Holding

Excise duty is chargeable on the normal value of the completed wagon, including the value of the free supply items, irrespective of the invoice price.

Summary

Burn Standard Company Ltd., a manufacturer of railway wagons, received certain components such as wheel‑sets and axle boxes from the Railway Board free of charge, which it incorporated into the wagons it supplied. The company invoiced the Railway Board for the wagons without including the value of these "free supply items". The Central Excise authorities issued show‑cause notices demanding that excise duty be calculated on the value of the completed wagon, including the free items. The Calcutta High Court Single Judge allowed the company's writ petition, holding that duty should be based on the invoice value, but the Division Bench reversed that decision, directing inclusion of the free items in the assessable value. On appeal, the Supreme Court affirmed the Division Bench, stating that excise duty is levied on the normal price of the finished product irrespective of how components are procured, and that the free items become part of the wagon at the factory gate. Consequently, the appeal was dismissed and the duty was to be charged on the value of the complete wagon.

Issues considered

Whether excise duty under Sections 3 and 4 of the Central Excises and Salt Act, 1944 should be levied on the invoice value of the wagon excluding the free supply items or on the value of the completed wagon including those items.

Legislation cited

Central Excises and Salt Act, 1944s. 3, s. 4

Subjects

excise dutyvaluationfree supply itemsmanufacturingnormal pricefactory gateCentral Excises and Salt Actinvoice value

Judgment

BURN STANDARD COMPANY LTD. AND ANR.
A
v.
UNION OF INDIA AND OTHERS

JULY 16, 1991

B [K.N. SINGH AND KULDIP SINGH, JJ.]

Central Excises and Salt Act, 1944--Sections 3 and 4--Excise
duty-Whether chargeable on the invoice-Value of wagon or on the
value of completed wagon including that of the ''free supply items".

The appellant-company manufactured railway wagons in accor-
c dance with the specifications, terms and conditions contained in the
agreements entered between the appellant and the Railway Board from
time to time. The Railway Board "ithout charging any price supplied
wheel-sets, axle boxes and various other itnisbed components of
wagons, which were termed as "free supply items," to the appellant,
D which were used in the manufacture of wagons and supplied the comp-
lete wagons to the Railway Board. The invoice-value of the wagon
charged by the appellant did not include the value of the "free supply
items."

The central excise authorities issued show cause to the appellant
E as to why the excise duty he not computed and charged on the value of
the complete,wagon, including that oftbe "free supply items".

The appellant challenged the show cause notices by itling a Writ
Petition before the High Court. Holding that the excise duty could only
be charged on the invoice-value under the contract, the Single Judge
F allowed the petition.

The appeal itled by the Respondents against the judgment of the
Single Judge was allowed by the Division Bench of the Court, against
which the present appeal was made by the appellant-company.

G On the question, whether the excise duty under sections 3 and 4 of
the Central Excises and Salt Act, 1944 was to he charged on the
invoice-value of the wagon or on the value of completed wagon including
that of the "free supply items".

Dismissing the appeal, this Court,
H

960
BURN STANDARD v. U.0.1. (KULDIP SINGH, J.] 961

HELD: 1. Section 3 of the Act provides for levy of the duty of A
excise. It is a levy on goods produced or manufactured· in India. Section
4 of the Act lays down the measure by reference to which the duty of
excise is to be assessed. The dnty of excise is linked and chargeable with
reference to the value of the excisable goods and the value is further
defined in express terms by the said section. In every case the funda-
mental criterion for computing the value of an excisable article is the B
normal price at which the excisable article or an article of the like kind and
quality is sold or is capable of being sold by the manufacturer. [904G-965A]

2. What comes down from the assembly-line of the appellant's
factory is a complete wagon and as such the appellant being manufac-
turer of wagons, is liable to pay duty of excise on the value of a complete C
wagon. The "free supply items" like wheel-sets etc. in the process of
manufacturing become part of the complete wagon and loose their
identity. It hardly matters how and in what manner the components of
the wagon are procured by the manufacturer, so long as the appellant is
manufacturing and producing the goods called "wagons" it is liable to
pay duty of excise on the normal value of the wagon. [%5A-C] D

Empire Industries Limited and Others v. Union of India and
Others, [1985] 3 S.C.C. 314 and M/s. Ujagar Prints and Others v.
Union of India and Others, [1989] 3 S.C.C. 488, followed.

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3041 E
of 1988.

From the Judgment and Order dated 2.2.1988 of the Calcutta
High Court in Original Order Tender No. (F.M.A.T.) No. 181 of
1987.
F
Dr. Shankar Ghosh, Mrs. Naresh Bakshi and K.D. Prasad for
the Appellants.

Ashok H. Desai, P. Parmeshwaran and A. Subba Rao for the
J. Respondents.
G
The Judgmemt of the Court was delivered by

KULDIP SINGH, J. M/s. Burn Standard Company Limited, the
· appellant before us, is one of the leading manufacturer of wagons. The
wagons manufactured and produced by the appellant are primarily
supplied to the Railway Board. The wagons are manufactured in H
962 SUPREME COURt REPORTS [1991] 2 S.C.R.

accordance with the specifications, terms and conditions contained in
A
the agreements entered between tjie appellant and the Railway Board
from time to time. It is the admitted case of the parties that the Rail-
way Board supplies wheel-sets, axle boxes and various other finished
components of wagons to the appellant which are termed as "free
supply items". These items are not manufactured by the appellant.
B The readymade "free supply items" are made available to the appel-
lant by the Railway Board without charging any price. These items are
fitted in the wagons manufactured by the appellant and are ultimately
supplied to the Railway Board. The invoice-value of the wagon
charged by the appellant from the Railway Board does not include the
value of the "free supply items".
c On the above facts, the short question for our determination is
whether the excise duty under Sections 3 and 4 of the Central Excises
and Salt Act, 1944 (hereinafter called 'the Act') is to be charged on the
invoice-value of the wagon or on the value of completed wagon includ-
ing that of the "free supply items".
D
The central excise authorities issued various show cause notices
in respect of different transactions calling upon the appellant to show
cause as to why the excise duty be not computed and charged on the
value of the completed wagon including that of the "free supply
items". The appellant challenged the show cause notices by way of
E writ petition under Article 226 of the Constitution of India before the
Calcutta High Court which was heard by a learned Single Judge who
allowed the writ petition and quashed the demand raised by the central
excise authorities. The learned Judge came to the conclusion that the
excise duty could only be charged on the basis of the invoice-value
under the contract. The learned Judge based his conclusions on the
F following reasoning:

"There is no dispute that certain items of finished compo-
nents are supplied by the Railway Board to the petitioner.
The value of these items is not taken into consideration in
fixing the price of the wagons sold by the petitioner to the
G Railway Board. The price of the completed wagons is
calculated on the basis of the manufacturing cost of the
petitioner includlhg the price of components acquired by
the petitioner for which the petitioner has actually to pay
the price. But the components which are supplied free of
cost by the Railway Board do not enter into the pricing
H mechanism of the petitioner at all. Therefore, the excise
BURN STANDARD v. U.0.1. [KULDIP SINGH, J.J 963

value of the wagons manufactured by the petitioner cannot A
be calculated after adding back the price of the components
supplied free of cost by the Railway Board."

The Union of India filed appeal against the judgment of the
learned Single Judge which was heard by a Division Bench of the
Calcutta High Court. The Bench-did not agree with the reasoning and B
conclusions of the learned Single Judge, set aside his judgment and
dismissed the writ petition of the appellant-petitioner. The division
Bench allowed the appeal in the following words:-

"Admittedly, in this case, the cost of wagon as a whole has
not been mentioned in the agreement and we feel that the
cost of normal price should include cost of construction and
c
furthermore, when sale is the charge and the same under
charging section of the said Act would mean actual price of
the goods viz. wagon as a whole, so the value of a wagon as
a whole, will form part of the relevant and necessary assess-
able value under section 4 of the said Act, as the D
manufacturing cost of a complete wagon cannot be con-
ceived of without taking into account or consideration the
cost of free supply items ...... We hold that the valuation
cost of the free supply items should be included in the
manufacturing cost of wagons. We think that section
4( l)(a) of the said Act applies in this case and as such, the E
valuation of excisable goods will be charged or will take
place when manufacture takes pface. Thus, we also find
and hold that while determining the valuation of wag.ons
for charging the duty, the Revenue Authorities had acted
duly and with justification, in adding the cost of free supply
items under the provisions of the said Act as indicated F
above, the more so when, under the agreement in this case,
the said petitioners were and are required to manufacture
and su~ply completed wagons, in which· the free supply
items were and are required to be fixed at the time of
. .l manufacture. There cannot be any doubt that without fix-
ing the free supply items, the production and manufacture G
of a wagon would not be effectively completed. The
manufacture of a complete wagon thus takes place as soon
as or as and when the free supply items are fitted and fixed
by the said petitioners and with such manufacture, the pro-
cess of manufacture would be complete under section 2(f)
of the said Act and the liability to duty will also be H
964 SUPREME COURT REPORTS [1991) 2 S.C.R.

attracted. We hold that the value of the manufuctured
A
goods must be determined at the factory gate i.e. at the
stage when the manufactured goods here in this case
wagons, leave the factory."

This appeal, against the judgment of the High Court, via special
B leave petition is by M/s. Burn Standard Company Limited.

The relevant parts of Sections 3 and 4 of the Act are reproduced
hereinafter:

"3. Duties specified in the First Schedule to be levied.-(1)
There shall be levied and collected in such manner as may
c be prescribed duties of excise on all excisable goods other
than salt which are produced or manufactured in (India)

4. Valuation of excisable goods for purposes of charging of
D 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
E at which such goods are ordinarily sold by the asses-
see 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:

F
(b) where the normal price of such goods is not ascer-
tainable for the reason that such goods are not sold or
for any other reason, the nearest ascertainable equi-
valent thereof determined in such manner as may be
prescribed." J.. ,
G
Section 3 of the Act provides for levy of the duty of excise. It is a levy
on goods produced or manufactured in India. Section 4 of the Act lays
down the measure by reference to which the duty of excise is to be
assessed. The duty of excise is linked and chargeable with reference to
the value of the excisable goods and the value is further defined in
H express terms by the said section. In every case the fundamental crite-
BURN STANDARD v. U.0.1. [KULDIP SINGH, l.l 965

rion for computing the value of an excisable article is the normal price A
at which the excisable article or an article of the like kind and quality is
sold or is capable of being sold by the manufacturer. It is not disputed
that the appellants are manufacturers of wagons. What comes down
from the assembly-line of the appellant's factory is a complete wagon
and as such the appellant being manufacturer of wagons, is liable to
pay duty of excise on the value of a complete wagon. The "free supply
B
items" like wheel-sets etc. in the process of manufacturing become
part of the complete wagon and loose their identity. It hardly matters
how and in what manner the components of the wagon are procured by
the manufacturer, so long as the appellant is manufacturing and pro-
ducing the goods called "wagons" it is liable to pay duty of excise on
the normal value of the wagon. In Empire Industries Limited and C
Others v. Union of India and Others, [1985] 3 S.C.C. 314 this Court
while interpreting Sections 3 and 4 of the Act held as under:

"The fact that the petitioners are not the owners of the end
product is irrelevant. Taxable event is manufacture-not
ownership." D

ln M/s. Ujagar Prints and Others v. Union of India and Others,
[1989] 3 S.C.C. 488, M.N. Venkatachaliah, J. speaking for the Court
observed as under:

"Duties of excise are imposed on the production or E
manufacture of goods and are levied upon the manufac-
turer or the producer in respect of the commodity taxed.
The question whether the producer or the manufacturer is
or is not the owner of the goods is not determinative of the
liability."
F
We, therefore, cannot accept the contention of the learned
counsel for the appellant that the value of the "free supply items"
should not be included in the assessable value of the wagons
manufactured by the appellant. We see no infirmity in the reasoning
and the findings reached by the Division Bench of the High Court. The
appeal is, therefore, dismissed with no order as to costs. G

V.P.R. Appeal dismissed.