Supreme Court of India
THE ASSTT. COLLECTOR OF CENTRAL EXCISEversusBATA INDIA LTD.
- Citation
- 1996 INSC 625
- Decided
- 7 May 1996
- Disposal
- Dismissed
Holding
The exemption cannot be claimed unless the wholesale price actually includes an amount of excise duty payable; otherwise the duty element cannot be excluded from the value under Section 4(4)(d)(ii).
Summary
The Assistant Collector of Central Excise appealed against Bata India Ltd. alleging that the manufacturer could not claim exemption under a notification that exempted footwear valued up to Rs.60 per pair when its wholesale price exceeded that limit. Bata argued that by deducting the 10% excise duty from the wholesale price, the assessable value fell below Rs.60, thereby qualifying for exemption. The Supreme Court examined the meaning of Section 4(4)(d)(ii) of the Central Excises and Salt Act, 1944 and the Explanation added by the Finance Act, 1982, holding that the duty element can be excluded from the wholesale price only when the price actually includes an amount of excise duty payable by the manufacturer. Since the wholesale prices of Rs.62, Rs.64 and Rs.66 were not inclusive of any duty, no deduction was permissible and the exemption could not be claimed. The Court also rejected the contention that the Explanation applies only when there is a variation in the duty rate. Consequently, the appeal was dismissed and the earlier judgment affirming the revenue's position was upheld.
Issues considered
- Whether a manufacturer can claim exemption under a notification when the wholesale price exceeds the exemption limit by deducting the excise duty payable from the price.
- Whether the Explanation to Section 4(4)(d)(ii) of the Central Excises and Salt Act applies only when there is a variation in the rate of duty.
- How the 'effective duty of excise payable' is to be computed for the purpose of valuation under Section 4.
Legislation cited
- Central Excise Rules, 1944s. Rule 8(1)
- Central Excises and Salt Act, 1944s. 4(4)(d)(ii)
- Finance Act, 1982s. Explanation to Section 4(4)(d)(ii), s. Section 47(2)
Subjects
excise dutyexemption notificationvaluationSection 4effective dutywholesale pricefootwearCentral Excise Act
Judgment
A THE ASSTT. COLLECTOR OF CENTRAL EXCISE
v.
BATA !ND!A LTD.
MAY 7, 1996
B [AM. AHMADI, CJ, B.L. HANSARIA AND SUHAS C. SEN JJ.]
Central Excises and Salt Act 1944, S. 4(4)(d)(ii); Central Excis,e Rules
1944, Rule 8( !)-Whether the benefit of exemption given to footwear can be
claimed by the manufacturer even where Oze wholesale pri,ce of the footwear
C exceeds the limit of the exemption specified in the notification-Held, no;
unless it is shown by the manufacturer that the price of the goods includes an
amount of excise duty, no exclusion of the duty element from price for deter-
mination of value under s. 4(4)(d)(ii) arises.
D Under a notification issued under Rule 8(1) of the Central Excise Rules,
1944 ('Rules'), footwear the value of which was up to Rs. 60 per pair was wholly
exempt from excise duty. The respondent-assessee BSL contended that foot-
)Vear manufactured by it, the wholesale prices of\ID.lch after discoUnt etc. were
Rs. 62, Rs. 64 Rs. 66, per pair, would also be fully exempt because the value in
these cases, after deduction of 10% excise duty, would be Rs. 60 or less per pair.
E It was further contended that the explanation to s. 4(4)(d)(ii) of the Central
Excises and Salt Act, 1944 under which the excise duty payahle was the 'effec-
tive duty' payable after accounting for the exemptions available, would apply
only where there was a variation in the rate of duty.
Allowing the appeal, this Court
F
HELD: 1.1. The contention of the assessee that once the excise duty was
taken out from the wholesale price of shoes under the disputed category, the
assessable value would be less than Rs. 60 and that the benefit of the exemption
notification could therefore not be denied, could not be upheld. [427-E]
G 1.2. Unless it was shown by the manufacturer that the price of the
goods included an amount of excise duty payable by him, the question of
exclusion of the duty element from the price for determination of value
under Section 4(4) (d) (ii) would not arise. If a manufacturer included in the
wholesale price any amount by way of tax, even when no such tax was
H payable, then he was including something in the price which was not pay-
424
ASSTT. COLLECTOR OFC.E. v. BATA lNDlALm. [SEN.J.] 425
able as duty at all. He \'t'as increasing the profit clement included in the A
\\'holesale price in another guise. In such a situation, there could not be any
question of deduction of duty payable on the goods frorn the wholesale price
because as a matter of fact, no duty had actuolly been included in the
wholesale price. [431-D, 428-B]
Hindustan Polymers v. Collector of Central Excise, [1989] 4 SCC 323, B
referred to.
Bala, Shoe Co. v. Central Excise, [J 985] 3 SCR 960, explained and
distinguished.
2. The contention of the assessee that the Explanation to s. 4(4)(d)(ii) C
came into operation only when there "'as a variation in the rate of duty could
not be upheld. TI1e object of the statute being clearly to exclude the actual
burden of excise duty from the wholesale price for determining the excisable
value, the construction suggested would defeat such object. [432-H, 434-E]
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 8762 of D
-1994 Elc. Etc.
WITH
Civil Appeal No. 1121, of 1992 Etc. Etc.
E
From the Judgment and Order dated 14.8.91 of the Delhi High Court
in C. W. No. 1900 of 1981)
From the Judgment and Order dated 5.3.93 of the Punjab & Haryana
High Court in W.P. No. 11633 of 1988.
F
V.R. Reddy, Additional Solicitor General, D.A. Dave, H.N. Salve,
Joseph Vcllapally, A.K. Ganguly, Shanti Bhushan, Ms. R. Nath for Khaitan
& Co., (Ravinder Narain, Ashok Sagar, Ms. Amrita Mitra, Rajan Narain,
Ms. So nu Bhatnagar, Amit Bansal) for JED & Co., V.K. Verma, N .K.
Bajpai, A. Subba Rao, T.V.S.N. Chari, Ms. Manik Karanjawala, K.R.
Nambiar, Suman Khatian, Ms. Shalini for Khaitan & Co., V.B. Saharya for G
Saharya & Co., A.K. Goel and H.K. Puri for the appearing parties.
The Judgments of the Court was delivered by
SEN, J. The only point that falls for determination in this appeal is
whether the benefit of exemption given to footwear can be claimed by the H
426 SUPREME COURT REPORTS [1996] SUPP. 2 S.C.R.
A manufacturer even where lhe wholesale price of the footwear exceeds the
limit of the exemption specified in the notification. There can be no dispute
lhal if lhe assessable value calculated according to Section 4 of the Central
Excise and Salt Act, comes upto or below the limit set by the notification,
the assessee will be entitled to the benefit of the notification.
B The notification which was originally issued under sub-rule (1) of Rule
8 of Central Excise Rules, 1Y44 exempted footwear lhe value of which did
not exceed Rs. 5 per pair from the whole of the duty of excise leviable
thereon. The exemption limit of Rs. 5 per pair has been enhanced from time
to time and al lhe materi<tl time, for the purpose of this case, the exemption
was limited to footwear lhe value of which was upto Rs. 60 per pair.
c
Mr. Shanti Bhushan on behalf of the respondent has contended that
if excise duty was payable on these shoes, the amount of excise duty had
to be deducted from the wholesale price in order to determine the asses-
sable value of the shoes which was less than the limit set by lhe exemption
D notification. If this is not allowed, the Department will claim excise duty
even on shoes which would otherwise qualify for benefit of exemption
notification because of the lower value. To illustrate this point, Mr. Shanti
Bhushan has argued that when the exemption notification was limited to
Rs. 60 per pair of shoes, there would be no difficulty in cases where the
wholesale price was upto Rs. 60 or less. There can be no dispute that in
E respect of these types of shoes, no excise duty will be leviable. If the shoes
were priced at Rs. 60 and above, the excise duty will be levied. But, if the
wholesale price was at Rs. 62 o'r Rs. 66, in such a case, after deduction of
excise duty at the rate of 10%, the value of the goods will be in the range
of Rs. 56.36 to Rs. 60.00. Mr. Shanti Bhushan has contended that even in
such cases when by deducting excise duty payable on goods, the value has
F
been arrived at the price of Rs. 60 or less, the question of levying excise
duty will not arise. To demonstrate his argument, he has given a chart :
-
Wholesale price Rale of Duly Deduction on Value as per
after discounts etc. account of duty Section 4
G Rs. 56.00 10% Rs. 5.09 Rs. 50.91
Rs. 58.00 10% Rs. 5.27 Rs. 52.73
Rs. 60.00 10% Rs. 5.45 Rs. 54.55
Rs. 62.00 10% Rs. 5.64 Rs. 56.36
Rs. 64.00 10% Rs. 5.82 Rs. 58.18
Rs. 66.00 10% Rs. 6.00 Rs. 60.00
H
ASSTT.COLLECTOROFC.E. v. BATAINDIALTD. [SEN,J.] 427
Rs. 68.00 10% Rs. 6.18 Rs. 61.82 A
Rs. 70.00 10% Rs. 6.36 Rs. 63.64
Rs. 72.00 10% Rs. 6.55 Rs. 65.45
It was argued that in respect of the first three items of which
wholesale price (after trade discount etc.) was Rs. 56.00, Rs. 58.00 or Rs.
60.00, there was no controversy that these were exempted. There was also B
no controversy in respect of the last three items of which the wholesale
price (after trade discount etc.) was Rs. 68.00, Rs. 70.00 or Rs. 72.00. The
controversy is restricted to the items in the second category, where the
wholesale price after trade discount etc. was in the range of Rs. 62.00, Rs.
64.00 or Rs. 66.00. Jn these cases, if the excise duty element was taken away, c
the value will become Rs. 60.00 or less. Applying rule of valuation laid
down in section 4 of the Act, no duty was payable even on shoes under this
category.
Mr. Shanti Bhushan has contended that if excise duty is payable on D
these shoes, then the duty element has to be deducted from the wholesale
price in order to ascertain the assessable value under Section 4. Once
excise duty at the rate of 10% is taken out from the wholesale price of the
shoes falling under the disputed category, the assessable value would come
to less than Rs. 60.00 and the benefit of exemption notification cannot be
denied to the manufacturer in these cases. E
We are unable to uphold this contention because the normal price
charged by the manufacturer at the time and place of removal of goods lo
the wholesaler is treated by the Act to be the value of the goods. Sub-sec-
tion (l)(a) of Section 4 makes it clear that "such value shall ......be deemed F
to be the normal price,tJ,tereof, 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 .... ". Therefore, the normal wholesale price of the goods must be
deemed to be the value of the goods. It is not necessary to refer to the
various types of prices that may be charged from the buyer set out in the
proviso to Section 4(1)(a). But there cannot be any dispute that excise duty G
will be levied on the value of the excisable goods· and the basic rule is that
th.e normal wholesale. price is the value of the goods. The normal wholesale
price is the cum-duty price which the wholesaler has to pay to the manufac-
turer. The cost of production, estimated profit and the taxes on manufac-
ture and sale of the goods are usually included in the wholesale price of H
428 SUPREME COURT REPORTS [1996] SUPP. 2 S.C.R.
A the goods. It is only because the wholesale price is usually the cum-duty
price that sub-section (4)(d) lays down that 'value' will not include duty of
excise, sales tax and other taxes, if any, payable on the goods. But if a
manufacturer includes in the wholesale price any amount by way of tax,
even when no such. tax is payable, then he is really including something in
the price which is not payable as duty at all. He is really increasing the
B
profit clement included in the wholesale price in another guise. In such a
situation, there cannot be any question of deduction of duty payable on the
goods from the wholesale price because as a matter orfact, no duty has
actually been included in the wholesale price.
C In the chart given by Mr. Shanti Bhushan the controversy relates to
the second category of price-list after discounts etc. But, these prices - Rs.
62.00, Rs. 64.00 or Rs. 66.00 - are not inclusive of any duty. If that be so,
these are the values of goods on which excise duty would be Ieviable in
usual course without any further deduction.
D
Clause (d) of sub-section (4) of Section 4 lays down that 'value' will
include the cost of packing of the goods when the goods are sold in packed
condition in certain cases. Sub-clause (ii) of clause (d) provides that the
value will not include "the amount of duty of excise ............. if any, payable
on such goods." Otherwise, there will be tax upon the amount of tax which
E forms part of the price of the goods. But in a case where the wholesale
price is not inclusive of any duty payable on the goods, then no question
of deduction of any duty for determination of value will arise. Sub-clause
(ii) of clause (d) specifically states that what will not be included in the
value "is the amount of duty of excise, .... .if any, payable on such goods".
F The phrase "if anY' signifies that if no duty is payable, nothing will be
deducted from the wholesale price. It is only when excise duty is actually
payable that the duty element can be excluded from the wholesale price.
Sabyasachi Mukharjee, J. (as his Lordship then was) pointed out in the
case of Hindustan Polymers v. Collector of Central Excise, [1989] 4 SCC 323,
that the two sub-clauses of Section 4(4)(d) dealt with abatements or
G deductions in respect of actual burdens, either by way of an expenditure
or discount, borne by the assessee: lflhe assessee has not allowed any trade
discount, he cannot ask for deduction of the same from his price. If he
does not have to pay any tax as a matter of fact, he cannot ask for it to be
deducted from the wholesale price for calculating the value of the goods.
H In such • case, the normal price, that is the wholesale price will be deemed
ASSTI.COLLECTOR OFC.E. v. BATAINDIALTD. [SEN,J.] 429
to be the value of the goods. A
To revert back to the chart, if value of the goods exclusive of any
duty is Rs. 56.36 or Rs. 58.18 or Rs. 60.00, no duty is payable on such goods
at all. The wholesale price need not be higher than the value of the goods
in such cases. These values are inclusive of profit iniended to be made by
the manufacturer. The manufacturer can sell these goods at the aforesaid
B
prices and enjoy the tax exemption. But if the manufacturer with full
knowledge that no duty is payable when the value of the goods are below
Rs. 60.00, raises the prices to above Rs. 60.00, then he has included in the
wholesale price something which is not the anticipated duty of excise
payable on such goods but an extra amount of profit in another !,'Ilise, c
For the purpose of excise duty, the manufacturer has to submit a
price-list to the excise authority before removal of the goods from the
factory. He has to indicate in the forms and documents relating to assess-
ment, the value of the goods and the amount of duty which will form part D
of the prices at which such goods are to be sold. Costs and estimated
profits are included in the price of the goods, Inclusion of the anticipated
amount of the excise duty in the wholesale price is the last. part of the
pricing mechanism. The manufacturer has to calculate the value on which
duty would be payable, estimate the amount of duty payable and add that
amount to value of the goods to arrive at the wholesale price. It is on the E
value of the goods and not the cum-duty-price that the duty is paid to the
excise authority before the clearance of the goods. If, as in this case, before
adding any amount by way of excise duty, the manufaciurer found that the
value of the footwear was Rs. 60.00 per pair or less, no question of payment
of excise duty could arise. There was no necessity to add anything on p
. account of tax to raise the price of the goods to above Rs. 60.00 per pair.
The wholesale price of Rs. 62.00, Rs. 64.00 and Rs. 66,00 given in the chart
in~luded ·costs, estim.ated profits, etc, but Could not haye included any
amount by way of excise duty because footwear valued upto Rs. 60.00 per
pair was exempt from duty.
G
It has not been explained in the chart Jn:iw fhe Wholesal.e price has
·· •been fixed at Rs. 62.00 or Rs. 64.00 or Rs. 66.00 as inclusive Qf duty. Did
.· thi:se prices contain any amount on account of estimated excise duty
payable ? If so, what were the values on which the manufacturer estimated
the amounts at the duties payable ? For example, if Rs. 62.00 is the price, H
430 SUPREME COURT REPORTS [1996] SUPP. 2 S.C.R.
A the manufacturer will have to explain by giving the break-up, how was this
price fixed. If 10% was the rate of duty and footwear valued upto Rs. 60.00
per pair was exempt from duty, Rs. 6 could not be added to the value for
fixation of the price. If Rs. 66.00 is an ex-duty price, then duty has not been
included in the price. In such a situation, no question of any deduction of
duty from the wholesale price under Section 4(4)(d)(ii) could arise.
B
The construction suggested by Mr. Shanti Bhushan will also defeat
the purpose of the exemption notification. Exemption from duty has been
given to footwear valued at Rs. 60.00 or less per pair. Excise duty is usually
passed on to the consumer by including the duty in the price of the goods.
C The obvious intention behind the notification was to give relief to the
consumers who could not afford to by higher priced footwear. If the
argument on behalf of the manufacturer is upheld, he will be entitled to
sell footwear at a price of more than Rs. 60.00 per pair and yet will be able
to claim the benefit of the exemption notification and not pay any duty. An
D anomalous situation will arise. The consumer will pay ex-duty price of more
than Rs. 60. per pair and bear the brunt of a lax burden which is not
payable by the manufacturer in law. The manufacturer will enjoy the
benefit uf the exemption notification by deducting an amount on account
of non-payable excise duty from the price and thereby make profit in the
guise of payment of tax. At the same time, the revenue will be deprived of
E the duty which is payable on footwear valued at above Rs. 60.00.
If the ex-duty value of the footwear given in the chart was Rs. 60.00
or less, then that should have been the excise value. There could be no
reason for fixing the price at above Rs. 60.00 except for the purpose of
F making a larger profit. A manufacturer at the time of clearance of the
goods has to indicate in all the documents relating to assessment, the
amount of duty which will form part of the price at which such goods are
to be sold. In the instant case, the manufacturer could not have included
any amount by way of excise duty as part of the price of the goods, if the
ex-duty value of the goods was Rs. 60.00 or less per pair. A manufacturer
G has to fix the wholesale price of th.c goods before removal of the goods
from factory. The price will include costs, planned profit and taxes, if any.
If, as in the chart given by Mr. Shanti Bhushan, the ex-duty price of the
footwear manufactured by the Company, after all other permissible adjust-
ments, fell short of Rs. 60.00, there could be no reason for the manufac-
H lurer to price the goods at a rate above Rs. 60.00 by including an amount
ASS1T.COLLECTOROFC.E. v. BATAINDIALID. [SEN,J.] 431
as duty even when no such duty was payable. Sub-section. (1) of Section 4 A
,.
lays down that 'value' shall be deemed to be the normal price which is the
wholesale price of the goods. But, if any amount payable as excise duty or
sales tax formed part of the normal price that will have to be excluded from
the 'value' of the goods under the provision of sub-clause (ii) of clause ( d)
of sub-section ( 4) of Section 4. If the values of the goods as given in the
B
chart were Rs. 60.00 or less, then these values should have been the normal
prices of the goods, that is to say, the prices at which such goods were sold
lo the wholesale market. But, if even in such cases, the wholesale prices
were fixed at Rs. 62.00, Rs. 64.00 or Rs. 66.00, per pair, then these prices
were not inclusive of any tax. In such a situation, provisions of Sections
Section 4(4)(d)(ii) are not attracted al all. The value of the goods shall be C
deemed to be the normal price of the goods under Section 4(1) of the Act
(Rs. 62.00 or Rs. 64.00 or Rs. 66.00 as the case may be).
Unless it is shown by the manufacturer that the price of the goods
includes an amount of excise duty payable by him, no question of exclusion
of the duty element from the price for determination of value under Section D
4(4)(d)(ii) will arise. What the manufacturer has really done in the instant
case is lo increase the profit element in the wholesale price. In the chart
given by Mr. Shanti Bhushan, in the second category the wholesale price
of goods after discounts etc. has been shown lo be Rs. 62.00, Rs. 64.00 and
Rs. 66.00 inclusive of duty at 10%. These are self-contradictory figures. If E
the corresponding ex-duty figures come to Rs. 60.00 or less, then no excise
duty was payable on· the goods. If the ex-duty price of the footwear
manufactured by the Company fell short of Rs. 60.00 per pair, then by
virtue of the exemption notification no duty was payable on the goods. In
such a situation, a manufacturer could not include in the price of the goods
any amount by way of excise duty. F
Any doubt about this position m law has been dispelled by the
Explanation added by Act 14of1982 to sub-clause (ii) of clause (d) which
is as under :
11 G
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 of -
(a) the effective duty of excise payable on such goods under
this Act; and H
432 SUPREME COURT REPORTS [1996] SUPP. 2 S.C.R.
A (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 such goods,
and the effective duty of excise on such goods under each Act
referred to in clause (a) or clause (b) shall be, -
B
(i) in a case where a notification or order providing for any
exemption (not being an exemption for giving credit with respect
Lo, or reduction of duty of excise under such Act on such goods
equal to, any duty of excise under such Act, or the additional duty
c under Section 3 of the Customs Tariff Act, 1975 (51 of 1975),
already paid on the raw material or component parts used in the
production or manufacture of such goods from the duty of excise
under such Act is for the time being in force, the duty of excise
computed with reference to the rate· specified in such Act in
respect of such goods as reduced so as to give full and complete
D effect to such exemption; and
(ii) in any other case, the duty of excise computed with reference
to the rate specified in such Act in respect of such goods."
The Explanation makes it clear that the amount of duty of excise on
E any excisable goods shall only be the effective duty of excise payable as
defined under the Act. Therefore, before deducting any amount claimed
to be payable on account of excise duty, it has to be seen what is the duty
of excise in force at the material point of time. Any notification granting
exemption will have to be taken into account; full and complete effect to
F such notification will have to be given. In the instant case at the material
point of time, there was a notification granting exemption from duty to a
pair of footwear upto the value of Rs. 60.00. This means that if the value
of a pair of shoes came to Rs. 60.00 or less no excise duty was leviable; it
was not open to the manufacturer to claim any deduction on account of
G any duty which was not payable.
We are unable to uphold the contention of Mr. Sh;mti Bhushan that
the Explanation to Section 4(4)(d)(ii) comes into operation only when
there is a variation in the rate of duty and not otherwise. The duty of excise
under Schedule I of the Act was imposable on various bases. It could be
H imposed unitwise as in T.l. 33 AA (Parts of Wireless Receiving Sets) or
ASSTI. COLLECTOR OF C.E. v. BATA INDIA LTD. [SEN, J.] 433
lengthwise as in T.I. 37 (Cincmatograph Films) or on the basis of weight A
as in the case of T.I. 25 (Iron in any Crude Form). The duty has to be
calculated at the rates prescribed in the Schedule on the basis of number
of units, length or weight or some other basis, as laid down in the Schedule.
When the duty is imposed ad valorem, calculation of duty at the prescribed
rate will have to be made on the basis of the value of the goods Section 4 B
deals with value of excisable goods where the duty of excise is chargeable
with reference to value. It has nothing to do with the rate of duty. Sub-
clause (ii) of sub-section ( d) of Section 4 lays down the 'value' will not
include the amount of duty of excise, if any, payable on such goods. This
is a rule of valuation. What is the amount of duty excise payable will
depend on this valuation. The Explanation has been inserted "for the
c
• purpose of this sub-clause" i.e. sub-clause (ii). The a_mount of excise duty
payable has been explained to be the effective duty of excise payable on
such goods, in other words, not the duty of excise calculated in the manner
laid down in Schedule I only. Regard must be had to any relief or abate-
ment of duty given by any statutory notification or order. It has been made D
clear by the Explanation that if a notification or order providing for any
exemption from duty of excise under the Act is in force, full and complete
effect to such exemption will have to be granted for the purpose of
computation of the value. "The duty of excise computed with reference to
the rate specified" has to be calculated first. Thereafter the duty of excise E
so computed will have to be reduced in accordance with the exemption
notification. For example, if duty on 'Footwear'' is 10 per cent ad valorenz
per pair then the duty payable on Footwear valued at Rs. 60 will be Rs. 6.
Since there is a notification exempting Footwear valued upto Rs. 60 per
pair from duty, under the Explanation or even otherwise the dutiable
F
amount of Rs. 6 will have to be reduced in terms of the exemption
notification. To give full and complete effect to exemption, the taxable
amount will have to be reduced to nil. The argument of Mr. Shanti Bhushan
that the Explanation is attracted only when the rate of duty is reduced is
not supported either by clear words of the Explanation or by necessary
implication. The amount of duty payable has to be computed by reference G
to the rate of duty in force on the value of the Footwear. The duty payable
may be reduced by any notification or order b,- lowering the rate of duty
or by exempting any excisable goods from duty wholly or in part. The
Explanation \Vill apply to every case '\vhere a notification or order provid-
ing for exemption from the duty of excise under such act is for the tin1e H
434 SUPREME COURT REPORTS [1996] SUPP. 2 S.C.R.
A being in force" and not only to a case where the rate of duty is lowered.
The effective duty of excise on the notified goods shall be the duty of excise
computed with reference to the specified rate in the First Schedule "as
reduced" so as to give full and complete effect to such exemption. "As
reduced" in this context means the duty of excise as reduced by a notifica-
tion granting exemption.
B
There is yet another way of looking at the problem. The notification
by exempting footwear upto the value of Rs. 60 from duty of excise has not
removed "footwear" from the list of excisable goods in the first schedule.
It has in effect reduced the ad va/orcm duty of 10 per cent payable on such
c footwear upto the value of Rs. 60 to nil.
The construction suggested by Mr. Shanti Bhushan will lead to
anomaly and should be avoided. It will have to be held that "the amount
of duty payable, if any" in sub-clause (ii) of clause (d) will mean the amount
D of duty payable as computed in accordance with the provisions of the First
Schedule which will stand reduced only when relief if granted by reduction
in the rate of duty and not otherwise. "A notification or order providing
for exernption11 in the Explanation \Vill have to be read as a notification or
order granting exemption by reduction in the rate of ad va/orem duty only.
The object of the statute is clearly to exclude the actual burden of excise
E duty from the wholesale price for determining the value of any excisable
good. The construction suggested by Mr. Shanti Bhushan will defeat the
object of the statute altogether.
The asscssee has adopted a scheme which can easily be seen through.
F After valuing the footwear at less than Rs. 60.00, he has fixed the price at
above Rs. 60.00. He is entitled to make as much profit as he can. But he
has tried to claim deduction of a part of the profit as excise duty payable
for the goods. In order to claim this deduction, the assessee will have to
show that the 'value' of the goods became more than Rs. 60.00 per pair
because of inclusion of excise duty. If that cannot be done, there is no
G question of deducting any duty payable on the goods manufactured by the
assessee. The conundrum spoken of by Mr. Shanti Bhushan docs not exist.
Once the principle underlying the mechanism of valuation of excisable
goods is borne in mind, this becomes a straightf01ward case. No intriguing
conundrum perplexes our mind. We can easily behold what lies behind the
H assessee's scheme.
ASS1T. COLLECTOR OFC.E. v. BATAIND!ALTD. [SEN,J.J 435
Strong reliance was placed on behalf of the assessee on the decision A
of this Court in the case of Bara Shoe Co. v. Central Excise, [1985) 3 SCR
960, and particularly, on the passage below :
- "..... .It is, therefore, plain that before determining the question of
availability of the exemption under Notification dated July 24, 1967,
the first essential step is to determine the 'value' of the article in B
the manner prescribed in Section 4 of the Act. The fact that on
such a computation the article may ultimately be found to be
exempted from excise duty does not have any bearing on the
question of applicability of Section 4 of the Act for determining
the 'value', for purpose of duty." c
Section 4 has undergone drastic changes since this case \Vas decided.
The concept of effective duty of excise was also not there at that time.
; The appeal is, therefore, allowed. The judgment dated 5th March,
1993 passed by the Punjab and Haryana High Court is set aside. There will D
be no order as to costs.
CA No. IJ21 of 1992
SEN, J. This appeal raises the question as to the scope and effect of
the Explanation to Section 4(4)(d)(ii) of the Central Excises and Salt Act, E
1944 (hereinafter referred lo as 'the Act'). The Explanation was added to
clarify what would be the amount of duty which had to be deducted from
the wholesale price for arriving at the assessable value of goods. The Delhi
High Court in the case of!. T.C. Limited & Anr. v. Union of India, (1987)
30 E.L.T. 321, took the view that by virtue of the Explanation only that
amount of duty which was actually paid by the assessee after gi\ong effect F
to various exemption notifications would qualify for deduction.
The contention of the appellant is that during the period in dispute,
duty of excise was leviable under the Act at the rates specified in the First
Schedule to the Act. Under Rule 8 of the Central Excise Rules, 1944 G
(hereinafter referred to as 'the Rules') the Central Government had power
to issue notifications for exempting the amount of duty of excise leviable
on goods to the extent mentioned in such notifications. The Central
Government had issued a series of notifications under which exe1nption
was granted from levy of duty of excise. The language of the notifications
provided that the goods specified in the notification shall be exempted H
436 SUPREME COURT REPORTS [1996) SUPP. 2S.C.R.
A 'from so much of duty of excise leviable thereon as in excess of .... ' the
specified amount. The contention of the assessces is that on a trne inter-
pretation of the notifications, the assessable value has lo be determined
first and the notification has to be applied thereafter.
This controversy has been dealt with in a large number of cases
B before the amendment of Section 4 of the Act. The Delhi High Court in
the case of Modi Rubber Limited v. Central Board of Ercise and Customs,
iLR (1978) 2 Delhi 352, held that from the language of the notification it
appeared that the duty of excise leviable and the assessable value of the
goods had to be determined first, the relief under the notification had to
be given thereafter. According to the appellant, the notifications exempted
c goods from 'so much of duty of excise leviable thereon' as was specified.
In order to determine the extent of the exemption, it was necessary to
determine 'the excise duty leviable' in the first instance. In a case where
the price is inclusive of Excise Duty (cum-duty price) the amount of excise
duty leviable under the Act has to be deducted from the cum-duty price
D in order to determine the assessable value. This is done without applying
the notification. Therefore, before giving effect to the notification and
before determining lhe extent of exemption available thereunder, 1t is
necessary to finally determine the 'assessable value' as well as 'excise duty
leviable'. This method of determining the assessable value has been ac-
cepted by this Court in the case of Bata (India) Limited v. Union of India,
E [1985] 3 sec 97.
After these cases were decided, major changes have been brought
about in the Central Excise Act. The controversy about the quantum of
deduction of duty from wholesale price for lhe purpose of computation of
value under Section 4 of the Act has been set at rest specifically by the
F Explanation added lo Section 4(4)(d)(ii) by the Finance Act, 1982 with
retrospective effect from 1.10.1975. Section 4( 4)( d)(ii) with the added
Explanation now stands as under :
(d) "value in relation to any excisable goods.-
G (i) xx xx
(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)
ASS1T.COLLECTOROFC.E. v.BATAINDIALTD.[SEN,J.] 437
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 purpose of ihis sub-clause, the amount of
the duty of excise payable on any excisable goods shall be the sum
total of: B
(a) the affective 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 levy of duties of excise c
on such goods,
and the effective duty of excise on such goods under each Act,
referred to in clause (a) or sub-clause (b) shall be -
(i) in a case where a notification or order pro,iding for any D
exemption (not being an exemption for giving credit with
respect to or reduction of excise on such goods equal to
any duty of excise 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 E
for the time being in force, the duty of excise computed
with reference to the rate specified in such Act in respect
of such goods as reduced so as to give full and complete
effect to such exemption; and
(ii) in any other case, the duty of excise computed with refer- F
ence to the rate specified in such Act, in respect of such
goods.
The legislative intent is quite clear. The Explanation has been
brought into effect from 1.10.1975. By virtue of sub-section (2) of Section G
47 of the Finance Act, 1982, all actions taken during the period 1st
October, 1975 to 27th February, 1982 have been deemed to have been
taken for all purposes as validly and effectively taken or done as if the
Explanation was in force. This will have the effect notwithstanding anything
contained in any judgment, decree or order of aQy court, tribunal or other
authority. There is no reason to assume that the law laid down in the earlier H
438 SUPREME COURT REPORTS (1996] SUPP. 2 S.C.R.
A judgments which had been rendered before the amendments were made
to Section 4 will continue to be in force and operative notwithstanding the
amendments made in Section 4 with retrospective effect.
The Explanation makes it clear that the amount which will have lo
be taken out from the wholesale price of the goods for purpose of ascer-
B taining value of any excisable goods shall be the sum total of the effective
duty of excise payable on such goods under the Central Excise Act and the
aggregate of the effective duties of excise payable under other Central
Acts. Therefore, when Section 4( 4)( d)(ii) lays down that 'value' does not
include the amount of duty of excise, if any, payable on such goods, an
C enquiry will have lo be made as to the amount of the effective duty of
excise, which is actually payable on the goods and not merely lcviable in
accordance with the rates prescribed in the schedule. The newly added
Explanation makes it clear that for the purpose of Section 4(4)(d)(ii), the
calculation for "the amount of duty of excise, if any, payable on such goods"
D will not be on the basis of the rate given in the schedule only, blll also after
taking into account any notification or order providing fur exemption from
the duty of excise under the Act. The ad vulorem duty leviable by the
Central Excise Act will have to be calculated according to the rate
prescribed in the schedule for the specified goods. But the amount so
calculated is not payable as duty but will have to be reduced in terms of
E the notification in order to give full and complete effect to the notification.
By virtue of Rule 8 of the Central Excise Rules, the Central Government
has been empowered to exempt any excisable goods from the whole or any
part of duty leviable on such goods.
F The contention of Mr. Salve is that this notification granted relief
from 'so much of the duty of excise leviable thereon ... as is in excess of
seventy five per cent of such duly'. The notification envisaged ascertain-
ment of the base year of clearance. What \Vas produced in excess of the
base year qualified for exemption. The language used in these notifications
makes it clear that the amount of duty payable according to the First
G Schedule to the Central Excise Act on the excisable goods "111 have to be
calculated first. Thereafter, if other conditions laid down in the notifica-
tions were fulfilled, then for the quantum of the excess production only,
seventy five per cent of such duly had lo be paid. In effect, Mr. Salve has
contended that the amendments have not really brought about any effective
H change in the manner of calculation of the "amount of excise duty" payable
ASSIT. COLLECTOR OF C.E. v. BATA INDlA LTD. [SEN, J.j 439
under Section 4(4)(d)(ii). A
This contention is not borne oul by lhe language of the Section and
also the notification. It is of significance that lhe notification seeks to
exempt the excisable goods 'from so much of lhe duty of excise /eviab/e
... thereon ...... as is in excess of seventy five per cent of such duty'. Section
4(4)(d)(ii) speaks of the amount of excise duty payable. Whal is to be
B
excluded from 'value' is only lhe amount of duty which is payable. The
entire amount which is otherwise leviable under the Central Excise Act will
not be payable because of the exemption from duly granted in lhe notifica-
tion. No question can arise of deduction in the first.instance of the amount
which is not payable from the wholesale price for determination of the C
assessable value. Having regard lo the language of Section 4(4)( d)(ii) and,
in particular, the Explanation added thereto and also to the language of
the notilication, we are unable to uphold the contention of Mr. Salve that
the assessment of excise duty must be in two. stages. In lhe firsl stage, the
excise duty calculated in accordance with the rate given in the schedule D
must be deducted from the wholesale price even though this amount is nol
payable at all. The relief under the notification will have lo be calculated
only thereafter. Although this was the interpretation given in various judg-
ments before the amendme~t of Section 4, the position has radically
changed after the amendment. It is only the amount of excise duty which
is payable, that is to say, the.effective duty of excise which can be deducted E
under Section 4(4)(d)(ii).
The language of notification No. 198 76-C.E. dated 16th June, 1976
\Vas:
F
"In exercise of the powers conferred by sub-rule (1) of rule 8 of
the Central Excise Rules, 1944, the Central Government hereby
exempts the excisable goods of the description specified in column
_(3) of the Table hereto annexed (hereinafter referred to as the
specified goods) and falling under such Item Number of ihe First
Schedule to the Central Excises & Salt Act, 1944 (1 cir 1944), as G
are specified in the corresponding entry in col.umn (2) of the said
Table and ckared from one or more factories in excess of the base
clearances by or 011 behalf of a manufacturer, from so much of the
duty of exeise leviable thereon under the said Item as is in excess
of seventy five per cen.t of such duty, ..... 11 H
440 SUPREME COURT REPORTS [1996] SUPP. 2 S.C.R.
A Section 4(4)( d)(ii) provides that 'value' in relation to any excisable
goods will not include the amount of duty of excise, if any, payable on such
goods. The duty payable on such goods must be the actual amount of duty
the assessee has to pay and not any hypothetical figure. The Explanation
has put this beyond doubt by specifically providing that if there is a
notification providing for any exemption from the duty of excise under the
B Central Excise Act, then the amount of the duty of excise payable under
sub-clause (ii) of clause (d) will be the amount computed with reference
to the rates specified in the Act as reduced by the exemption notification ..
In the instant case, the exemption notification provides that if the
C other conditions laid down in the notification are fulfilled, then the goods
cleared from the factory of the assessee which are in excess of 'base
clearances' by the assessee will be exempt from 'so much of the duty of
excise leviable thereon ...... as is in excess of seventy five per cent of such
duty'. Therefore, the excess production will bear excise duty only to the
D extent of seventy five per cent of what would have been otherwise payable
by the assessee, under the Act calculated according to the rate prescribed
in the Schedule.
The contention of Mr. Salve that the calculation will have to be made
in two stages is not supported by the wording of the Explanation. A clear
E distinction has been drawn in the section between the amount of duty
leviable and the amount of duty payable. 'Value' will not include the
amount of duty of excise which is payable. This amount has to be calculated
on the basis of the duty levied under the Act and also after taking into
account any relief from duty given by any order or notification issued by
F the Government. The resultant figure is the amount of duty of excise which
is payable and deductible from the wholesale price. There is nothing in the
Act to suggest that the 'value' has to be calculated by deducting in the first
place the tax leviable under the Act, from the wholesale price. Thereafter,
a second valuation on the basis of the notification will have to be made.
The Explanation clearly states that the duty of excise computed with
G reference to the prescribed rate in the schedule will have to be reduced
"so as to give full and complete effect to such exemption'. If the amount
of duty calculated according to the schedule became smaller by virtue of
the notification, then the only way to give full and complete effect to the
notification is to take only the smaller amount in reckoning for the purpose
Ji of determination of value in Section 4(4}(d)(ii). Whatever may have been
ASSIT. COLLECTOR OF CE. v. BATAINDIALTD. [SEN,J.] 441
the position before the amendment of the Act, the in \t.iew of the Explana- A
-'. tion to clause (d)(ii), the 'value' in Section 4(4)(d)(ii) can no longer be
computed by reference only to the Act and the Schedule without taking
into consideration the exemption notification.
In the case of!. T.C. Limited & Another v. Union of India & Others, B
(1987) 30 E.L.T. 321, (Delhi) at p. 339, it was observed, and in our opinion
rightly:
"At the time of the earlier decisions, the Act and the notification
were in two watertight compartments; the Act was first applied c
and, from the duty computed, an exemption was granted. This
involved three stages : One, the determination of the assessable
value; two the computation of the amount of duty payable under
the Act; and three, the calculation of the. amount of exemption.
Once the exemption operated the duty payable in effect became D
smaller and this may have an impact on the assessable value if it
could be redetermined but there was no statutory language which
authorised the authorities to go back again to redetermine the
assessable value and that had been determined already. The statute
and notification operated successfully in three different stages of
calculation and the High Court could find no reason to intertwine E
them into one another so as to make such.. a redetermination of
the assessable value possible or n~cessary. The amendment has
altered the position by expressly integrating.and incorporating the
effect of the notification in the statute. The assessable value can
no longer be computed by reference only to the Act .and schedule F
without taking into consideration· the effect of a notification under
rule 8, where it exists. This is made doubly clear by amending the
definition of the word assessable 'value' and clarifying that, for this
purpose duty payable would be the effective duty payable after
taking the notification into account. This definition vitally alters G
the first stage of computation which was' easily done under the Act
earlier without any reference to the notification. Though the terms
of the notifications under rule 8 remain unaltered, the inclusion of
a reference to the notification in Section 4 itself has made the
notification a material part of that section which can no longer be
interpreted without re_ference to the notification." H
442 SUPREME COURT REPORTS (1996] SUPP. 2 S.C.R.
A In view of the above and also in view of our decision in the case of
77ie Asstt. Collector of Central Excise & Ors. v. Bata India Ltd., Civil Appeal
No. 8762 of ~994 Gudgment delivered earlier on this date), this appeal is
dismissed. The judgment under appeal is affirmed. There will be no order
as to costs.
B Civil Appeals Nos. 1965/86, 1966/86, 1967/86, 2328/86, 1059/81
2393-2409/80, 1052/81, 285/88, 285/88, 2155/87, 1415-16/86, 8178/95,
8263/95 and Civil Appeals Nos. 7848, 7852 of 1996 (Arising out of
S.L. Ps. (C) Nos. 5881/86, 5882/86).
Special leave granted in S.L.P.(C) Nos. 5881 and 5882 of 1986.
c
For the reasons given in these two cases (Civil Appeal Nos. 8762 of
1994 and 1121 of 1992), the above appeals are dismissed. There will be no
order as to costs.
S.M. Appeals dismissed.
Search Indian case law
Ask in plain English, not just keywords. 25,000 AI words free, no card.
Try "excise duty"Sign in to search