Holding

The Tribunal’s direction to adopt, for each class of bottles, the higher of the appellant’s declared price or the price of comparable bottles of Alembic, is lawful and consistent with the valuation rules.

Summary

M/s United Glass, a bottling unit of the Khoday Group, filed price lists for various bottle types that were deemed far below cost. The excise authorities re‑determined the values under Rule 7 of the Central Excise (Valuation) Rules, 1975, after finding the appellant’s prices unacceptable. The Collector (Appeals) allowed the appellant’s prices, but the Central Excise Tribunal reversed, directing that for each bottle category the higher of the appellant’s declared price or the price of comparable bottles manufactured by Alembic Glass should be adopted. The appellant argued that the Tribunal should have uniformly adopted Alembic’s price for all bottles. The Supreme Court held that Rule 7 is a residuary rule and that the Tribunal correctly applied Rule 6(b)(i), allowing separate valuation for each class of bottles and permitting the adoption of the higher price in each case. Consequently, the appeal was dismissed.

Issues considered

Whether Rule 7 of the Central Excise (Valuation) Rules, 1975 can be applied when valuation is possible under Rule 6(b)(i).
Whether the Tribunal may adopt a dual basis for valuation, i.e., use the appellant’s declared price when it is higher and the price of comparable goods when that is higher, for different categories of bottles.
Whether the Tribunal is required to uniformly adopt the price of comparable goods for all bottle types.

Legislation cited

Central Excise (Valuation) Rules, 1975s. Rule 6(b)(i), s. Rule 7

Subjects

valuationcentral exciseRule 6Rule 7comparable goodsprice determinationbottle manufacturingSection 4(1)Khoday Group

Judgment

MIS. UNITED GLASS, BANGALORE A
v.
COLLECTOR OF CENTRAL EXCISE

JANUARY 5, 1995

[B.P. JEEVAN REDDY AND S.B. MAJMUDAR, JJ.] B

Central Excises & Salt Act, 1944/Central Excise (Valuation) Rules 1975;
S.4(1)-Rules 6,7-Distil/ery-Purchasing bottles from an outside com-
pany-Later setting up a bottling unit-Prices declared by the bottling
unit-Tribunal directing adoption of price approved for the earlier sup- c
plier-Where the price declared by the new unit is higher than the earlier
supplier's, the higher price declared should be adopted-Held, valid.

The appellant is a manufacturing unit within the Khoday Group of
Industries, its holding company being Khoday Distilleries Ltd. The appel-
lant is a division of Khoday Brewing and Distilling Industries Private D
Limited which is also held by Khoday Distilleries Ltd. The bottles re-
quired by this group of industries were purchased from Alembic Glass
lndusties. In 1978, the appellant-unit was established for the purpose of
manufacturing bottles required by the Khoday Group of Industries.

The appellant filed price lists which were approved provisionally by
E
the excise authorities. On scrutiny the authorities found that the value
indicated was much below the cost of production and that the date fur-
nished was vague and incomplete. It was also found that some bottles were
sold to others also. Show cause notices were issued to the appellant,
proposing to re-determine the values of bottles under Rule 7 of the Central F
Excise (Valuation) Rules, 1975 i.e., under clause (b) ofS.4(1) of the Central
Excises and Salt Act. After hearing the appellants, the Assistant Collector
confirmed the values proposed in the show cause notices. The appeal
preferred by the appellant was allowed by the Collector (Appeals). He
directed the Assistant Collector to adopt the sale price charged by the G
appellant to others as the basis and to finalise the value under S.4(1)(a)
of the Act.
;J.

The Collector of Central Excise went in appeal and the Tribunal
allowed the same. It directed that for the period 1.7.1979 to 30.6.1983
wherever the prices declared were lower than that of Alembic for the H
47
48 SUPREME COURT REPORTS [1995] 1 S.C.R.

A comparable bottles, the prices as approved for Alembic should be adopted.

In this appeal, the appellant contended that the Tribunal should
have directed that prices of Alembic alone should be uniformly adopted as
the value of all types of bottles manufactured by the appellant and it could
not have directed the determination on a dual and mutually inconsistent
B basis, viz. Where the prices of Alembic were higher than the prices
declared, the prices of Alembic should be adopted but where the prices of
Alembic were lower, the appellants prices should be adopted.

The respondent contended that where the appellant itself has
c declared higher values it cannot object if those values are accepted.

Dismissing the appeal, this Court

HELD : 1. It is obvious that Rule 7 of the Central Excise (Valuation)
Ru~e, 1975 is in the nature of a residuary rule. It applies only when the
D valuation cannot be determined under the other Rules. The Tribunal has
directed the valuation to be made under Rule 6(b) (i). The said provision is
attracted where the manufacturer does not sell the goods in question but
uses or consumes them himself in the manufacture of other articles. In such
a case, the Rule says, that the value of the comparable goods manufactured
by the assessee or by any other assessee should be adopted. [54-E]
E
2. The bottles manufactured by the appellant are of different values,
i.e., of different sizes and shapes. The value of each type of bottles is
different. Price lists filed by the assessee indicate the value of each type or
category of bottles separately and the authorities too have to determine
p the value of each type/category of bottles separately. Different classes or
categories of goods may call for different method of valuation to be
adopted. If so, there is nothing illegal if the Tribunal directs that in case
of those categories of bottles where the price declared by the appellant is
higher than the price declared by Alembic, the price declared by the
appellant should be adopted. The appellant cannot object if the price
G declared by him is adopted. He cannot say that the price declared by him
for the several classes/ categories of bottles represents a package and that
Revenue must other accept it as a whole or reject it as a whole. Valuation
may have to be done separately for each class/category of bottles. The
manufacturer is expected to declare the price of each class, category or
H type of goods separately for the purpose of valuation and that is what the
UNITED GLASS v. COLLECTOR OF C. EXCISE [JEEVAN REDDY, J.] 49

appellant did indeed. There is thus nothing illegal in what the Revenue has A
done. (54-G-H, 55-A-C]

CIVIL APPELLATE JURISDICTION : Civil Appeal No. 2466 of
1989.

From the Judgment and Order dated 30.1.89 of the Central Customs B
Excise and Gold (Control) Appellate Tribunal, New Delhi in Order No.
29/89-A, E.A. No. 2033/86-A with E-Cross No.400/87-A and E.Misc. No.
59/88-A.

V. Lakshmi Kumaran, A.R.Madhav Rao, T. Ramesh and V.
Balachandran for the Appellant. C
Joseph Vellapally, R. Sasiprabhu and V.K. Verma for the Respon-
dent.

The Judgment of the Court was delivered by
D
B.P. JEEVAi~ REDDY, J. The appeal is preferred against the judg-
ment of the Customs, Excise and Gold (Control) Appellate Tribunal
allowing an appeal filed by the Collector of Central Excise against the
decision of the Collector (Appeals).

The appellant, M/s. United Glass, Bangalore, is not a separate legal
E
entity. It is a manufacturing unit within the Khoday Group of Industries.
Khoday Distilleries Limited (K.D.L) is said to be the holding company.
One of the companies held by K.D.L. was Khoday Brewing and Distilling
Industries Private Limited (K.D.B.1.) of which the appellant is a division.
There is a partnership firm, Khoday, RCA. The partners of the said firm F
are all members of the Khoday family which controls the K.D.L. and
K.D .B.I. The main business of this group of industries is manufacturing and
bottling of beer and other alcoholic liquors.

Until 1978, the bottles required by the said group of industries for
bottling beer and other alcoholic liquors were purchased from Mis. Alem- G
hie Glass Industries which has a plant near Bangalore. In the year 1978,
however, the said group of industries established their own unit for
manufacturing the bottles, the appellant herein. The controversy in this
appeal relates to the determination of the value of the bottles manufactured
by the appellant. The period concerned is July 1, 1979 to June 30, 1983. H
50 SUPREME COURT REPORTS [1995) 1 S.C.R.

A Two price lists were filed by the appellant, one on October 24, 1979
and the other on September 10, 1981. They were approved provisionally.
On scrutiny, the excise authorities found that the value indicated by the
appellant was much below the cost of production and that the data fur-
nished in that behalf was vague and incomplete. It was also found that in
the early years of production, some bottles were sold by the appellant to
B others al~o, besides supplying to the other units in the group. Accordingly,
two show cause notices dated February 8, 1984 and June 16, 1984 were
issued proposing to re-determine the values of the bottles under Rule 7 of
the Central Excise (Valuation) Rules, 1975, i.e., under clause (b) of Section
4(1) of the Act. The show cause notices contained the relevant data in
C support of the valuation which the authorities proposed to adopt. After
hearing the appellant, the Assistant Collector confirmed the values
proposed in the show cause notices. The appeal preferred by the appellant
was, however, allowed by the Collector (Appeals) who directed the Assis-
tant Collector to adopt the sale price charged by _the appellant to others
D as the basis and to finalise the value under Section 4(1)(a) of the Act.
Against the decision of the Collector (Appeals), the Collector of Central
Excise went in appeal to the Tribunal, which allowed the appeal on the
following findings :

(a) That the price declared by the appellant was far below the cost
E price and is totally .unacceptable. The price declared was only a fraction
of the price charged by M/s. Alembic Glass Industries for similar glass
bottles. .

(b) The sales of bottles to others was only of inferior quality and
'reject' bottles. The sale was to dealers in second-hand bottles
F (Kabariwalas) and, therefore, that price cannot be adopted as the basis for
valuation under Section 4(1)(a).

(c) In view of the refusal/failure of the appellant to produce the
relevant data and material called for by the authorities, it must be held that
G the value in this case cannot be determined under Section 4(1)(a). It has
to be done only under Section 4(1)(b). The appropriate rule under which
the valuation has to be determined in this case is Rule 6(b)(i) of the
Valuation Rules.

The appeal was accordingly allowed with the following directions:
H "during the material period (1-7-79 to 30-6-83) wherever the prices
UNITED GLASS v. COLLECTOR OF C. EXCISE [JEEVAN REDDY, J;) 51

declared by the respondents were lower than those of M/s. Alembic for the A
comparahle bottles, the prices as approved for M/s. Alembic should be
'\
adopted as the basis of assessment for the glass bottles manufactured by
the respondents and supplied to other units in the Khoday Group. The
department would be entitled to finalise the assessments on this basis and
make consequential recoveries of duties from the respondents. The respon-
dents are directed to pay the differential duties so demanded forthwith."
B

Sri Lakshmi Kumaran, learned counsel for the appellant submitted
-' that once the Tribunal held that the valuation of the bottles manufactured
by the appellant cannot be done under Section 4(1)(a) but should be done
under Section 4(1)(b) and that the price of comparable bottles manufac- c
tured by Alembic Glass Industries should be taken as the basis, the
Tribunal should have directed that prices of Alembic alone should be
uniformaly adopted as the value of all types of bottles manufactured by the
appellant. It could not have directed the determination on a dual and
mutually inconsistent bases, viz., where the prices of Alembic are higher
..,.., than the prices declared by the appellant, the prices of Alembic should be D
adopted but where the prices of Alembic were lower than the prices
declared by the appellant, the appellant's prices should be adopted. The
learned counsel submitted that the course adopted by the Tribunal is
inequitable besides being illegal. Sri Joseph Vellapally, learned counsel for
the Revenue, on the other hand, justified the approach of t~e Tribunal as E
wholly consistent with the Rules and submitted further that where the
appellant itself has declared higher values, it cannot object if those values
are accepted.

Sub-section (1) of Section 4, which is relevant for our purposes, reads
thus: F

"S.4, Valuation of excisable goods for purposes of charging of duty
of excise. - (1) Where under this Act, the duty of excise is char-
geable on any excisable goods with reference to value, such value,
shall, subject to the other provisions of this section, be deemed to
G
be -
,..
(a) 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 for delivery at the time and place of removal,
where the buyer is not a related person and the price is the sole H
52 SUPREME COURT REPORTS [1995] 1 S.C.R.

A consideration for the sale :

Provided that --

(i) where, in accordance with the normal practice of .the
wholesale trade in such goods, such goods are sold by the
B assessee at different prices to different classes of buyers (not
being related persons) each such price shall, subject to the ·'
existence of the other circumstances specified in clause (a),
be deemed to be the normal price of such goods in relation
to each such class of buyers:
c (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 price, being the maximum, fixed under any such
law, then, notwithstanding anything contained in clause (iii)
D 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 in normal price thereof;

(iii) where the assessee so arranges that the goods are
generally not sold by him in the course of wholesale trade
E
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 related person in the course of
wholesale trade at the time of removal, to dealers (not being
F related persons) or where such goods are not sold to sµch
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 reason, that such goods are not sold or for any· other reason,
G the nearest ascertainable equivalent thereof determined in such
manner as may be prescribed."

Under Section 37 of the Act, the Central Government has framed
the Central Excise (Valuation) Rules, 1975 which govern the valuation of
H excisable goods under Section 4(1)(b). Rules 6 and 7, which are relevant
UNITED GLASS v. COLLECTOR OF C. EXCISE [JEEVAN REDDY, J.] 53

for our purpose, read thus : A

• "R.6. If the value of the excisable goods under assessment cannot
be determined under rule 4 or 5, and -

(a) where such goods are sold by the assessee in retail, the value
shall be based on the retail price of such goods reduced by such B
amount as is necessary and reasonable in the opinion of the proper
officer to arrive at the price at which the assessee would have sold
such goods in the course of wholesale trade to a person other than
a related person :

Provided that in determining the amount of reduction, due c
regard shall be had to the nature of the excisable goods, the trade
practice in that commodity and other relevant factors.

(b) where the excisable goods are not sold by the assessee but are
used or consumed by him or on his behalf in the production or D
..,._ manufacture of other articles, the value shall be based -

(i) on the value of the comparable goods produced and manufac-
tured by the assessee or by any other assessee:

Provided that in determining the value under this sub-clause the E
proper officer shall make such adjustments as appear to him
reasonable, taking into consideration all relevant factors and, in
particular, the difference, if any, in the material characteristics of
the goods to be assessed and of the comparable goods,

(ii) if the value cannot be determined under sub-clause (i), on the F
cost of production or manufacture, including profits, if any, which
the assessee would have normally earned on the sale of such goods;

(c) where the assessee so arranges that the excisable goods are
generally not sold by him in the course of wholesale trade except
G
to or through a related person and the value cannot be determined
under clause (iii) of the proviso to clause (a) of sub-section (1) of
)I

. section 4 of the Act, value of the goods so sold shall be deter-
mined-

(i) in a case where the assessee sells the goods to a related H
54 SUPREME COURT REPORTS [1995) 1 S.C.R.

A person who sells such goods in retail, in the manner specified
in clause (a) of this rule;
4

(ii) in a case where a related person does not sell the goods
but uses or consumes such goods in the production or
manufacture of other articles, in the manner specified in
B clause (b) of this rule;

(iii) in a case where a related person sells the goods in the
course of wholesale trade to buyers, other than dealers and j..
related person, and the class to which such buyers belong is
known at the time of removal, on the basis of the price at .
c which the goods are ordinarily sold by the related person to
such class. of buyers.

R.7. If the value of excisable goods cannot be determined under
the foregoing rules, the proper officer shall determine the value of
D such goods according to the best of his judgment, and for this
purpose he may have regard, among other things to any one or ~

more of the methods provided for in the foregoing rules."

It is obvious that Rule 7 is in the nature of a residury rule. It applies
only when the valuation cannot be determined under the other Rules. The
E Tribunal has directed the valuation to be made under Rule 6(b)(i). The
said provision is attracted where the manufacturer does not sell the goods
in question but uses or consumes them himself in the manufacture of other
articles. In such a case, the Rule says, adopt the value of the comparable
goods manufactured by the assessee or by any other assessee. Sri Lakshmi
F Kumaran also 'agrees that this is the proper Rule applicable though he )>-

arrives at ~his Rule through clause (c) of Rule 6(b). What he contends is
that once the Revenue adopts the value of another assessee manufacturing
similar goods, that alone should be the basis and that the Revenue cannot
adopt or shift to another basis. It is not possible to agree. The submission
of the learned counsel ignores the fact that the bottles manufactured by
G the appellant are of different values, i.e., of differet sizes and shapes. The
value of the each type of bottles is different. Price lists filed by the assessee
indicate the value of each type or category of bottles separately and the ....
authorities too have to determine the value of each type/category of bottles
separately. Different classes or categories of goods may call for different .
H method of valuation to be adopted. If so, there is nothing illegal if the
UNITED GLASS v. COLLECTOR OF C. EXCISE [JEEVAN REDDY, J.] 55

Tribunal directs that in case of those categories of bottles where the price A
declared by the appellant is higher than the price declared by Alembic, the
price declared by the appellant should be adopted. As pointed out rightly
by Sri Vellapally, the appellant cannot object if the price declared by him
is adopted. He cannot say that the price declared by him for the several
classes/categories of bottles represents a package and that Revenue must B
either accept it as a whole or reject it as a whole. As stated above, valuation
may have to be done separately for each class/category of bottles. The
manufacturer is expected to declare the price of each class, category or
type of goods separately for the purpose of valuation and that is what the
appellant did indeed. There is thus nothing illegal in what the Revenue has
done. C
The appeal accordingly fails and is dismissed. No costs.

G.N. Appeal dismissed.

...