) only provides for cases where the nonnal price cannot be
ascertained. In those cases, goods are allowed to be removed on basis
of price shown on the challan or advise note. But the framers of the
rule were careful enough to provide, in the proviso, that if the price
on the challan or advise note does not represent the value as detennined
B. under Section 4 then there can be reassessment.

8. In this case, it could not be shown that the price at the factory
gate could not be determined or that the price at the factory gate was
varying. Thus the assessing authority was right in holding that the
value would have to be determined as per that price. The Tribunal
c was clearly in error in ignoring the proviso."

In the case of Hindustan Polymers Co. Ltd v. Collector ofC.Ex. Guntur,
(1999) 106 E.L.T. 12 SC, th,is Court in paragraph 6 held as under:

"While we appreciate the Tribunal's desire to do complete justice
D and mould the relief in that direction, we think that, in the
circumstances, the Tribunal should not, in this case, have passed an
order which proceeded upon a basis that is altogether different from
that of the demand made upon the appellants. That is not "moulding"
relief. The demand that was made upon the appellants was under
E Tariff Item 68 and it proceeded upon the basis that there was a
process of manufacture of coloured polystyrene from uncoloured
polytyrene. Having come to a conclusion against the Revenue on
these counts, the appropriate order for the Tribunal to have passed
was to have set aside the demand and left it open to the Revenue to
proceed against the appellants, as permissible under the law. The
F appellants would then have had the opportunity of meeting the precise
case made out by the Revenue."

By the impugned order, the appellate Tribunal remanded the matter for
quantification of duty demand. We see merit in this appeal and the appeal is
G allowed and we set aside the impugned order of the Tribunal dated 22.6.1999
in Final Order No. 879/99-A in Appeal No. 1225/95-A. However, there shall
be no order as to costs.

K.K.T. Appeal allowed.