# THE GOVT. OF INDIA AND ORS. ETC v. '

- **Citation:** [1995] 3 S.C.R. 1143
- **Court:** Supreme Court of India
- **Decided:** 1995-05-03
- **Case number:** Civil Appeal No. 3195 of 1979
- **Bench:** B.P. Jeevan Reddy, Suhas C. Sen, G.T. Nanavati
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/the-govt-of-india-and-ors-etc-v-12928
- **Pages:** 54

## Headnote

B
Central Excises and Salt Ac~ 19#-S. 4(1)(a) read with s.4(2)--Determination of assessable value-Post-removal expenses, deduction of-Goods
sold in course of wholesale trade not at place of removal but at depots outside
factory gate-Held, expenses in maintaining depots cannot be deducted from C
price; cost of transportation, cost of insurance on freight deductible.
Central Excises and Salt Act 19#-S.4(4)(d)(i)--Determination of
assessable value-Post-removal expenses, deduction of-<:ost ofpackingHeld, is liable to be included in the value if such packing is necessary for
putting the excisable article in condition in which sold in wholesale market.
D
Central Excises and Salt Ac~ 19#-S.4(4)(d)(ii)--Determination' of
f
assessable value-Post-removal expenses, deduction of-Trade dis-
.counts-Whether 'Tyre Adjustment Committee' (TAC)/WlllTanty discount is
a trade discount that is deductible-Held, no; is only a claim for refund by E
buyer for manufacturing defect in goods . .
Central Excises and Salt Act, 19#-S.4(4)(d)(ii)--Determination of
assessable value-Post-removal expenses; deduction of-Trade discounts-7'1ssessee granting dealers one per cent turnover discount on half
yearly basis depending on volume of purchases made by dealer-Held, is a F
discount known and understood at time or removal and hence deductible. .
Central Excises and Salt Ac~ 19#-S.4(4)(d)(ii)--Determination of
assessable value-Post-removal expenses, deduction of-Trade discount.s-Assessee granting dealers year-ending discount and p,rompt payment
discounHfeld, deductible since this system of discount is prevalent in the G
industry.
Central Excises and Salt Ac~ 19#-S.4(1)(a)--Determination of assessable value-Post-removal expenses, deduction oHnterest on fmished
goods-Held, not deductible.
H
1143
1144
SUPREME COURT REPORTS
(1995] 3 S.C.R.
A
Central Excises and Salt Act, 1944-S.4( 1)( a}-Determination of assessable value-Post-removal expenses, deduction of-interest on receivables--Held, being amount received subsequent to sale from the depots is
excludible from value and hence deductible
Central Excises and Salt Act, 194<f-S.4(l)(a) read with s.4(4)(d)(ii)
B Explanation II-Computation of assessable value in a cum-duty price-Held,
decision in Assl Coll. of Central Excise v. Madras Rubber Factory, represents
co"ect view.
Words and Phrase~'Post-manufacturing expenses'-Held, is a legally
C inaccurate expression; post-removal expenses is more apt.
Consequent upon the judgment in Union of India & Ors. v. Bombay
Tyre international Ltd., (1984] 1 SCR 34, where this court enunciated the
principle governing the interpretation of S.4 of the Central Excises and
Salt Act, 1944 ('Act'), the Assistant Collectors (Central Excise) forwarded
D to this court orders allowing certain claims of the assessees for deductions
while disallowing certain others. The appeals were initially disposed of by
this court Assistant Collector of Central Excise & Ors. v. Madras Rubber
Factory Limited & Ors., (1987) 2 E.L.T. 553 but subsequently restored for
hearing after the Review Petition by the Revenue was allowed.
E
F
MRF claimed that in respect of sales made at depots outside the
factory gate, the price charged included the charges for transportation as
also the expenses incurred in maintaining the depots apart from insurance
and storage charges. Since these were post-removal expenses ought to be
deducted from the price charged at the depot to arrive at the price charged
at the place or removal in the course or wholesale trade. Alternative, the
department could accept the price at which MRF sold its goods to the
government at the factory gate as the normal price or all goods.
The Revenue disputed the deduction allowed to MRF in respect of
special secondary packing for tread rubber, Tyre Adjustment Committee
G (TAC)/ Warranty discount, one per cent turnover discount, year-ending
and prompt payment discount. Hindustan Lever's claim for deduction in
I
respect or 'outer packing' or cartons and cardboar

## Text

_Characters 0–39,759 of 128,537. This is a partial read: ask again with offset=39759 for what follows._

THE GOVT. OF INDIA AND ORS. ETC.
A
v.
'
I
THE MADRAS RUBBER FACTORY LTD. ETC.
.
MAY 3, 1995
[B.P. JEEVAN REDDY, SUHAS C. SEN, G.T. NANAVATI, JJ.]
B
Central Excises and Salt Ac~ 19#-S. 4(1)(a) read with s.4(2)--Determination of assessable value-Post-removal expenses, deduction of-Goods
sold in course of wholesale trade not at place of removal but at depots outside
factory gate-Held, expenses in maintaining depots cannot be deducted from C
price; cost of transportation, cost of insurance on freight deductible.
Central Excises and Salt Act 19#-S.4(4)(d)(i)--Determination of
assessable value-Post-removal expenses, deduction of-<:ost ofpackingHeld, is liable to be included in the value if such packing is necessary for
putting the excisable article in condition in which sold in wholesale market.
D
Central Excises and Salt Ac~ 19#-S.4(4)(d)(ii)--Determination' of
f
assessable value-Post-removal expenses, deduction of-Trade dis-
.counts-Whether 'Tyre Adjustment Committee' (TAC)/WlllTanty discount is
a trade discount that is deductible-Held, no; is only a claim for refund by E
buyer for manufacturing defect in goods . .
Central Excises and Salt Act, 19#-S.4(4)(d)(ii)--Determination of
assessable value-Post-removal expenses; deduction of-Trade discounts-7'1ssessee granting dealers one per cent turnover discount on half
yearly basis depending on volume of purchases made by dealer-Held, is a F
discount known and understood at time or removal and hence deductible. .
Central Excises and Salt Ac~ 19#-S.4(4)(d)(ii)--Determination of
assessable value-Post-removal expenses, deduction of-Trade discount.s-Assessee granting dealers year-ending discount and p,rompt payment
discounHfeld, deductible since this system of discount is prevalent in the G
industry.
Central Excises and Salt Ac~ 19#-S.4(1)(a)--Determination of assessable value-Post-removal expenses, deduction oHnterest on fmished
goods-Held, not deductible.
H
1143
1144
SUPREME COURT REPORTS
(1995] 3 S.C.R.
A
Central Excises and Salt Act, 1944-S.4( 1)( a}-Determination of assessable value-Post-removal expenses, deduction of-interest on receivables--Held, being amount received subsequent to sale from the depots is
excludible from value and hence deductible
Central Excises and Salt Act, 194<f-S.4(l)(a) read with s.4(4)(d)(ii)
B Explanation II-Computation of assessable value in a cum-duty price-Held,
decision in Assl Coll. of Central Excise v. Madras Rubber Factory, represents
co"ect view.
Words and Phrase~'Post-manufacturing expenses'-Held, is a legally
C inaccurate expression; post-removal expenses is more apt.
Consequent upon the judgment in Union of India & Ors. v. Bombay
Tyre international Ltd., (1984] 1 SCR 34, where this court enunciated the
principle governing the interpretation of S.4 of the Central Excises and
Salt Act, 1944 ('Act'), the Assistant Collectors (Central Excise) forwarded
D to this court orders allowing certain claims of the assessees for deductions
while disallowing certain others. The appeals were initially disposed of by
this court Assistant Collector of Central Excise & Ors. v. Madras Rubber
Factory Limited & Ors., (1987) 2 E.L.T. 553 but subsequently restored for
hearing after the Review Petition by the Revenue was allowed.
E
F
MRF claimed that in respect of sales made at depots outside the
factory gate, the price charged included the charges for transportation as
also the expenses incurred in maintaining the depots apart from insurance
and storage charges. Since these were post-removal expenses ought to be
deducted from the price charged at the depot to arrive at the price charged
at the place or removal in the course or wholesale trade. Alternative, the
department could accept the price at which MRF sold its goods to the
government at the factory gate as the normal price or all goods.
The Revenue disputed the deduction allowed to MRF in respect of
special secondary packing for tread rubber, Tyre Adjustment Committee
G (TAC)/ Warranty discount, one per cent turnover discount, year-ending
and prompt payment discount. Hindustan Lever's claim for deduction in
I
respect or 'outer packing' or cartons and cardboard boxes for their soaps
~-
was disallowed by the Assistant Collector. Tata Chemical Claimed deduction in respect or cost or packing or the goods in jute and polythe11e bags
H as well as drums.
t
GOVT. OFINDIAic MADRAS RUBBER FACTORY LTD.
1145
Partly allowing the appeals, this Court
A
HELD : 1.1. Where the goods are sold in the course of wholesale
trade at place or places outside the place of removal, i.e., at depots, the
expenses incurred in maintaining and running the said depots cannot be
deducted from the price but the cost of transportation along with the c.ost
of insurance on freight can be deducted as held in Bombay Tyre lntema- ll
tional. [1170-E]
1.2 The only deduction permissible in such a situation is the one
expressly provided by the sub-section and no other. Where the freight is
averaged and the average freight is included in the wholesale case price so C
that the wholesale cash price at any place or places outside the factory gate
is the same as the wholesale cash price at the factory gate, the average
freight included in such wholesale cash price has to be deducted in order
to arrive at the real wholesale cash price at the factory gate and no excise
duty can be charged on such average freight. (1169-C, El
1.3. So far as depot sales are concerned, they are to a different class
of buyers and the price charged to each such class of buyer would be the
normal price. No direction can be given to the authorities to adopt the
price at which the assessee sells its goods to the government as the price
in respect of its total sales.
Union of India & Ors. v. Bombaj Tyre International Ltd. , [1984] 1
SCR347 and Union of India & Ors. v.Bombay Tyre International Pvt., (1984) ·
17 E.L.T. 329, followed.
D
E
Assistant Collector of Central Excise & Ors. v. Madras Rubber Factory
Limited & Ors., [1987] 2 E.L.T. 553 and Union of India & Ors. v. Duphar F
lnteifran Limited, (1987) 27 E.L.T. 599, explained and harmonised.
Assistant Collector of Central Excise & Ors. v. Madras Rubber Factory
Limited & Ors., (1989) 2 SCR 817; Vacuum Oil Company v. Secretary of
State for India in Council, L.R. 59 I.A. 258; Ford Motor Company of India G
Ltd. v. Secretary of State for India in Coundl, 65 I.A. 32; A.K Roy & Anr. v.
Voltas Ltd., [1973) 2 SCR 1089 and Attic Industries Limited v. H.H. Dave,
Assistant Collector of Central Excise & Ors., [1975) 3 SCR 563, referred to.
2.1 The test is whether the packing, the cost whereof Is sought to be
included, Is olfe in which It Is ordinarily sold in the course of a wholesale H
1146
SUPREME COURT REPORTS
[1995] 3 S.C.R.
A trade to the wholesale buyer. If such packing is necessary for putting the
excisable article in the condition in which it is generally sold in the
wholesale market at the factory gate, then its cost is liable to be included
in the value of the good; and if it is not, the cost of such packing has to be
excluded. (1170-C]
B
Union of India & Ors. v. Bombay Tyre Intemational Ltd., [1984] 1 SCR
347 and Unio11 of India & Ors. v. Godfrey Philips India Limited, [1985]
Suppl. 3 SCR 123, explained and harmonised.
Geep lnd~strial Syndicate Ltd. v.Union of India, (1992) 62 E.L.T. 328;
Collector of Central Excise v. M/s. Ponds India Ltd., [1989] 4 SCC 759 and
C Hindustan Polymers v. Collectors of Central Excise, [1989] 3 ·scR 974,
referred to.
2.2. On the findings recorded by the Assistant Collector disallowing
the plea of Hindustan Lever the only conclusion that can follow is that the
D cost of the cartons/cardboard boxes cannot be excluded frotp the value of
the goods. The judgment in Assistant Collector of Central Excise & Ors . • v
Madras Rubber Factory Limited & Ors., that secondary special packing
charges for tread rubber cannot be deducted from the assessable value Is
the correct one and needs no departure. The question in Union of India v.
Tata Chemicals, whether the bags of jute and drums are durable and
E therefore, their cost is deductible is essentially a question of facL The
· matter \\ill go back to the Assistant Collector who shall decide the question.
[1181·Gl
3.1. TAC/Warranty discount Is not a trade discount within the mean·
ing of Section 4(4)(d)(ii). It is only a claim for refund by the buyer for the
F manufacturing defect in the tyre sold by the assessee, which Is being
honoured by the assessee in a manner acceptable to both the parties.
[1185·H, 1186-A]
G
Union of India & Ors. v. Bombay Tyre International Ltd., (1984] 1 SCR
347, followed.
3.2. One percent turnover discount is known and understood at the
time of removal of the goods though it Is quantlfted later. This claim was
rightly allowed by the Assistant Collector. [1187·C]
3.3. Year-ending discount and prompt payment discount are
H prevalent in the industry and known and understood at the time of removal
GOVT. OFIND!Av. MADRAS RUBBER FACTORY LTD.
1147
of particular goods, though the amount is quantified later. This claim has A
I
been rightly allowed by the Assistant Collector. [1188•C]
· 4. Interest on finished goods is expenditure incurred by the assessee
upto the date of delivery on account of storage charges and cannot be
deducted. Interest on receivables is the amount received subsequent to the
sale from the depots and does not fall within the ambit of any of the B
expenses held lncludlble in Bombay Tyre International, It Is clearly ex·
cludlble. The claim for this deduction Is, therefore, allowed. (1191-C)
Union of India & Ors. v. Bombay Tyre International Ltd., (1984] 1 SCR
347.
S. The method of computation of assessable value In a cum-duty
price, shall be the one indicated in Para 22 of the Judgment in Assistant
Collector of Central Excise & Ors. v. Madras Rubber Factory Limited & Ors.,
which represents the correct view. (1191-E]
c
6. The principles enunciated in Bombay Tyre International do estab· D
llsh that the expression 'post· manufacturing expenses' Is not only legally
inaccurate but Is also likely to lead to some confusion. The expression
'post-removal expenses' may be a more apt expression but even this expres·
sion may not be quite a correct expression. (1162-E, Fl
E
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3195 of
1979 Etc. Etc.
From the Judgment-and Order dated 20.6.79 of the Kerala High Court
in WA No. 302 of 1978.
M. Chandersekbaran, Additional Solicitor General, Barish N. Salve, F
A.B. Diwan, Soli J. Sorabjee, F.S. Nariman, C.S. Vaidyanathan, A. Sobba
Rao, V.J. Francis, M. Gauri Shankar, N.K. Bajpai, V.K. Verma, C.V. Sobba
Rao, P. Parmeshwaran, K. Vasudev, Ms. A. Subhashini, Krishna Kumar,
Darshan Singh, Ms. Malini Sud, S.K. Gambhir, Vivek Gambhir, Ms. M.
Grover, P.H. Parekb, S. Faz!, Ms. P.S. Shroff, Ms. Monika Sharma, S.S. G
Shroff, S. Ganesh, Ravinder Narain, Rajan Narain, Ms. Amrita Mitra, Ms. S.
Bhatnagar, Rajiv Dutta, M.K. Michae~ Raju K. Lukose, K.R. Nambiar, S.C.
Sharma, K.V. Mohan, Mr. T.V.S.N. Chari, Sri Narian, K.J. Johan, Mohan Lal
Verma, H.K. Pur~ K.C. Dua and N.K. Aggarwal for the Appearing parties.
The Jndgment of the Court was delivered by
H
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SUPREME COURT REPORTS
[1995] 3 S.C.R.
A
B. P. JEEVAN REDDY, J. Leave granted in S.L.P. (C) Nos. 10108 of
1980 and 4041 of 1981.
Having enunciated the principles governing the interpretation of
Section 4 of the Central Excise and Salt Act, as it stood before and after
the Amendment Act XXIJ of 1973 in Union of India & Ors. v. Bombay Tyre
B Intematiimal Ltd. & Ors., [1984] 1 S.C.R. 347, tthis Court (the bench
comprising P.N. Bhagwati, R.S. Pathak and A.N. Sen, JJ.) took up individual cases for disposal on May 3, 1984. The appeals and petitions were
allowed under what are called 'format orders' and the matters remitted to
assessing authorities with a direction to quantify and re-determine the
permissible deductior_.s in accordance with the law enunciated by them in
C their opinion in Bombay Tyre International as clarified in Union of India &
Ors. v. Bombay Tyre International Pvt. Ltd., [1984) 17 E.L.T. 329. Certain
other directions were also given with respect to the manner in which the
assessing authorities were to proceed in the matter of determing the value
to which it is not necessary to refer at this stage. The Assistant Collectors
D (Central Excise) accordingly passed orders allowing certain claims for
deductions and rejecting certain others. In terms of the format orders, the
assessing authorities forwarded the orders of assessment made by them to
this court along with the objections filed by the assessees in each cash. The
Revenue too filed certain objections. The matters were posted before a
Bench of this Court comprising P.N. Bhagwati, C.J. and V. Khalid, J. for
E finally determining and deciding several issues arising between the parties.
F
By their judgment dated December 20, 1986, the Bench disposed of the
appeals, Assistant Collector of Central Excise & . Ors. v. Madras Rubber
Factory Limited & Ors., (1987) 2 S.L.T. 553. Contending that the said
judgment is not in accord with the judgment in Bombay Tyre Intemationa~
the Revenue filed review petitions, which came to be allowed by a bench
comprising R. S. Pathak, C.J. and L.M. Sharma, J. on May 1, 1989 reported
in 1989 (2) S.C.R. 817. By this order, the judgment and order dated
December 20, 1986 was recalled and the appeals restored to their original
number. It was directed that the appeals be listed again for fresh consideration. It is pursuant to the order dated May 1, 1989 that these appeals have
G now come up before us for final disposal.
SECTION 4 AS IT STOOD BEFORE THE AMENDMENT ACT
XXII OF 1973 AND AS IT STANDS NOW:
Prior to the Amendment Act XXII of 1973, which came into force
H
with effect from October 1, 1975, Section 4 read thus :
'"·
(
<
GOVT. OF INDIA v. MADRAS RUBBERFACTORY LID. (B.P. JEEV AN REDDY, J.J 1149
"4. Determination of value for the purposes of duty. - Where under A
this Act, any article is chargeable with duty at a rate dependent
on the value of the articl~, such value be deemed to be
(a) the whole sale cash price for which an article of the like
kind and quality is sold or is capable of being sold at the time
of the removal of the article chargeable with duty from the
B
factory or any other premises. of manufacture or production
for delivery at the place of manufacture or production, or if
a wholesale market does not exist for such article at such
place,at the nearest place where such market exists, or
(b) where such price is not ascertainable, the price at which C
an article of the like kind and quality sold or is capable of
being sold by the manufacturer or producer, or his agent, at
the time of the removal of the article chargeable with duty
fro~ such factory or other premises for delivery at the place
of manufacture or production or if such article is not sold or D
is not capable of being sold at such place, at any other place
nearest thereto.
Explanation - In determining the price of any article under this
section no abatement or deduction shall be allowed except in
respect of trade discount or amount of duty payable at the time of E
the removal of the artiC:e chargeable with duty from the factory or
other premises aforesaid."
This section was practically a re-production of Section 30 of the Sea
Customs Act, 1878 which was the subject matter of two decisions of the
Privy Council in Vacuum Oil Company v. Secretory of State for India in F
council, (L.R. 59 I.A. 258) and Ford Motor Company of India Limited v.
Secretory of State for India in Council, (65 IA 32). Section 4 itself was the
subject matter of two decisions of this Court in A.K. Roy & Anr. v. Vol/as
Limited, (1973) 2 S.C.R. 1089 and Alic Industries Limired v. H.H. Dove,
· Assistant Collector of Central Excise & Ors., (1975] 3 S.C.R. 563. The G
Government of lndia felt that the operation of Section A (~Id) presented
certain practical difficulties some of which, according to it, were highlighted in the decision of this Court in Voltas Limited. With a view to
overcome the said difficulties in the working of the section, it felt· it
necessary to suitably revise the provisions contained in Section 4. Accordingly, it introduced a Bill in the Parliament seeking to substitute the existing H
1150
SUPREME COURT REPORTS
[1995] 3 S.C.R.
A Section 4 altogether. The Statement of Objects and Reasons appended to
the Bill (which later became the Amendment Act XXII of 1973) stated
under inter alia: ' in order the overcome the various difficulties experienced
in the working of the section it is proposed to suitably revised the valuation
provision contained in section 4 of the Act, providing, as far as practicable,
for assessment of excisable goods at the transaction value, except in ~reas
B where there may be scope for manipulation (such as sales to or through
related persons) and making specific stipulations with respect of situations
frequently encountered in the sphere of valuation'. Section 4, as substituted
by the said Amendment Act, reads thus :
c
D
E
F
G
H
"4. Valuation of excisable goods for purposes of charging of duty
of excise .- (1) Where under this Act, the duty of excise is 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 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 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
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;
(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)
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;
\
(
oovr. OF INDIM. MADRAS RUBBER FACTORY LID. (B.P. JEEV AN REDDY, J.)
1~51
(iii) Where the assessee so arranges that the goods are A
.., f
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 related person in the course of B
wholesale trade at the time of removal, to dealers (not being
related persons) or .lVhere such goods are not sold to such
dealer, to dealers (being related persons) who sell such goods
._._,...
in retail;
(b) where the normal price of such goods is not ascer- c
tainable for the reason, that such goods are not sold or for
any other reason, the nearest ascertainable equivalent thereof
determined in such manner as may be prescribed.
(2) Where, in relation to any excisable goods the price thereof for D
delivery at the place of removal is. not known and the value thereof
..
is determined with reference to the price for delivery at1 a place
..
other· than the plai:e of. removal, the cost of transportation from
the place . of removal to the place of delivery shall be excluded
from such price
E
(3) The provisions of this section shall not apply in respect of any
excisable gods for which a tariff value has been fixed under subsection (2) of Sec. 3.
~ -
( 4) For the purpose of this Section, --
F
(a) "assessee" means the person who is liable to pay the duty
of excise under this Act and includes his ageni;
(b) "place of removal" means --
(i) a factory or any other place or premises of production or G
•-',
manufacture of the excisable goods; or
(ii) A warehouse or any other place or premises wherein the
excisable goods have been permitted· to be deposited without
payment of duty, from where goods are removed;
H
1152
A
B
c
D
E
F
G
H
SUPREME COURT REPORTS
[1995] 3 S.C.R.
( c) "related person" means a person who is so associated with
the assessee that they have interest, directly or iodirectly, io
the busioess 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" and "relative" have the same meaniogs as io the
Companies Act 1956 (1 of 1956);
( d) "value'', io 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 packiog except
the cost of the packiog which is of a durable nature and is
returnable by the buyer to the assessee.
Explanation. - In this sub-clause, "packiog" means the wrapper, contaioer, bobbio, pirn, spool, reel and warp beam or
any other thiog io which or on which the excisable goods are
wrapped, contained or wound;
(ii) does not ioclude 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
discount not beiog refundable on any account whatsoever)
allowed in accordance with the normal practice of the
wholesale trade at the time of removal io respect of such
goods sold or contracted for sale;
[Explanation added by Fioance Act, 1982 omitted as not
necessary for the purposes of this case,]
(e) "wholesale trade" means sales to dealers, industrial consumers, Government, local authorities and other buyers, who
or which purchase their requirements other wise than io
retail."
A reading of Section 4 lends itself to the following analysis:
Where the duty of excise is chargeable on excisable goods with
(
GOVf. OF INDIA v. MADRAS RUBBER FACTORY LID. (B.P. JEEV AN REDDY, J.j 1153
reference to their value, the normal price at which such goods are A
' i
sol~ shall be deemed to be the value of such goods subject to other
provisions of Section 4.
"Normal price" means the price at which'such goods are ordinarily sold by the assessee to a buyer in the course of wholesale
B.
trade for delivery at the time and place of removal. If, however,
the buyer is a 'related persons" and the priced is not the sole
consideration for the sale, the price cannot be treated as the
__ ...
11normal price
11
• In the case of sale to or through "related person",
normal price shall be determined as provided in proviso (iii) to
Section 4(1).
c
It is, however, not necessary that there should be one uniform
normal price for all the goods sold by an assessee. There may be
cases where the goods are sold by the assessee at different prices
to different classes of buyer (not being, of course, related persons).
In such a case, the price charged to each class of buyers shall be D
deemed to be the normal price of such good in relation to each
such class of buyers, subjec~ of course, to the existence of other
circumstances specified in clause (a).
Where, however, the goods are sold in the course of wholesale E
trade for delivery at the time and place of removal at a price fixed
under any law in force or where the law has specified the maximum
price, the price so fixed or the maximum price so specified, as the
case may be, shall be deemed to be the normal price of such goods.
"
~
Where, however, the assessee generally sells his goods in the F
course of wholesale trade only to or through a related person, the
normal price shall be deemed to be the price at which such related
persons sells the said goods in the course of wholesale trade at the
time of removal to the dealers (not being related persons). [Since
this Rule is not relevant for our purposes, we are not stating the G
Rule fully.]
If the normal price of excisable goods is not ascertainable for
the reason that the goods are not sold or for any other reason, the
value of such excisable goods (i.e., the nearest ascertainable
equivalent) shall be determined in the manner prescribed by rules H
1154
SUPREME COURT REPORTS
(1995) 3 S.C.R.
A
(Valuation Rules).
Where the price of any excisable goods at the place of removal
'
is not known and, therefore, the value of such goods is determined
with reference to the price charged at a place other than the place
of removal, the cost of transportation from the place of removal
B
to the place of delivery shall be excluded from such price.
The provisions of Section 4 do not, however, apply in respect
of any excisable goods for which tariff values are fixed under
sub-section (2) of Section 3.
c
"Place of removal" means (i) a factory or any other place or
premises where the excisable goods are produced or manufaclured; (ii) a warehouse or any other place or premises where any
excisable goods have been permitted to be deposited without
payment of duty according to rules and from where such goods
D
are removed.
"Value" includes the cost of packing where the goods are
delivered at the time of removal in a packed condition. "value" does
_,
not, however, include the cost of packing which is of a durable
nature and is returnable by the buyer to the assessee. "Packing"
E
shall be understood as defined in the explanation to Section
4(4)(d)(i).
"Value" does not include the amount of duty of excise, sales tax
and other taxes, if any, payable on such goods.
F
"Value" does not also include, subject to such rules as may be
•
"
made, trade discount allowed in accordance with the normal practice of the wholesale trade at the time of removal of such goods.
To qualify as a trade discount, the discount should not be refundable on any account whatsoever,
G
11Wholesale trade
11 means sales to dealers, industrial consumers,
government, local authorities and other buyers who purchase their
requirements otherwise than in retail.
Inasmuch as it is agreed before us by all the parties - with which
H submission we are in agreement - that the law enunciated by this Court in
(
GOVT. OF INDIA•. MADRAS RUBBER FACTORY LID. [B.P. JEEVANREDDY,J.J 1155
Bombay Tyre International represents the correct interpretation of Section A
4, both old and new, we do not think it necessary either to tefer to the
decisions of the Privy Council or of this Court referred to above. Indeed
all the relevant decisions rendered till then have been considered in the
said decision. We shall, therefore, proceed to ascertain the principles
enunciated in the said decision.
The main issue, referred to as
11central issue", in that case was
"whether the value of an article for the purposes of the excise levy must be
determined by reference exclusively to the manufacturing cost and the
manufacturing profit of the manufacturer or should be represented by the
entire wholesale charged by the manufacture." This question arose in the
context of the fact that "the wholesale price actually charged by the
manufacturer consists of not merely his manufacturing cost and his
manufacturing profit but includes, in addition, a whole range of expenses
and an element of profit (conveniently referred to as "post-manufacturing
expenses" and "post-manufacturing profit") arising between the completion
B
c
of the manufacturing process and the point of sale by the manufacturer." D
The contention of Sri N.A. Palkhivala, learned counsel for the assessees
was that the duty of excise has three essential characterstics, viz., (1) it is
a tax on manufacture or production and not on any thing else; (ii) uniformity of incidence is a basic characterstic of the duty of excise; and (iii)
exclusion of post manufacturing expenses and post-manufacturing profits
is necessarily involved in the first principle and helps to achieve the second.
On the other hand, the contention of Sri K. Parasaran, learned Solicitor
General/Attorney General of India, who appeared for the Union of India,
was that "the value of. an excisable article for the purposes of the levy must
be taken at the price charged by the manufacturer on a wholesale transaction, the computation being made strictly in terms of the express provisions
of the statute ..... ( and that) there is no warrant for confining the value to
the assessee's manufacturing cost plus manufacturing profit". According to
him, "though the duty of excise is a levy on the manufacture of goods, it
E
F
was open to Parliament to adopt any basis for determining the value of an
excisable article, that the measure for assessing the levy need not correspond completely to the nature of the levy and (that) no fault can be G
found with the measure so long as it bears a nexus with the charge."
·-'
In the course of their judgment, the learned Judges laid down the
following principles:
(a) In enacting new Section 4, Parliament did not intend to bring into H
1156
SUPREME COURT REPORTS
[1995J 3 S.C.R.
A
existence a scheme of valuation different from that embodied in the old
Section 4. The object and purpose remained the same as also the central
principle at the heart of the scheme. The new Section 4 embodies a much
more comprehensive and clearly enunciated scheme for the determination
of the real value of an excisable article.
B
(b) While the levy in our country has the status of a constitutional
concept, the point of collection is located where the statute declares it will
be. The measure adopted cannot be identified with the nature of the tax.
The measure employed for assessing a tax must not be confused with the
nature of the tax. While the levy of a tax is defined by its nature, the
C measure of the tax may be assessed by its own standard. While the measure
of the levy may indicate the nature of the tax, it does not necessarily
determine it. Hence, the Legislature, while enacting a measure to serve as
a standard for assessing the levy need not contour it along the lines which
spell out the character of the levy itself.
D
(c) The contention that the duty of excise can be and must be levied
only on manufacturing cost and manufacturing profit is unacceptable. "In
both the old Section 4 and the new Section 4, the price charged by the
manufacturer on a sale by him represents the measure. Price and sale are
related concept and price has a definite connotation. The 'value' of the
excisable article has to be computed with reference to the price charged
E by the manufacturer, the computation being made in accordance with the
terms of Section 4."
(d) The normal price mentioned in new Section 4(1)(a) is the priced
at which the goods are ordinarily sold by the assessee in the course of
wholesale trade. It is the wholesale price charged by him. This is also the
F scheme underlying old Section 4.
G
(e) The value of excisable goods determined under new Section
4(1)(a) may very according to certain circumstances, a fact evident from
the three clauses in the proviso appended to clause (a) of sub-section (1).
(I) The phrase "that is to say" following the expression "normal price"
in new Section 4(1)(a) make it clear that normal price is 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 consideration for the
H
sale.
(
GOVT. OF INDIA•·. MADRAS RUBBER FACTORY LTD. (B.P. JEEVAN REDDY, J.( 1157
(g) The deductions specifically mentioned in Section 4 may not be A
i
exhaustive. The question "whether any further deductions can be claimed
beyond those already mentioned in the statute will depend on the nature
of those claims in the case of a particular assessee."
It would be appropriate to set out the purpose of Section 4, both old
B
and new, as summarised in the judgment :
"(i) The price at which the excisable 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 as defined in sub-section (4)(b)
of Section 4 is the basis for determination of excisable value c
provided, of course, the buyer is not a related person within the
meaning of sub-section ( 4)( c) of section 4 and the price is the sole
consideration for the sale. This proposition is subject to the terms
of three provisos to sub-section (l)(a) of section 4;
(ii) Where the price of excisable goods in the course of wholesale D
trade for delivery at the time and place of removal cannol be
ascertained for the reason that such goods are not sold or for any
other reason, the nearest ascertainable equivalent thereof determined in the manner prescribed by the Central Excises (Valuation)
Rules, 1975 should be taken as representing the excisable value of
E
the goods;
(iii) Where wholesale price of any excisable goods for delivery at
the place of removal is not known and the valne thereof is determined with reference to the wholesale price for delivery at a place .
other than the place of removal, the cost of transportation from F
the place of removal to the place of delivery should be excluded
from such price;
(iv) Of course, these principles cannot apply where the tariff value
has been fixed in respect of any excisable goods under sub-section
(2) of Section 3."
G
(While setting out the summary, we have omitted the paras relating to the
---l
meaning of the expression 'related person', since it is not necessary for the
purpose of the present appeals.)
The Court then took up the question whether any post- manufactur- H
1158
SUPREME COURT REPORTS
[1995] 3 S.C.R.
A
ing expenses are deductible from the price while determming the value of
an excisable article. Since this aspect is crucial to the issues arising herein,
it is necessary to examine this portion of the judgment with great care.
Pathak, J. observed in the first instance, that while old Section 4 provided
by its Explanation that in determining the price of any article under that
B section, no abatement or deduction would be allowed except, in respect of
trade discount and the amount of duty payable at the time of the removal
of the article chargeable with duty from the factory or other premises
aforesaid, the new Section 4 specifically provides for certain deductions.
The learned Judge mentioned the deductions claimed by the assessees in
those matters as :
c
(1) Storage charges.
(2) Freight or other transport charges, whether specific or
equalised.
D
(3) Outward handling charges, whether specific or equalised.
E
F
(4) Interest on inventories (stocks carried by the manufacturer
after clearance.)
( 5) Charges for other services after delivery to the buyer.
( 6) Insurance after the goods have left the factory gate. ·
(7) Packing charges.
(8) Marketing and Selling Organisation expenses, including advertisement and Publicity expenses."
The learned Judge then mentioned the "two broac' bases" put forward
by the learned counsel on the basis of which the said deductions were
claimed, viz., (a) that in determining the value of an excisable article, all
expenses must be excluded which do not enter into the formula of manufacG turing cost plus manufacturing profit (an echo of the main contention of
Sri Palkhivala, which was rejected by the Court) and (b) that the price at
the factory gate and the. price at the depot outside the factory gate are
identical. The learned Judge then made the following observations which
are of particular relevance to the issues arising herein :
H
"Now, the price of an article is related to its value (using this term
~. -
(
GOVT. OFINDJA,, MADRAS RUBBER FACTORY LTD. [B.P. JEEVAN REDDY, J.J 1159
in a general sense), and into that value have poured several ,.\
i
components, including those which have enriched its value and
given to the article its marketability in the trade. Therefore, the
expenses incurred on account of the several factors which have
contributed to its value upto the date of sale, which apparently
would be the date of delivery, are liable to be included. ConseB
quently where the sale is effected at the factory gate, expenses
incurred by the assessee upto the date of delivery on account of
storage charges, outward handling charges, interest on inventories
(stocks carried by the manufacturer after clearance), charges for
,.. __ ,,,..
other services after delivery to the buyer, namely after-sales service
and marketing and selling organisation expenses including advertise- c
ment expenses cannot be deducted. It will be noted that advertisement expenses, marketing and selling organisation expenses and
after-sales service promote the marketability of the article and
enter into its value in the trade. Where the sale in the course of
wholesale trade is effected by
the assessee through its sales D
organisation at a place or places outside the factory gate, the
exi{enses incurred by the assessee upto the date of delivery under
l
the aforesaid heads cannot, on the same grounds, be deducted. But
the assessee will be entitled to a deduction on account of the cost
of transportation of the excisable article from the factory gate to
the place or places where it is sold. The cost of transportation will E
include the cost of insurance on the freight for transportation of
the goods from the factory gate to the place or places of delivery."
(Emphasis supplied)
"
F
The learned Judge added :
"Where freight is averaged and the averaged freight is included in
the wholesale cash price so that the wholesale cash price at any
place or places outside the factory gate is the same as the wholesale
cash price at the factory gate, the averaged freight included in such G
wholesale cash price has to be deducted in order to arrive at the
--1
real wholesale cash price at ,the factory gate and no excise duty
can be charged on it."
The learned Judge then took up the issue of packing. After referring H
1160
SUPREME COURT REPORTS
[1995) 3 S.C.R.
A to sub-clause (i) of clause ( d) of sub-section ( 4) and the explanation
appended to the said sub-clause, the learned Judge observed, "the packing
of which the cost is included is the packing of which the goods are
wrapped, contained or wound when the goods are delivered at the time of
removal. In other words it is the packing in which it is ordinarily sold in the
B course of wholesale trade to the wholesale buyer." (Emphasis added) The
learned Judge referred to the fact that the degree of packing will vary from
one class of articles to another and to the concept of primary and secondary packings and observed :
c
D
E
F
"We must remember that while packing is necessary to make the
excisable article marketable the statutory provision calls for strict
construction because the levy is sought to be extended beyond the
manufactured article itself. It seems to us that the degree of secondary packing which is necessary for putting the excisable article in
the condition in which it is generally sold in the wholesale market
the factory gate is the degree of packing whose cost can be included
in the "value" of the article for the purposes of the excise levy. To
that extent, the cost of secondary packing cannot be deducted
from the wholesale cash price of the excisable article at the factory
gate.
11
(Emphasis supplied)
The learned Judge appended a clarificatory note to the above statement to the effect, "if any special secondary packing is provided by the
assessee at the instance of a wholesale buyer which is not generally
provided as a normal feature of the wholesale trade, the cost of such
packing shall be deducted from the wholesale cash price".