Commissioner of Central Excise, Madurai vs M/S. Sri Vigneswara Cotton Mills Ltd.

REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL No.3159 OF 2004

COMMISSIONER OF CENTRAL EXCISE, INDORE …APPELLANT(S) VERSUS M/S GRASIM INDUSTRIES LTD. THROUGH ITS SECRETARY …RESPONDENT(S)

WITH C.A. Nos.3455/2004, 7272/2005, 2982-2985/2005, 2986/2005, 7143/2005, 2261/2006, 2246-2247/2008, 2934-2935/2008, 3528/2008, 4820/2008, 6695/2008, 2534/2009, 253/2010, 8541/2009, 445/2010, 1382/2010, 2003-2004/2010, 2430/2010, 2363/2010, 7174-7175/2010, 4696/2011, 6984/2011, 2705/2012

JUDGMENT

RANJAN GOGOI, J.

1. First, the facts:

The respondent – Assessees are manufacturers of dissolved and

compressed industrial gases, liquid chlorine and other allied products.

Cotton yarn and Post Mix Concentrate manufactured by two other

individual assessees are also in issue. These articles are supplied to the

customers in tonners, cylinders, carboys, paper cones and HDPE bags,

BIBs, pipeline and canisters, which may be more conveniently referred to 2

as “containers”. In some cases the containers are provided by the

Assessees to the customers on rent whereas in others the customers

bring their own containers. For making available or for filling up the

containers provided by the customers the Assessees charge the

customers certain amounts under different heads viz. packing charges,

wear and tear charges, facility charges, service charges, delivery and

collection charges, rental charges, repair and testing charges. The

Assessees treat the said amounts as their income from ancillary or allied

ventures.

2. The issue arising is whether the aforesaid charges realised by the

Assessees are liable to be taken into account for determination of value

for the purpose of levy of duty in terms of Section 4 of the Central Excise

Act, 1944 (hereinafter referred to as “the Act”) as amended with effect

from 1st July, 2000.

3. Perceiving a conflict between the two decisions of this court in

Union of India and Ors. v. Bombay Tyre International Ltd. and Ors. 1

and Commissioner of Central Excise, Pondicherry v. Acer India Ltd.2,

a two judge Bench of this Court by order dated 30 th July, 20093 referred

the following questions for an answer by a larger bench:

1 (1984) 1 SCC 467 2 (2004) 8 SCC 173 3 (2009) 14 SCC 596 3

“1. Whether Section 4 of the Central Excise Act, 1944 (as substituted with effect from 1-7-2000) and the definition of “transaction value” in clause (d) of sub-

section (3) of Section 4 are subject to Section 3 of the Act?

2. Whether Sections 3 and 4 of the Central Excise Act, despite being interlinked, operate in different fields and what is their real scope and ambit?

3. Whether the concept of “transaction value” makes any material departure from the deemed normal price concept of the erstwhile Section 4(1)(a) of the Act?”

4. As the decisions in Bombay Tyre International Ltd. (supra) and

Acer India Ltd. (supra) were rendered by Benches of Three Hon’ble

Judges of this Court, the above questions were referred by order dated

30th March, 20164 to an even larger Bench. This is how we are in seisin of

the matter.

5. What is excise duty and what is the relationship between the nature

of the duty and the measure of the levy are the two precise questions that

would arise for determination in the present reference.

6. On first principles, there can be no dispute. Excise is a levy on

manufacture and upon the manufacturer who is entitled under law to pass

on the burden to the first purchaser of the manufactured goods. The levy

of excise flows from a constitutional authorisation under Entry 84 of List I

4 (2016) 6 SCC 391 4

of the Seventh Schedule to the Constitution of India. The stage of

collection of the levy and the measure thereof is, however, a statutory

function. So long the statutory exercise in this regard is a competent

exercise of legislative power, the legislative wisdom both with regard to

the stage of collection and the measure of the levy must be allowed to

prevail. The measure of the levy must not be confused with the nature

thereof though there must be some nexus between the two. But the

measure cannot be controlled by the rigors of the nature. These are

some of the settled principles of laws emanating from a long line of

decisions of this Court which we will take note of shortly. Do these

principles that have withstood the test of time require a rethink is the

question that poses for an answer in the present reference.

7. At this stage, it may be necessary to specifically take note of the

provisions of Sections 3 and 4 as originally enacted and as amended from

time to time.

Section 3 Section 3 of the Act in force Relevant portion of Section 3 as prior to amendment by Finance substituted/amended (with effect Act 2000 (Act 10 of 2000) from 12th May, 2000) by Section 92 of the Finance Act, 2000 (No.10 of 2000)

3. Duties specified in the First 3. Duties specified in [the First 5

Schedule to be levied. – Schedule and the Second Schedule] to the Central Excise (1) There shall be levied and Tariff Act, 1985] to be levied.- collected in such manner as may be prescribed,- There shall be levied and collected in such manner as may be

(a) a duty of excise on all prescribed,-

excisable goods which are produced or manufactured in (a) a duty of excise to be called India as, and at the rates, set the Central Value Added Tax forth in the First Schedule to the (CENVAT) on all excisable goods Central Excise Tariff Act, 1985; which are produced or manufactured in India as, and at the rates, set forth in the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986);

(b)………… (b)………….

Section 4 Section 4 as originally Section 4 as amended Section 4 as enacted (in the by Amendment Act amended by Finance Central Excise and No.22 of 1973 Act, 2000 with effect Salt Act, 1944), from 1.7.2000

Determination of Valuation of Valuation of value for the excisable goods for excisable goods for purposes of duty – purposes of charging purposes of Where under this Act of duty of excise.- (1) charging of duty of any article is Where under this Act, excise. - (1) Where chargeable with duty the duty of excise is under this Act, the at a rate dependent chargeable on any on the value of the excisable goods with duty of excise is article, such value reference to value, chargeable on any shall be deemed to such value shall, excisable goods with be the wholesale subject to the other reference to their cash price for which provisions of this value, then, on each an article of the like section, be deemed to removal of the goods, kind and quality is be- such value shall - sold or is capable of being sold for delivery (a) the normal price (a) in a case 6

at the place of thereof, that is to say, manufacture and at the price at which such where the goods the time of its goods are ordinarily are sold by the removal therefrom, sold by the assessee assessee, for without any to a buyer in the delivery at the abatement of course of wholesale time and place of deduction whatever trade for delivery at the the removal, the except trade discount time and place of assessee and the and the amount of removal, where the buyer of goods duty then payable. buyer is not a related are not related person and the price is and the price is the sole consideration for the sale: the sole consideration for Provided that- the sale, be the (i) where, in transaction value; accordance with the normal practice of the (b) in any other wholesale trade in case, including such goods, such the case where goods are sold by the the goods are not assessee at different sold, be the value prices to different determined in classes of buyers (not such manner as being related persons) may be each such price shall, prescribed. subject to the existence of the other circumstances (2) The specified in clause (a), provisions of this be deemed to be the section shall not normal price of such apply in respect goods in relation to of any excisable each such class of goods for which a buyers; tariff value has been fixed under (ii) where such goods sub-section (2) of are sold by the section 3. assessee in the course of wholesale trade for (3) For the delivery at the time and purpose of this place of removal at a 7

price fixed under any law for the time being section,- in force or at a price, being the maximum, (a) "assessee" fixed under any such means the law, then, person who is notwithstanding liable to pay the anything contained in duty of excise clause (iii) of this under this Act proviso, the price or and includes his the maximum price, as agent; the case may be, so fixed, shall, in relation (b) persons shall to the goods so sold, be deemed to be be deemed to be the "related" if - normal price thereof; (i) they are inter- (iii) where the connected assessee so arranges undertakings; that the goods are generally not sold by (ii) they are him in the course of relatives; wholesale trade except to or through a related (iii) amongst them person, the normal the buyer is a price of the goods sold relative and by the assessee to or distributor of the through such related assessee, or a sub- person shall be distributor of such deemed to be the price distributor; or at which they are ordinarily sold by the (iv) they are so related person in the associated that they course of wholesale have interest, trade at the time of directly or indirectly, removal, to dealers in the business of (not being related persons) or where each other. such goods are not Explanation. - In sold to such dealers, to this clause - dealers (being related persons) who sell such (i)“inter-connected 8

goods in retail; undertakings” shall have the meaning (b) where the normal assigned to it in price of such goods is clause (g) of not ascertainable for section 2 of the the reason that such Monopolies and goods are not sold or Restrictive Trade for any other reason, Practices Act, the nearest ascertainable 1969 (64 of 1969); equivalent thereof and determined in such manner as may be (ii)“relative” shall prescribed. have the meaning assigned to it in (2) Where, in relation clause (41) of to any excisable goods section 2 of the the price thereof for Companies Act, delivery at the place of 1956 (1 of 1956); removal is not known and the value thereof is (c) “place of determined with removal” means – reference to the price for delivery at a place (i) a factory or any other than the place of other place or removal, the cost of premises of transportation from the production or place of removal to the manufacture of the place of delivery shall excisable goods; be excluded from such (ii) a warehouse or price. any other place or premises wherein (3) The provisions of the excisable this section shall not goods have been apply in respect of any permitted to be excisable goods for deposited without which a tariff value has been fixed under sub- payment of duty,

section (2) of section 3. from where such goods are (4) For the purposes removed;

of this section,-

9

(a) " assessee" means (d) “transaction the person who is value” means the liable to pay the duty of price actually paid excise under this Act or payable for the and includes his agent; goods, when sold, (b) " place of removal" and includes in means- addition to the (i) a factory or any amount charged other place or premises of production as price, any or manufacture of the amount that the excisable goods; or buyer is liable to (ii) a warehouse or pay to, or on any other place or behalf of, the premises wherein the assessee, by excisable goods have reason of, or in been permitted to be connection with deposited without the sale, whether payment of duty, payable at the time of the sale or at from where such goods any other time, are removed; including, but not (c) "related person" means a person who is limited to, any so associated with the amount charged assessee that they for, or to make have interest, directly provision for, or indirectly, in the advertising or business of each other publicity, marketing and includes a holding and selling company, a subsidiary organization company, a relative expenses, storage, and a distributor of the outward handling, assessee, and any servicing, sub- distributor of such warranty, distributor. commission or any Explanation.- In this other matter; but clause" holding does not include company"," subsidiary the amount of duty company and" relative" of excise, sales tax have the same and other taxes, if 10

meanings as in the any, actually paid Companies Act, 1956 ; or actually payable (1 of 1956 ) on such goods. (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.

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, if any, payable on such goods and, subject to such rules as may be made, the trade discount (such discount not being refundable on any account whatsoever) allowed in accordance with the normal practice of the 11

wholesale trade at the time of removal in respect of such goods sold or contracted for sale.

(e) “wholesale trade” means sales to dealers, industrial consumers, Government, local authorities and other buyers, who or which purchase their requirements/otherwise than in retail.

8. It may be appropriate, at this stage, to make a brief narration of the

developments in the particular branch of fiscal jurisprudence which is in

issue in the present cases. The Central Provinces and Berar Sales of

Motor Spirit and Lubricants Taxation Act, 1938, (Central Provinces

and Berar Act No.XIV of 1938) authorised the levy and collection from

every retail dealer, as defined by the Act, a tax on the retail sales of motor

spirits and lubricants at the rate of five per cent on the value of such

sales. The levy was challenged and what arose for decision before the

Federal Court on a reference, made by the Governor General under

Section 213 of the Government of India Act, 1935 (often referred to as

“the Constitution Act”) is the question whether the said levy was a duty of

excise under Entry 45 of List-I in the Seventh Schedule to the Constitution 12

Act or a tax on sale of goods under Entry 48 of List II of the said

Schedule. While the eventual answer in the reference holding the levy to

be a tax on sale of goods and therefore within the competence of the

Provincial Legislature is of no consequence to the present issue, what

may require a specific notice is that Entry 45 which empowered the

Federal Legislature to make laws with respect to “duties of excise on

tobacco and other goods manufactured or produced in India; except…”

corresponds to Entry 84 of List-I of the Seventh Schedule to the

Constitution of India.

9. Some extracts from the opinion rendered by Chief Justice Gwyer(all

the Judges on the Bench gave their own opinions while agreeing to the

eventual conclusion) would throw light on the nature of the levy of excise

and is therefore being recollected below:-

“The federal legislative power extends to making laws with respect to duties of excise on goods manufactured or produced in India. "Excise" is stated in the Oxford Dictionary to have been originally accise", a word derived through the Dutch from the late Latin accensare, to tax; the modern form, which ousted accise" at an early date, being apparently due to a mistaken derivation from the Latin excidere, to cut out. It was at first a general word for a toll or tax, but since the 17th century it has acquired in the United Kingdom a particular, though not always precise, signification. The primary meaning of “excise duty” or “duty of excise” has come to be that of a tax on certain articles of luxury (such as spirits, beer or 13

tobacco) produced or manufactured in the United Kingdom, and it is used in contradistinction to customs duties on articles imported into the country from elsewhere. At a later date the licence fees payable by persons who produced or sold excisable articles also became known as duties of excise; and the expression was still later extended to licence fees imposed for revenue, administrative, or regulative purposes on persons engaged in a number of other trades or callings. Even the duty payable on payments for admission to places of entertainment in the United Kingdom is called a duty of excise; and, generally speaking, the expression is used to cover all duties and taxes which, together with customs duties, are collected and administered by the Commissioners of Customs and Excise. But its primary and fundamental meaning in English is still that of a tax on articles produced or manufactured in the taxing country and intended for home consumption. I am satisfied that that is also its primary and fundamental meaning in India; and no one has suggested that it has any other meaning in Entry (45).

xxx xxx xxx xxx xxx xxx

…There can be no reason in theory why an excise duty should not be imposed even on the retail sale of an article, if the taxing Act so provides. Subject always to the legislative competence of the taxing authority, a duty on home produced goods will obviously be imposed at the stage which the authority find to be the most convenient and the most lucrative, wherever it may be; but that is a matter of the machinery of collection, and does not affect the essential nature of the tax. The ultimate incidence of an excise duty, a typical indirect tax, must always be on the consumer, who pays as he consumes or expends; and it continues to be an excise duty, that is, a duty on home-produced or home-manufactured goods, no matter at what stage it is collected. The definition of excise duties is 14

therefore of little assistance in determining the extent of the legislative power to impose them; for the duty imposed by a restricted legislative power does not differ in essence from the duty imposed by an extended one.

It was argued on behalf of the Provincial Government that an excise duty was a tax on production or manufacture only and that it could not therefore be levied at any later stage. Whether or not there be any difference between a tax on production and a tax on the thing produced, this contention, no less than that of the Government of India, confuses the nature of the duty with the extent of the legislative power to impose it. Nor, for the reasons already given, is it possible to agree that in no circumstances could an excise duty be levied at a stage subsequent to production or manufacture.” (Underlining and bold is ours)

10. The issue was considered further in The Province of Madras vs.

Messrs. Boddu Paidanna & Sons5. The following observation would

be relevant.

“In 1939 F.C.R. 18 the opinions expressed were advisory opinions only, but we do not think that we ought to regard them as any less binding upon us on that account. We accept, therefore, the general division between the Central and Provincial spheres of taxation which commended itself to the majority of the Court in that case…………….. They recognized that the expression 'duty of excise' is wide enough to include a tax on sales ; but where power is expressly given to another authority to levy a tax on sales, it is clear that “duty of excise” 5 A.I.R. (29) 1942 Federal Court 33 (from Madras) 15

must be given a more restricted meaning than it might otherwise bear. On the other hand the fact that “duty of excise” is itself an expression of very general import is no reason at all for refusing to give to the expression “tax on sales” the meaning which it would ordinarily and naturally convey. In these circumstances the question at issue in the present appeal appears to us to lie within a very small compass.

The duties of excise which the Constitution Act assigns exclusively to the Central Legislature are,- according to the 1939 F.C.R 18, duties levied upon the manufacturer or producer in respect of the manufacture or production of the commodity taxed. The tax on the sale of goods, which the Act assigns exclusively to the Provincial Legislatures, is a tax levied on the occasion of the sale of the goods. Plainly a tax levied on the first sale must in the nature of things be a tax on the sale by the manufacturer or producer ; but it is levied upon him qua seller and not qua manufacturer or producer. ……………If the taxpayer who pays a sales tax is also a manufacturer or producer of commodities subject to a central duty of excise, there may no doubt be an overlapping in one sense ; but there is no overlapping in law. The two taxes which he is called on to pay are economically two separate and distinct imposts. There is in theory nothing to prevent the Central Legislature from imposing a duty of excise on a commodity as soon as it comes into existence, no matter what happens to it afterwards, whether it be sold, consumed, destroyed, or given away. A taxing authority will not ordinarily impose such a duty, because it is much more convenient administratively to collect the duty (as in the case of most of the Excise Acts) when the commodity leaves the 16

factory for the first time, and also because the duty is intended to be an indirect duty which the manufacturer or producer is to pass on to the ultimate consumer, which he could not do if the commodity had, for example, been destroyed in the factory itself. It is the fact of manufacture which attracts the duty, even though it may be collected later ; and we may draw attention to the Sugar Excise Act in which it is specially provided that the duty is payable not only in respect of sugar which is issued from the factory but also in respect of sugar which is consumed within the factory. In the case of a sales tax, the liability to tax arises on the occasion of a sale, and a sale has no necessary connexion with manufacture or production. The manufacturer or producer cannot of course sell his commodity unless he has first manufactured or produced it; but he is liable, if at all, to a sales tax because he sells and not because he manufactures or produces; and he would be free from liability if he chose to give away everything which came from his factory.”

11. The early views on the nature of excise duty as a levy and the stage

of collection thereof would make it clear that though the impost is on the

manufacture of an article the point of collection of the same need not

necessarily coincide with the time of manufacture. The stage of collection

can and usually is a matter of administrative convenience and such stage,

normally, is the stage of clearance of article when it, for the first time,

enters the trade for sale. The above position was affirmed by the Privy 17

Council in Governor-General in Council v. Province of Madras6

wherein it was, inter alia, held as follows:

“The term " duty of excise " is a somewhat flexible one: it may, no doubt, cover a tax on first and, perhaps, on other sales: it may in a proper context have an even wider meaning. An exhaustive discussion of this subject, from which their Lordships have obtained valuable assistance, is to be found in the judgment of the Federal Court in 1939 F. C. R.

18. Consistently with this decision, their Lordships are of opinion that a duty of excise is primarily a duty levied upon a manufacturer or producer in respect of the commodity manufactured or produced. It is a tax upon goods not upon sales or the proceeds of sale of goods. Here again, their Lordships find themselves in complete accord with the reasoning and conclusions of the Federal Court in the Boddu Paidanna case.

The two taxes, the one levied upon a manufacturer in respect of his goods, the other upon a vendor in respect of his sales, may, as is there pointed out, in one sense overlap. But in law there is no overlapping. The taxes are separate and distinct imposts. If in fact they overlap, that may be because the taxing authority, imposing a duty of excise, finds it convenient to impose that duty at the moment when the exciseable article leaves the factory or workshop for the first time on the occasion of its sale. But that method of collecting the tax is an accident of administration; it is not of the essence of the duty of excise, which is attracted by the manufacture itself.”

12. The above views received the consideration of this Court in R.C.

Jall Parsi v. Union of India and anr7. wherein this Court held that while

excise duty is essentially a duty on manufacture which is passed on to the

6 [A.I.R. (32) 1945 Privy Council 98] 7 AIR 1962 SC 1281 18

consumer, the stage of collection, subject to legislative competence of the

taxing authority, could be at any stage convenient so long the character of

the levy i.e. duty on manufacture is not altogether lost. The further view

expressed was to the effect that “the method of collection does not affect

the essence of the duty, but only relates to the machinery of collection for

administrative convenience.”

13. It will hardly be necessary to reiterate the long lines of

pronouncements that have consistently followed the above view,

except to make a little detailed reference to Bombay Tyre International

Ltd. (supra), not only because the true ratio of the decision in the said

case has to be understood for the purpose of this reference so as to deal

with the perceived conflict with Acer India Ltd. (supra) but also on

account of the fact that the subject in issue had received a full and

detailed consideration of this Court.

14. In Bombay Tyre International Ltd. (supra) the issue, shortly put,

was whether determination of assessable value for the levy of excise duty

can be only on the manufacturing cost and the manufacturing profit. It

was contended before this Court, by relying on the decision of this Court

in A.K. Roy and Another vs. Voltas Limited8, that having regard to the

8 (1973) 3 SCC 503 19

character of the levy the measure must be restricted thereto. The

contention was rejected by referring to a long line of precedents including

those referred to herein above to hold that “the levy of a tax is defined

by its nature, while the measure of the tax may be assessed by its

own standard. It is true that the standard adopted as the measure of

the levy may indicate the nature of the tax but it does not necessarily

determine it.”. The further view expressed in Bombay Tyre

International Ltd. (supra) is that merely because excise is a levy on

manufactured goods the value of the excisable article for the purpose of

levy cannot be limited to only the manufacturing cost plus manufacturing

profit. This Court went on to hold that “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.”

15. A reading of Section 4 of the Act, as originally enacted; as amended

by 1973 Amendment; and as further amended by 2000 Amendment would

clearly show that the value of the article for the purposes of levy of ad

valorem duty was with reference to the price i.e. ‘normal price’ prior to the

2000 Amendment and thereafter with reference to the ‘transaction value’

which has been defined (already extracted) to mean “the price actually 20

paid or payable for the goods, when sold, and includes in addition to the

amount charged as price……”

16. The measure for the purpose of the levy is, therefore, essentially the

price charged in respect of a transaction which must necessarily be at

arm’s length. Inclusions and additions that enrich the value of the Article

till its clearance are permissible additions to the price that can be taken

into account to determine ‘value’ under the old Section 4 (prior to 2000) as

well as the ‘transaction value’ under the amended section effective from

1.7.2000. While such additions have been judicially held to be permissible

under the old Act in Bombay Tyre International Ltd. (supra) the very

same heads have been statutorily engrafted by the amendment made in

2000.

17. The price charged for a manufactured article at the stage when the

article enters into the stream of trade in order to determine the

value/transaction value for computation of the quantum of excise duty

payable does not come into conflict with the essential character or nature

of the levy. The measure is the value and value is related to price. The

price charged at the stage of clearance, in addition to manufacturing cost

and manufacturing profit, can include certain value additions and

inclusions which enrich the value of the product to make it suitable for 21

sale or to facilitate such sale. At this stage, impost has nothing to do with

the sale. The impost is on manufacture. But it is the value upto the stage

of the first sale that is taken as the measure. Doing so does not introduce

any inconsistency between the nature and character of the levy and the

measure adopted.

18. The above aspect had been considered in Bombay Tyre

International Ltd. (supra) on a specific contention advanced on behalf of

the Assessees that the deductions under the following heads should be

made from the sale price in the following terms:

“48. We now proceed to the question whether any post-manufacturing expenses are deductible from the price when determining the “value” of the excisable article. The old Section 4 provided by the Explanation thereto that in determining the price of any article under that 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 provides by sub-section (2) that where the price of excisable goods for delivery at the place of removal is not known and the value 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 has to be excluded from such price. The new Section 4 also contains sub-section (4)(d)(ii) which declares that the expression “value” in relation to any excisable goods, 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, 22

the 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 removal in respect of such goods sold or contracted for sale. Now these are clear provisions expressly providing for deduction, from the price, of certain items of expenditure. But learned counsel for the assessees contend that besides the heads so specified a proper construction of the section does not prohibit the deduction of other categories of post-manufacturing expenses. It is also urged that although the new Section 4(4)(d)(i) declares that in computing the “value” of an excisable article, the cost of packing shall be included, the provision should be construed as confined to primary packing and as not extending to secondary packing. The heads under which the claim to deduction is made are detailed below:

(1) Storage charges.

(2) Freight or other transport charges, whether specific or equalised.

(3) Outward handling charges, whether specific or equalised.

(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.

(Underlining is ours)

19. The above issue was answered by saying -

“50. We shall now examine the claim. It is apparent that for the purpose of determining the “value”, broadly speaking both the old Section 4 (a) and the new Section 4(1)(a) speak of the price for sale in the course of wholesale trade of an article 23

for delivery at the time and place of removal, namely, the factory gate. Where the price contemplated under the old Section 4 (a) or under the new Section 4(1)(a) is not ascertainable, the price is determined under the old Section 4(b) or the new Section 4(1)(b). Now, the price of an article is related to its value (using this term in a general sense), and into that value have poured several 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. Consequently, 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 advertisement 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 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. 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 include the cost of insurance on the freight for transportation of the goods from the factory gate to the place or places of delivery.” (Underlining is ours) 24

20. We find no room whatsoever for any disagreement with the above

view taken by this court in Bombay Tyre International Ltd. (supra). It is

a view consistent with what was held by the Federal Court and the Privy

Council in Central Provinces and Berar (supra),Boddu Paidanna

(supra) and Province of Madras (supra) and the decisions that followed

thereafter including the decision in Voltas Limited (supra) and Atic

Industries Limited vs. H.H. Dewa, Asstt. Collector of Central Excise

and ors9 the true purport of which was explained in Bombay Tyre

International Ltd. (supra). Both the above opinions were clarified to

mean that neither of them lay down any proposition to the effect that the

excise duty can be levied only on the manufacturing cost plus the

manufacturing profit only.

21. At this stage, the amendment to Section 3 by substitution of the

words “a duty of excise on all excisable goods” by the words “a duty of

excise to be called the Central Value Added Tax (CENVAT) on all

excisable goods” is conspicuous. The amendment of Section 3 to the Act

not only incorporates the essentials of a changed concept of charging of

tax on additions to the value of goods and services at each stage of

production but also engrafts in the statute what was judicially held to be

permissible additions to the manufacturing cost and manufacturing profit 9 (1975) 1 SCC 499 25

in Bombay Tyre International Ltd. (supra). This fundamental change by

introduction of the concept underlying value-added taxation in the

provisions of Section 3 really find reflection in the definition of ‘transaction

value’ as defined by Section 4(3)(d) of the Act besides incorporating what

was explicitly held to be permissible in Bombay Tyre International Ltd.

(supra). Section 4(3)(d), thus, defines ‘transaction value’ by specifically

including all value additions made to the manufactured article prior to its

clearance, as permissible additions to be price charged for purpose of the

levy.

22. This would bring us to a consideration of the decision of this Court

in Acer India Ltd (supra). The details need not detain us. Softwares

which were duty free items and could be transacted as softwares came to

be combined with the computer hardware which was a dutiable item for

purposes of clearance. The Revenue sought to take into account the

value of the computer software for the purposes of determination of

‘transaction value’ with regard to the computer. This Court negatived the

stand of the Revenue taking the view that when software as a separate

item was not dutiable its inclusion in the hard-disk of the computer cannot

alter the duty liability of the software so as to permit the addition of the

price/value of the software for the purpose of levy of duty. It is in the 26

above context that the decision of this Court in Acer India Ltd. (supra)

has to be understood. The observations made in paragraph 84 thereof to

the effect that ‘transaction value’ defined in Section 4(3)(d) of the Act

would be subject to the charging provisions contained in Section 3 of the

Act will have viewed in the context of a situation where an addition of the

value of a non-dutiable item was sought to be made to the value of a

dutiable item for the purpose of determination of the transaction value of

the composite item. This is the limited context in which the subservience

of Section 4(3)(d) to Section 3 of the Act was expressed and has to be

understood. If so understood, we do not see how the views expressed in

paragraph 84 of Acer India Ltd. (supra) can be read to be in conflict with

the decision of Bombay Tyre International Ltd. (supra).

23. Accordingly, we answer the reference by holding that the measure

of the levy contemplated in Section 4 of the Act will not be controlled by

the nature of the levy. So long a reasonable nexus is discernible between

the measure and the nature of the levy both Section 3 and 4 would

operate in their respective fields as indicated above. The view expressed

in Bombay Tyre International Ltd.(supra) is the correct exposition of the

law in this regard. Further, we hold that “transaction value” as defined in

Section 4(3)(d) brought into force by the Amendment Act, 2000, statutorily 27

engrafts the additions to the ‘normal price’ under the old Section 4 as held

to be permissible in Bombay Tyre International Ltd. (supra) besides

giving effect to the changed description of the levy of excise introduced in

Section 3 of the Act by the Amendment of 2000. Infact, we are of the view

that there is no discernible difference in the statutory concept of

‘transaction value’ and the judicially evolved meaning of ‘normal price’.

24. The above answers would comprehend the issues specifically

arising in all the three questions that have been referred for our opinion.

…........................J. (RANJAN GOGOI)

........................J. (N.V. RAMANA)

........................J. (R. BANUMATHI)

........................................................J. (MOHAN M. SHANTANAGOUDAR)

….............................J. (S. ABDUL NAZEER)

NEW DELHI MAY 11, 2018.