# UNION OF INDIA & ORS. ETC. ETC.· v. BOMBAY TYRE INTERNATIONAL LTD. ETC. ETC

- **Citation:** [1984] 1 S.C.R. 347
- **Court:** Supreme Court of India
- **Decided:** 1983-10-07
- **Case number:** ; Civil Appeal No. 2269 of 1980
- **Bench:** P.N. Bhagwati, R.S. Pathak, Amarendra Nath Sen
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/union-of-india-ors-etc-etc-v-bombay-tyre-international-ltd-etc-etc-8484
- **Pages:** 48

## Headnote

.
.
Central ExciseS and Salt A.ct, 1944 (1 of 1944)-0/d s. 4 prior to and new
s. 4 after a1nendment by the .Cen1ral Excises and Salt (An1endn1ent) Act, 1973
(22 ~! 1973) ..:...interpretation of-Sectioll val(dly enacted-Scheme and o/Jjeci of
olds. 4 and news. 4 are sa1ne. ~Mode of deterndning value of an article/or e:Xcise
leVy-Vcilue-Whether can be confined to manufacturing cost and manufacturing
profit only-Whether pos.t ma11ufact1irlng,eXpenses like freight,· insurance and
packinK etc.- can be iiicluded in the value of article.
, . Central Excises and Salt Aci, 1944-S. 4 (4) (c)-De/in1tion of "relate<!
person"-SCope of. Definition not unduly wide-DoeS not suffer from constitutional
A
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infirmity . . Words "a relative and a distributOr of tire Assessee" dO not· refer to
D.
any distributor but only to a distributor who is a relative of the asses.see wirhln the
meaning of the Companies Act, 1956 •
Central Excises arid Salt Act, f944-S. 4 (4) (d)-'Value'~Definition of-
.scope of. Pqcking-Primary, secorfary and special secondary-Cost of sPecia/
secpndary packing to be excludedfro111 WJl,ue.
""-
Constitution of India Art. 246, Schedule 7, List J. Eniry 84-Concept of
duty of excise-What is.
Sub-s~c .. (1) of sec. 3 of the Central Excises and Salt Act, 1944 provided'
that duties of excise shall be levied and collected on all excisable goods, other
than salt which were· produced or 1nanufactured in India at the rates set.for.th
in the First Schedule. Sub-sec. (2) of sec. 3 empoWered the Central Government
to fiX, for the pμrpose of le\•ying the duties, tariff values of ihe articles
· cnumerate.d jn the First Schedule as chargeable with duty ad valoren1. Section· 4
of the ACt prodded that the value of an article for the purposes of duty shall
be {a) the w4olesale cash price for which an article of the like kir.d and quality
was sold oi- was capable of being sold at the time removal of the article
chaJ.geable with duty froln .the factory' or any other premises of inanufacture
or production for dClivery at the -place of manufacture or production or
(b} where
1such price was not ascertainable, the 'price at which ari
article of the like kind ·and quality was sold or. was capable of being sold
at the time of the removal of the article ch"argeable with duty from such
factory or other pr'emises for deli.very at the place of manufacture or prodUction.
With the increase in· the ad• valoren1 levies in the Central Excise Tariff .the
oPeration 9f sec. 4 presented certain practical difficulties, sOme of which were
prominently brought out in the judgment of this Court in A.K. Roy dnd Anr. v.
Valtas Ltd., [1973] 2 S.C1R:. 1039 .. In ~hat case, the Coμrt. ilf:ier alia said th~t
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b.
348
SUPREME COURT REPORTS
(1984i I S.C.R.
the real value of an article for the purposes of the excise levy would include
only the manufacturing cost plus manufacturing profits. In o~der to overcome
various difficulties, the original sec. 4 of the Act was . substituted by a new
sec. 4 by Act 22 of 1973. The new sec. 4 provided that the v3.lue of an article
for the purposes of duty shall, subject to the other provisions of this section,
be deemed. to b_e the normal price thereof that is to say, the price at which such
goods were ordinarily sold by the asscssee to a buyer in the course of wholesale
trade for delivery at the .time and placC of remov'aJ, where the buyer was not a
related persOn and_ the price was the sole consideration for the sale and where
,,the normal price of such g0ods was not ascertain~ble for the reason that such
'goods were not sold or for any other reaSon, the nearest asFertainable equiva ..
lent thereof determined in such manner as may be prescribed. Clauses (c) and
(d) Of s:ib .. sec. (4) of sec. 4 defined "related pc;;rson" and ''value•: respectively.
The Central issue which arose between the Revenue and the assessees
in these appeals was whi':ther the value of an article for the purposes of the
excise levy must be determinC

## Text

_Characters 0–39,874 of 124,919. This is a partial read: ask again with offset=39874 for what follows._

+
.., ..
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347
UNION OF INDIA & ORS. ETC. ETC.·
v.
BOMBAY TYRE INTERNATIONAL LTD. ETC. ETC.
October 7, 1983
[P.N. BHAGWATI, R.S. PATHAK AND AMARENDRA NATH SEN, JJ.)
.
.
Central ExciseS and Salt A.ct, 1944 (1 of 1944)-0/d s. 4 prior to and new
s. 4 after a1nendment by the .Cen1ral Excises and Salt (An1endn1ent) Act, 1973
(22 ~! 1973) ..:...interpretation of-Sectioll val(dly enacted-Scheme and o/Jjeci of
olds. 4 and news. 4 are sa1ne. ~Mode of deterndning value of an article/or e:Xcise
leVy-Vcilue-Whether can be confined to manufacturing cost and manufacturing
profit only-Whether pos.t ma11ufact1irlng,eXpenses like freight,· insurance and
packinK etc.- can be iiicluded in the value of article.
, . Central Excises and Salt Aci, 1944-S. 4 (4) (c)-De/in1tion of "relate<!
person"-SCope of. Definition not unduly wide-DoeS not suffer from constitutional
A
8
G
infirmity . . Words "a relative and a distributOr of tire Assessee" dO not· refer to
D.
any distributor but only to a distributor who is a relative of the asses.see wirhln the
meaning of the Companies Act, 1956 •
Central Excises arid Salt Act, f944-S. 4 (4) (d)-'Value'~Definition of-
.scope of. Pqcking-Primary, secorfary and special secondary-Cost of sPecia/
secpndary packing to be excludedfro111 WJl,ue.
""-
Constitution of India Art. 246, Schedule 7, List J. Eniry 84-Concept of
duty of excise-What is.
Sub-s~c .. (1) of sec. 3 of the Central Excises and Salt Act, 1944 provided'
that duties of excise shall be levied and collected on all excisable goods, other
than salt which were· produced or 1nanufactured in India at the rates set.for.th
in the First Schedule. Sub-sec. (2) of sec. 3 empoWered the Central Government
to fiX, for the pμrpose of le\•ying the duties, tariff values of ihe articles
· cnumerate.d jn the First Schedule as chargeable with duty ad valoren1. Section· 4
of the ACt prodded that the value of an article for the purposes of duty shall
be {a) the w4olesale cash price for which an article of the like kir.d and quality
was sold oi- was capable of being sold at the time removal of the article
chaJ.geable with duty froln .the factory' or any other premises of inanufacture
or production for dClivery at the -place of manufacture or production or
(b} where
1such price was not ascertainable, the 'price at which ari
article of the like kind ·and quality was sold or. was capable of being sold
at the time of the removal of the article ch"argeable with duty from such
factory or other pr'emises for deli.very at the place of manufacture or prodUction.
With the increase in· the ad• valoren1 levies in the Central Excise Tariff .the
oPeration 9f sec. 4 presented certain practical difficulties, sOme of which were
prominently brought out in the judgment of this Court in A.K. Roy dnd Anr. v.
Valtas Ltd., [1973] 2 S.C1R:. 1039 .. In ~hat case, the Coμrt. ilf:ier alia said th~t
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b.
348
SUPREME COURT REPORTS
(1984i I S.C.R.
the real value of an article for the purposes of the excise levy would include
only the manufacturing cost plus manufacturing profits. In o~der to overcome
various difficulties, the original sec. 4 of the Act was . substituted by a new
sec. 4 by Act 22 of 1973. The new sec. 4 provided that the v3.lue of an article
for the purposes of duty shall, subject to the other provisions of this section,
be deemed. to b_e the normal price thereof that is to say, the price at which such
goods were ordinarily sold by the asscssee to a buyer in the course of wholesale
trade for delivery at the .time and placC of remov'aJ, where the buyer was not a
related persOn and_ the price was the sole consideration for the sale and where
,,the normal price of such g0ods was not ascertain~ble for the reason that such
'goods were not sold or for any other reaSon, the nearest asFertainable equiva ..
lent thereof determined in such manner as may be prescribed. Clauses (c) and
(d) Of s:ib .. sec. (4) of sec. 4 defined "related pc;;rson" and ''value•: respectively.
The Central issue which arose between the Revenue and the assessees
in these appeals was whi':ther the value of an article for the purposes of the
excise levy must be determinCd by reference exclusively to the manufacturing
cost and the manufacturing profit of the manufacturer as contended bY the
assessees or shOUld be represented by the eritire wholesale pric.e charged by the
nianufacturer which consisted of not merely his manufacturing cost' . and his
manufacturing profit. but included "post maiiufacturing expenses" and '~post·
manufacturing profit" arising between the completion' of the manufacturing
process and the point of sale by the manufacturer. The other points of dispute
were principally in respect of the connotation of the expression 'related person'
in the new s.4 as well as the itature of the deductions which could be claimed
by the assessee as post manufacturing expenses and post .manufacturing profit
from the price for the purpose of determining the "value".
HELD: The question whether the value of. an article for the purpose
of the excise levy must be confined to the nian~facturing cost and the
n1anufac~
turing profit in respect of the article has to be answered in the negative. While
the levy of excise duty is on the manufacture or production of goods, tlie stage
of collection need not in point of time synchronize with the completion of the
manufacturing process. While the levy in this collntry has the status of a
constitutional concept, the point of collection is located where the statute .
declam it will be. [384 H, 364 F·GJ
The Central Provinces and Berar Sales of Motor Spirit and Lubricants
T~xation Act, 1938, [1?38-39] F.C.R. 18; The Province of Madras v. Messers
Boddu Paidanna and Sons, [1942] F.C.R. 90, 101; Go_vernor-Gencral irf Council. v.
Province of Madras, [1945] F.C.R. 179; R.C. Jal/ v. Union of lnqia, [1962] Suppl.
3 S.C.R. 436; In ]Je. ·The B~ll To Amends. 20 of the Sea Customs·Act, 1878, and
s. 3 of the Central Excises And Salt Act, 19.44, [1964] J S.C.R. 7117; Union of
India v. Delhi Cloth & General Mills, [1963] fuppl. I S.C.R. 586; M/s
Guruswamy & Co; Etc. v. State of Mysore & Ors., [1967] I S.C.R. 548;
and South Biltar Sugar Mills Ltd. etc. v. Union of India & Ors., [1968] 3 S.C.R.
referred to.
The levy of a tax .is defined by its nature, while the measure of th~ tax may
be assessed by its own ~tandard. H is trve that the standard adopted as the
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UNION V. BOMBAY TYRE
349
measure of the levy may indicate the nature of the tax but it does not necessarily determine it. When ena~_ting a measure to serve as a standard for
assessing· the levy the legislature need not contour it along lines which spell out
· the character of the lev"y itself. A broader based standard of reference may be ·
adopted for the purpose of determining the measure of the levy. Any standard
which maintains a nexus With the essential character of the levy can be regarded as a valid basis.for asSessing the measure of the levy. The originals. 4 and
.the news. 4 of the Central Excises and Salt Act satisfy this test.
I
[366 C; 367 D-F]
Ra/la Ram v. The Province of East Punjab, [1948) F.C.R. 207; Atma Ram
Budhia v. State of Bihar, A.LR. 1952 Patna
~59; M/s Sainik Motors, Jodhpur
and Ors. v. The State of Rajasthan; [1962] 1 S.C.R. 517; D.C. Gouse and Co.
ltc. v. The State of Kerafa & Anr. etc., .[1980J 1 S.C.R. 804; Searvai's
Constitutional "Law of India, Second Edition. Vol. 2 at page 1258"; Re. A
Reference under the Government of Ireland Act, 1920 and Sec. 3 of the Finance
Act (Northern Ire/and), 1934, ,L.R. 1936 A.C. 352; R.R. Engineering Co. v. Zita
Parished, Bareilly & Anr., [1980J 3 S.C.R. 1; and The Hingir-Rampur Coal ·co.,
Ltd. and Ors. v.
The State of Orissa and Ors., [1961] 2 S.C.R. 537
referred to.
•
It was open to the legislature to specify the m·easure for assessing the levy~
The legislature has. done so. In both. the old s. 4 and the riew s.· 4 the price
charil:ed by the" manufacturer on a sale by him represents the measure. Price
and sale are related concepts, and price has a definite ~onnotation. The "value"
of the excisable article has to be computed with reference to the price charged
by the manutacturer, the computation being made in accordance with the
tern;s of s. 4. [368 D-E]
On a true construction of its provisions in the context· of the statutory
scheme the old, S. ·(4) (a) should be considered as applicabie to the circumstances
of the particular assessce himself and not cif manufacturers ienerally. [381 C.;.DJ
.
.
Pursuant to the old s. 4 (a) the value of .ant excisable article fOr the
purpcse of the ~xcise levy should be taken to be the price at which the excisabfe
article is sold by the assessee to a buyer at arm's length in the course ofw]1olcsa1e trade at the time and place of removal. Where, however, the excisable
article is not sold by the assessee in wholesale trade but, 'for example, is
consu~
med .by the assessee in his own industry the case is one where under the old
s. 4 (a) the value n1ust be determined as the prjCe at whjch the exch:able article
or an article of the like kind and quality is capable of being sold" in wholesale
trade at the time. and place of removal. [376 F:HJ
Where the excisable article or an art"icle of the like kind and quality is
not sold in wholesale trade at the place of removal, that is, at the factory gate,
but is sold in the wholesale trade at a place out side the factory gate, the value
should be determined as the price at which the exciStble article is sold in the
wholesale trade at such place, after deducting ther·efrOJT!.
the cost of
transportation of the e~cisabl~ article fron1 the factory gat~ to such place.
{376 H; '.·77 A-BJ
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SUPREMll COURT REPORTS
(1984) l S.C.R.
Where the wholesale price of the excisable article or . an article of the
like kind and '1,Uality is not ascertain~ble, then pursuant to the olds. 4 (b) the
value of the exciSable article shall be the pdce at which the. excisable art"iclc
or an article of the like kind and ciuality is sold or. :is capable of being. sold by
the asseSsee at the time and place of removal of. if the excisable article is not
sold or is nO_t capable: of being s<;>ld at such place, then the piice at which it iii
aold or is capable of being sold by the asscssce at any other tftace nearest
thereto. [377 B-C]
In every· case the fundamental criterion for computina the value Of an
cxCiabie article is the price at which the excisable articie or an aqiclc of th1
like kind ·and quality is sold or i$ c<lpable of being sold by th_e manufacturer and
it is not the bare manufacturing cost and manufacturing profit which constitut"e1
the basis for determining such value. [37iD]
·~
)
Vacuum Oil Com,any v. S'crttary of State for lndia in Council L.R .. 59
"+
I.A. 258; Ford Motor Company of lndi" Ltd. v. Secretary -0/ State for India· in
Council, L.R. 65 I.A. 32; and A.tic Industries Ltd. v. H.H. Dave, A.sstt. Collector
. of Central &cise and Ors., [1975] 3 S.C.R. 563, referred to.
·The bas"ic scheme for determination of the price in the new 1. 4 is
charaeterhed by the same dichotomy as that obaerv.able in the old s; 4.
It . was
nOt the intention of Parli~ent; when cnactirig the news. 4 to create a scheme
materially different from th~t embodied in the superseded s. 4. The object and
purpose remained the same, arid so did t~e Central principle at thejleart of the
scheme. The new scheme waS rr1erely more comprehensive ·and the language
eniployed more precise. and definite. As in the old S. 4, the terms in Which the
value was defined remained the price charged by the asse'ssee in the' cOurse of
"".holesale trade for delivery at tf·e ti~e and place of removal.' [377 H; 378 A-BJ
. It is no.i pos~i bl e to concCi~e of the price under the new s. 4 { 1) (a) being
. confined to the manufacturing cos_t aa,d the manufacturin~ profit. Moreover,
it is reison<ible to suppose that the central principle for the determination of
the value of the excisable article sholl.id be the same, whether the ca.se falls
under cl. (a) or cl. (b) of the cld s. 4 or under the news. 4 (!). When regard is
, had to the provi$.ion of cl. (b) in each case, it is not Possible to limit the priCe
to its· components representing th• manufacturiD.8 cost and manufacturing
profit. [379 E-G].
The ct>D.tentiO-n that the provisions regarding related persons .arc
whoUy unncc«1ssary because· to counter act evasion of tax any artificially
arranged price between the manufacturer and his Wholesale buyer can be
rejected in any case under s. 4 is not acceptable. The new s. 4 (1) contains
inherently within it the power tq determine the· true value of the excisable
'article, after taking into ace.aunt .ally concession shown to a special or favoured
buyer because of extra-cothmercial Consideratia:n, in· order that the price be
ascertained only on the basis th~t it is a transaction at arm's leD@th. •That
requirement is emphasised by tbe provision in the· new.s. 4 (1) (a)· that the
pricQ should b~ the ~ole c;:on!lideration for th~ ~ale. )u ev~ry such case, it . will
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.UNION v. BOMBAY TYRB
ast
be for the Revenue to determine oD. the evidenCe before it whether the transaction is one where extra~commercial considerations have entered and, if so,
what should be the priCe to-be taken as the value of the excisable ar:ticle for ·the
purpose of excise duty. Nonetheless it was open to Parliament to inCQrporate
provisisons in the seCtion declaring tbat certain specified categories of ~raos-·
actions fall within the tainted class, in which case an irrebuttable presumPtion
will arise that transactions belongi"i:ig to those categories are transactions which
cannOt be dealt with under the usual meaning of the expression "n~rmal price"
set forth in the news. 4 (1) (a).
Th~y are'Cases where it will ·not be necessary
for the Rcvenqe to exariiineihe entire gamut of evidence in order to determine
whether the transaction is one prompted by- extra.commercial considerations.
"u will be oPen tQ the Revenue, on ~eing satisfied that the third provisio to the
news. 4 (I) (a) read with the definition of "related person" in s. 4 (4) (C} is
attracted, to proceed to determine the "value"· in accordance With the terms of
the third proviso. [3115 F-H; 386 A-DJ.
The argument. that the assessment on the manufacturer by reference to
·the sale price charged by his distributor is '.iwholly incompatible with the
nature of excise" has ·no force. It is a well known legislative practice to enact
provisions in certain lin1ited cases y.'here an assessee n1ay b~ taxed in respect of
the incon1e or property truly belonging to another. ·They are cases where the
Legislature intervenes to prevent the circ.umvedtion of the tax obliga1ion by tax
payers seeking to avoid or reduce their tax. liability through modes r~sulting in
the income or property arising to an_other. The pfovisions of the -law n1ay be
iiO enacted: that the actual existence of such motive may be wholly immaterial,
even if what has been done by the assessee may proceed from wholly bona fide
intention. With the aid of a legal fiction, the Lea;islature fastens the liability
on the assessee. When the Legislature employs such a device, arid the liability
is attached without qualification, it is reasonable. to infer that an irrebuttablc
presumption has been created by law. Such provisions have been held to. be
- within the legislative competence of the Legislature and as falling within its
pdwer of taxation. [3i6 D-H]
·
·
· Balaji v. Income-Tax Officer, Special Investigation. Cirde [1962] 2 S.C.R.
938; Navnitlal~ . ..faveri v. K.K. Sen, Appellate ASsisiant Commi~sioner of Income·
tax. 'D' Range, [1965] I S.C.R. 909; Bombay and Punjab Distilling Industries Ltd.
v. Commissioner of lnco1ne-Tax, Punjab, [1965] 3 S.C.R. 1 •. referred to.
The a'rgument that the definition of the expression "related person" is
so arbitrary that it includes within it a distribUtof"Sf the assessee is also with ..
out m~ch force. The provision in the definition of "re1ated person" reiating
to a distributo! can be legitimately" read down and its validity uPheld. The
definition of related person Should be so read that the words "a relative and a
distributor of the assessee" should be understood to mean a distributor who is
a relative of the asse~see. The Explanation io s. 4 (4) (c) Provides that the
expression "relative" has the same meaning as in. the -Companies Act, 1956.
The definition of "related person·•, as bCina "a person who is so· assoCi&ted with
the a-ssessee that they have interest, directly or indirectly, in the business of
each other and includes a holding.con1pany; a subsidiary company ............... ",
shows a s~ffi~iep.tly restricted basis for employing the legal fiction. Here igaill,
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• SUl'RBMB COURT REPORts
(1984] I s.C.tt.
regard must be had tO the Explanation which provides that ·the expression
~'h~lding company and s.ubsidiarY'' have the san1e
meanings as in the
Companies Act, 1956. -It is well settled that in a suitable case the court can lift
the corporate veil where the companies share the relationship of a holding
Company and a subsidiary company and also to pay regard to the economic
realities behind the legal facade, [387 B·II> 388 A)
Tata Engineering and Locomotive Co. Ltd. v. State of Bihar and Others. · ·
[1964] 6 S.C.R. 885; Juggi Lal Kam/apat v. Commissioner' of Income-Tax, U.P.
[1969] l S.C.R. 988, referred to.
The true position under the Central Excises. and Salt Act 1944 as
amended by Act XXll of 1973 is as follows :
(i) The price at Which the excisable goods are ordinarily sOld by ·
the assessee to a buyer in the coUrS:e of wholesale trade for
delivery at the time and place of removal as defined in subsection (4) (b) of section 4 is the basis for determination of
excisab_le value provided, of c'ourse, the buyer is not a related
person within the meaning of sub-section1 (4) (c) of section 4 and
"the price is the sole consideration fOr the sale. The proposition
is subject to thC terms of the three provisOs ~o sub-section (I) (a)
(ii)
of section 4. [388 D· FJ
'
Where the price o"f excisable goods in the course of wholesale
trade for delivary :it the time an!-"f place of removal cannot 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 ExciSe
(Valuation) Rules, 1975 should be taken as representing the
excisable value of the goods; [388 G-IIJ
'
.#
(iii) .Where wholesale price of any excisable eoods for delivery at the
place of remoVat is not known and the value thereof is determined with reference t.O the wholesale price for delivery at a
place other than the place of removal, the coSt of transportation
from the place of removal to the place of delivery should be
excluded from such price; [389 A-Bl
•
•
(iv) Of course, these principles cannot apply where the tariff value
has been fixed in respect of anf excisable· goo.ds under
sub;section (2) of section 3; [389'C]
lV) On a proper interpretation of the definition of 'related person' in
sub-section (4) (c) of section 4 the words "a relative and a
distributor of the assessee" do not refer to any distri~utor but
they are limited only t.o a distributor wlio · is a· relative· of the
f
. ...
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tJNION •V. BOMBAY TYRE
a~sessee within the meaning of the Companies Act, 1956. So
read, the definition of 'related1Jerson' is not unduly wid~ and
does not ·suffer from, any constitutional infirmity. It is within
the legislative cor:D.peience of. Parliament. It 'is only _when an
as;essee so arranges that the goods are generally not sold by him
in the course of wholesale trade except to or through such a
related person that the.price at which. the goods· are ordinarily
sold by the related person, in the course of wholesale trade at
the time of removal to dealers (not being related tpersons) or
where such goods are not sold to such dealers, to dealers (being
related persons) who sen such goods in retail is liable to be
taken as .the excisable value of the goods under proviso (iii) to
sub·section (1) (a) of section 4. · [389 D-F]
353
For the purpose of determining the "value" ,.broadly sPeaking both old
·s. 4 (a) and the news. 4 (1) (a) speak of the price fcir sale in the cours"e of
wholesale trade of an.article for delivery at the time and place of ren1oval,
namely, the factory gate. Wh~r~ th: price contemplated under the old·s.-4 (,a) or
under news. 4 (1) (a} is not ascertainable, the price is determined under the
oJJ s. 4 (b) or the news. 4 (1) (b). Now, the pi:ict! of an article is related to its
value (using this term in a general sense), and .jato that value have poured
sever.al con1ponents. inl:luding those which have enriched its value arid given to
_the article its market'ability in the trade. Therefore, the expenses incurred on
acCount of the several factJrs Which have contributed to its value upto the ·date
of sale, .which apparently would be the date of delivery, are liable to be
included. Consequently, where the sale is effected at the factory gate, expenses
incurred by the assessee upto the .date of d~livery on account of storage charges,
outward handling Cha~ges, interest on inventories (stocks carried
by the
,manufacturer after cleararice), charges for other services -after delivery to
the buyer, namely after-sales service and marketing and selling organisation
expenses including 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 saie in the course of wholesale
trade is effected by the assessee through its sales organisation at a place or
places outside the factory gate, the expenses incurred by the assessee upto the
date of delivery under the aforesaid heads cannot, on the same grounds, ..
be deducted .. [391 C·H]
The a·ssessee will be entitled to a deduction on account of the cost of
transportation of the exciseable article from the factory gate· to the place or
places where it is sold. The cost of transportation will include the cost of
· insuran~e on the freight for transportation of the goods from the factory gate to
the place or places of delivery.
[39.1 H; 392 A]
A
B
.c
D
G
Where freight is ~verag~d and the aveiaged 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
H
gate, the averaged f.reight inclllded in such wholesale cash price· has to be
deducted in order to arrive at'\he real ~holesale cash price at the factory gate
and no excise duty can be charged on it. [392 A~B]
•
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B
c
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. stJPlUlME COtJRT REPORTS
(1984] 1 s:c.a .
. The news. 4 (4) (d) (i) has made express provision for inch~iag th; cost
'of packing in the de.termination of Hvalue" f9r the purpQse of excise duty. The
packing, of which the cost is included, is the packing in which the goOds are
wrapped·, contained or wound when the goods .are d~livered at the time of
removal. The cost of primary packing, that is to say, the packing in which the
article is contained arid in which it is made marketable for the ordinary consumer, must be tegarded as falling within s. 4 (4) (d) (i). There is secondary
packing which consists of larger cartons in Which a·standard nbmber of primary
cartons (in the sense mentioned earlier) ·ate packed. The large .cartons may
be packed into even larger cartons for facilitating the easier transport of 'the
goodS by the wholesale dealer. ·Is all the packing, no.matter to. what ·degree,
in which the wholesate dealer takes delivery of the go6dS: to be considered for
including the cost thereof in the "value" ? Or . does. the law. require a line
..... to be dra"':'n somewhere ? One must remember that while packing is necessary
to make the excisaQle article, marketa.ble,. the stattitory provision calls for
stri•t construction because the levy is sought to ·bC extended beyound the manufactured article itself. It seems to us that the degree of secondary packing which
is necessary fo~ putting the excisable arti~le in the condition• in which it is
generally sold in the wholesale market ttt the factory gate is the degree of
pac~ing whOse cost can be included in the "'value" of the article for the
purpose of the excise levy. To that extent, the cost of secondiiry packing cannot
be dedllcted from the wholesale cash pdce of the excisable article at the factory
gate. [392 C; 392 G-H; 393 A,E]
' If any special secondary ·packing is provided by the assessec at the
instance of a whole-sale buyer which is not generally provided as a normal
feature of the wholesale tra~e, the cpst of 13Uch packing shall be deduCted from
the wholesale cash price. [393 F]
·
•
CIVIL APPELLATE JURISDICTION; Civil Appeal No. 2269 of 1980
etc.
From the Judgment and Order dated 30.7.80 of the High Court
.• of Bombay in Appeal No. 252/1980 etc.
K.. Parasaran, Sol. Genl., N.C. · Ta/ukdar, Dr. Y.S. C.hita/e,
K.K; Venugoflf!l, Suraj Udai ·Singh, Dalveer Bhandari, C. V. Subba
Rao, R.N. Poddar, M.S. Ganesh, Ravi Naghmave, T. Shrinivasamoorthi,
K.S. John, Vitha/bhai B. P,atel, R.P. Kapur, Bhaskar Gupta, R.K. ·
Chaudlrary, A.T. Patra ·and Parveen Kumar for .the ·Appellants/
Petitiol)ers.
N.A. Palkhiva/a, J.C. Bhatt, So/i J. Sorabjee, Ashok Desai,
D.B. Engineer, B.H. Antia, Ravinder Narain, 0,C. Mathur, Talat
Ansari, Mrs. A.K. Verma, Ashok Sagar, Miss Rainu WaUa, Sukumaran,
D.N. Mish~a and A.N. Haskar for the Respondents.
'
UNION v. BOMBAY TYRE (Pathak, J.)
355
The Judgment of the Court was delivered by
PATHAK. J : On May 9, 1983 we made an order setting forth
the legal position in respect of various aspects of the levy Of excise
duty under the Central Excises and Salt Act, 1944, both before its
amendment by the Central Excises and Salt (Amendment) Act, 1973
(Act XXII ~f 1973) and after such amendment. We record now the
reasons for that order.
·
At the outset, we may state that it js not possible ·in this judgment to deal. with the numerous individual appeals, writ petitions,
special ieave petitions and transferred cases before us on the parti•
cular facts of each, and we propose to consider the· points ari'sing
therein from a general perspective.
The Central Excises and Salt Act, 1944 relates to central duties
of excise and to salt.
Sub-s, ( l) of s. 3 provltles that duties of excise
. shall be levied and collected on all excisable goods, other than salt,
which are produced or manufactured in India, at the rates set forth
in the First Schedule. We are not ·concerned with the provision
·relating to salt. Sub-s. · (2)'empowers the C~ntral Government to
fix, for the purpose of levying the duties, tariff ·values of the articles
enumerated in the First Scheaule as chargeable with duty' ad valorem.
Before its amendment by Act XXII of 1973 s.4 read as follows:
.
.
"4. Determination of value for the purposes ·of duty.-
Where; under this Act, any article is chargeable with duty·
at a rate dependent on the value of the article, such value
shall be deemed to be -
(a) the wholesale cash< price. for which an article of the
like kind and quality is sold or is capable of being
sold at tbe tinie oftbe removal of the article chargeable with duty fr~~ the 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,~ the nearest place where such market exists,
or
(b) where such price is not ascertainable, the price at
whi~h an article ofthe like kind and quality is sold
or. is capable of being sold by the manufacturer or
B
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SUPREME COl.iRt REPORTS
(1984) I s.c.a.
producer, or his agent, at the time of' the reincival of
the article chargeable with duty from. such factory
or othe.r premises for delivery at the place. of manufacture or production, or if such article is not' sold
or 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 deductiou shall be
allowed except in respect of trade discount and the amout
o~ duty payable at the time of the r.emoval of the article
chargeable witb duty from the factory or other premises
aforesaid."
It seems that with the increase in the ad valorem levies in the
Central Excise Tariff the operation of s.4 presented certain pra~tical
difficulties, some of 'IVhich were prominently brought ouf in the
judgment of this Court in A. K. Roy & Anr, v. Volt as Limited.(')
Among other observations the Court appears to have said that the
real value ·or an article for the purposes of the excise levy would
include only the manufacturillg cost plus the manufacturing profit.
Jn order to overcome the various difficulties, Parliament enacted AC!
XXII of !'973 which substituted a new s.4 for the original Provision
with effect from October I, 1975. The new section 4 provides:-
"4. Valuation of excisable goods for purposes of charging
.
.
of duty of excise.-(!) Where under· this Act, the duty of
excise is chargeable on any excisable goods with ref~rence
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 relate<l 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 go.ods are sol<l
(1) (1973) 2 S.C.R. 1089.
•
•
i:J~ION v. BOMBAY TYRE (Pathak, J.)
by the assessee, at different prices to different
classes of buyers (not being related persons)
each such price, ' shall, subject to the existence
0£ the other circumstances specified in clause (a),
be deemed to be the normal priee 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 ti)lle 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 1aw' then' notwith-.
standing anything contained in cl. (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;
(iii) where the assessee so arran~es that. the goods are
generally not sold by him in the. course of wholesale
trade except to or through a related person, the
normal price of the goods sold by the assessee to or
through such related person shall be deemed to be
the price at which they are ordinarily sold by the
related person in the course ·of wholesale trade at the
time of removal, to dealers (not being related per~
sons) ·or where such goods are not sold to such
dealers, to dealers (being related persons) who sell
such goods in retail;
-
(b) where the normal. price of such goods is not ascertainable for the 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) V. here, in relation to any excisable goods the
357
price thereof for delivery at the place of removal is not
known and· the value thereof is determined with reference
·~ ..
to the price for delivery at a place other than the
·~
place of removal, the cost of transportation from the
place of removal, to the place of delivery shall be excfoded
from such price.
B
D
E
F
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B
' 358
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SUPREME OOURT REPORTS .
(1984] I S,C R,
(3) The provisions of this section shall not apply in
. respect of any excisable goods for which a tariff value
·has been fixed under sub-section (2) of Section 3.
(4) or the purposes of this section.~
(a) "assessee;' means the person who is liable to
pay the duty of excise under this Act and includes his agent;
(b) "place of removal" means -.
(i). a factory or any other place or premises of
production or manufacture of the excisable
goods; or
(ii) a warehouse or any other place or premises
wherein . the .. excisable goods have been
nermitted
to . be
deposited . without
payment' of duty,
from where such goods are removed;
(c) "related person" means a person who is so
ass6ciated with the assessee that they have
interest, directly or indirectly, in the business of
of ei!ch other and includes. a holding company,
a subsidiary compa,ny, a relative and a distri•.
butor of the assessee, and any sub•distributor of
iuch distributor,
-
· ·
·
Explanation.-In this clause "holding com•
pany", ''a s·ubsidiary compa~y" alld "re]ative"
~have the same meanings as i'n the Companies
Aci, 1956;
(d) "value", in relation to any excisable goods.-·
(i) where the goods are delivered:at the time·
of removal in a packed condition, includes.
the cost of such packing except. the cost of
. the packing which is of a durable. nature
and is returnable by the buyer to the .
·assessee.
•
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. UNION v. BOMBAY TYRE (Pathak, J.)
Explanation.-In this sub-clause "packing" means
the wrapper, container, bobbin, pirn, spool, reel or warp
beam or any other thing in which or on which the excisable goods are .wrapped. contained or wound;
(ii) does not include the amount of the duty of
excise, sales tax and other taxes, ii any, payable
on sucb goods and, subject to such rules as may
be made, t.he trade discount (such discount
not being refundable on any account whatsoever) allowed in accordance with the normal
practice of the wholesale trade at the time of
remova,l in respect of such goods sold or ·contracted for sale;
'
(e) "whoiesale trade" means sales to dealers, industrial
consumers, Government local authorities and other
·buyers, who or which purchase. their requirementg
otherwise than in retail."
359
In t'he cases before us there has been considerable debate on
the true•meaning and scope of s.4 before and after its amendment.
The points raised are not without difficulty, but we have had the
a.dvantage of headn~ counsel of eminence on both sides, a,nd we are
grateful to them for the.considerable assistance· they have given us
throughout the hearing of these cases.
The central .issue between the parties is whether the value of
•
an article for the purposes of the excise levy m.ust be determined by
reference.exclusively to the manufacturing cost and the manufacturing
profit of the manufacturer or should be represented oy the entire
wholesale _price charged by the manufacturer. 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 (con-·
. veniently referred to as "post manufacturing expenses" and "pqst
manufacturing profit") arising between the completion of.the manu-'
facturing process and the point of sale by the manufacturer.
Mr. N.A. Palkhivala, learned counsel for the assessees, has
propounded three principles which, he contends, form the essential
characteristics.of a duty of excise. Firstly, he says, excis~ is a tax on.
B
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"360
SUPREME COURT REPORTS
. (1984) I .sc.R.'
.
.
manufacture or production and not on anything else. Secondly, uniformity of incidence is a basic characteristic of excise. And thirdly,
the exclusion of post manufacturing expenses and post manufacturing
profits is necessarily involved in the first principle and kelps to
achieve the second: Learn 'd couniel urges that where .excise duty
is levied. on an ad valorem basis · the value on which such duty is
levied is a '·conceptual value", and that the conceptual nature is.
. borne out by the circumstance that the identity of the manufacturer
and the identity of the goods as w~tt as tl}e actual wholesale price
charged by the manufacturer are not the determining factors. ·rt is
urged that the old s.4 (a) clearly indicates that a conceptuar value
forms the basis of the levy, and that the actual wholesale price
charged by the particular assessee cannot be the basis of the excise
levy.
Tt is said that the criterion adopted in clause (a) succeeds in
producing uniform taxatio,n, whether the- assessees are manufacturers
who ;ell their goods in wholesale, semi-wholesale or in retail, whether
they have a vast selling and, marketing net work or have none,
whether they sell at depots and branches or sell at the factory gate,
and whether they load the ex-factory price with post manufacturing
expenses and profits or do not do so.
Because the value of the
article rests on a conceptual base, it is urged, the result of the
assessment under s.4 (a) cannot be different from the result of an
assessment under s 4 (b). The contention is that the pri~ciple of
uniformity of taxation requires the exclusion of post manufacturing
expenses ahd profits, a factor which would vary from one manufacturer to another. It is po_inted out that such exclusion is necessary
to create a direct and immediate nexus betweeμ the levy and
the manufacturing activity, and to bring about a uniformity in the
incidence of the levy.
Learned counsel contends that the position ·
is the same under the new s.4 which, he says, must needs be so
because of the fundamental . nature of the principles propounded
earlier. Referring to the actual language of the new s.4 (I) (a), it
is pointed out that the expression "normal price" therein means
"normal for the purposes of excise'', that is to say, that the· price
must exclude post manufacturing expenses and post manufacturing
'profit and must not be loaded with any extraneous element. It is
conceded, however, that under the new s.4 (1) (a) there is no attempt
to preserve uniformity as regards the amount of duty between one.
manufacturer and another, but it ·is urged thatthe basis on which
the value is determined is constituted by the same conceptual criterion, that post manufacturing expenses and post manufacturing profit
.must be excluded.
Considerable emphasis ·has been laid on the
submission that as excise duty is a tal on the manufacture or
-
•
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-
UNION v. BOMBAY TYRE (Pathak, J.)
361
procjuction of goods it must be a tax intimately linked with the manu•
facture or production of the excisable article and, there.fore, it can
be imposed only on the assessable value determined with reference to
the excisable article at the stage of completed manufacture and to
no point beyond.
To preserve this intimate .link or nexus between
the nature of the tax and the assessment of the tax, it is urged that
all extraneous elements included in the "value" in the nature of post
manufacturing expenses and post manufacturing profits have to be
off-loaded. .It is pointed out that factors such as volume, quantity
and weight, which enter into the measure of the tax, are intimately
linked with the manufacturing activity,. and that the power of Parliament under Entry 84 of List I of the Seventh Schedule ,fo the Constitution to legislate in respect of "value" is restricted by the conceptual
need to link the basis for determining the measure of the tax with
the very nature of the tax. '
Shri K. Parasaran, the learned Solicitor General of India (when
these cases were heard), and now the Attorrney General of India) has
strongly contended that ·the value of an excisable article for the
purposes of the levy must be taken at !Jie price charged by the manufacturer on a wholesale transaction, the computation being made
strictly in terms of the express provisions of the statute and, be says,
there is no warrant for confining the value to the assessee's manufacturing· cost plus manufacturing .