Holding

The most conservative price, representing the normal wholesale cash price, must be adopted while determining the value of goods under Rule 6(p)(ii).

Summary

The Commissioner of Central Excise valued specially denatured spirits (SDS) supplied by M/s J.R. Organics Ltd. by taking the highest price of SDS at another unit on a particular date, invoking Rule 6(p)(ii) of the Central Excise Rules, 1994. The assessee challenged this, arguing that the value should be based on the most conservative (normal) price reflecting ordinary wholesale trade. The Customs, Excise & Service Tax Appellate Tribunal (CESTAT) held that the most conservative price must be used, rejecting the Commissioner’s method. The revenue appealed, but the Supreme Court affirmed CESTAT’s approach, emphasizing that valuation must be based on a conservative wholesale cash price as clarified in A.K. Roy v. Voltas Ltd. and related precedents. Consequently, the appeal was dismissed and the CESTAT order upheld.

Issues considered

What is the appropriate method for determining the "normal price" of specially denatured spirits under Rule 6(p)(ii) of the Central Excise Rules, 1994?
Should the highest prevailing price of the product at another unit be used, or must the most conservative price be adopted for valuation purposes?

Legislation cited

Central Excise Rules, 1994s. 6(b)(i), s. 6(p)(ii)
Sea Customs Act, 1878s. 30

Subjects

valuationcentral excisespecially denatured spiritsnormal priceconservative pricewholesale cash priceRule 6tax lawCESTATSupreme Court

Judgment

[2023] 2 S.C.R. 1 1

COMMISSIONER OF CENTRAL EXCISE, ALLAHABAD A
v.
M/S J.R. ORGANICS LTD.
(Civil Appeal No. 8502 of 2009)
MARCH 01, 2023 B

[S. RAVINDRA BHAT AND DIPANKAR DATTA, JJ.]

Central Excise Rules, 1994 – r. 6(p)(ii) – Determining the
value of the spirit –Respondent was engaged in the manufacture of
organic chemicals and for which purpose it was necessary to C
procure specially denatured spirits from its unit at Kaptanganj –
The dispute arose when the commissioner had, for the purpose of
determining the value of the spirit, determined the highest rate of
the denatured spirit prevalent at another unit on the specific date –
Aggrieved by it, the respondent approached Customs Excise & D
Services Tax Appellate Tribunal, which allowed the plea of the
respondent holding that the price was to be determined at the most
conservative price and not at the highest of the prices as it will lose
the character of the normal price – Aggrieved by the decision, the
appellant approached the Supreme Court – Held : Decision of the
tribunal upheld, the most conservative price is to be taken into E
account while determining the value of the goods – CESTAT
approach and conclusions, cannot be faulted with – Appeal
dismissed.
A.K. Roy v. Voltas Limited (1973) 3 SCC 503 : [1973] 2
SCR 1089 – relied on. F

Union of India v. Delhi Cloth and General Mills (1963)
1 Suppl. SCC 586 – referred to.
Vacuum Oil Company v. Secretary of State for India AIR
1932 PC 168 – referred to. G
Case Law Reference
[1973] 2 SCR 1089 relied on Para 7
(1963) 1 Suppl. SCC 586 referred to Para 8
H
1
2 SUPREME COURT REPORTS [2023] 2 S.C.R.

A CIVIL APPELLATE JURISDICTION : Civil Appeal No. 8502
of 2009.
From the Judgment and Order dated 27.07.2009 of the Customs
Excise & Service Tax Appellate Tribunal, Principal Bench, New Delhi
in Excise Appeal No. 467 of 2001.
B N. Venkatraman, A.S.G., Mukesh Kumar Maroria, Rupesh Kumar,
Adit Khorana, Vanshja Shukla, Ms. Preeti Rani, Santosh Kumar, Dharma
Datta Verma, Advs. for the Appellant.
V Lakshmikumaran, Ms. Charanya Lakshmikumaran, Ms.
Apeksha Mehta, Ms. Falguni Gupta, Ms. Neha Choudhary, Advs. for
C the Respondent.
The Judgment of the Court was delivered by
S. RAVINDRA BHAT, J.
1. The revenue has filed this appeal, aggrieved by the order of
D Customs Excise & Service Tax Appellate Tribunal (CESTAT), Principal
Bench, New Delhi dated 27.07.2009. CESTAT had rendered its Order
dated 12.11.2007 upon a remand order by this Court in CA No. 4975/
2002.
2. The respondent-assessee manufactures organic chemicals for
E the purposes of which it sources Specially Denatured Spirits (hereinafter
‘SDS’) produced, inter alia,from its unit at Kaptanganj, Uttar Pradesh.
To manufacture SDS one of the essential raw materials required is
molasses. The assessee was issued three show cause notices covering
the following period :-
F

G

H
COMMISSIONER OF CENTRAL EXCISE, ALLAHABAD 3
v. M/S J.R. ORGANICS LTD. [S. RAVINDRA BHAT, J.]

3. The respondent-assessee, contended that upon a proper A
valuation in terms of Rule 6(p)(ii) of the Central Excise Rule, 1994, the
value of SDS was determinable on the basis of its in-house production at
Kaptanganj. The order in original, however, held otherwise, confirming
the demand made in the show cause notices. Since the first show cause
notice covered an extended period, penalty too was imposed. Aggrieved,
B
the assessee approached CESTAT which, by its order dated 20.02.2002
allowed the appeal holding that the method adopted by the Commissioner
was incorrect. The Commissioner had for the purposes of determining
the value of SDS, determined the highest rate of the product of SDS
prevalent in another unit at Sarai District, Gorakhpur, on a specific date.
4. The revenue’s appeal was allowed by this Court which remanded C
the matter for fresh consideration, inter alia, observing that the mere
rejection of the highest rate was insufficient and the Court had to decide
on the basis of judicial discretion of the assessing officer, whether there
was any rationale in the fixation done and what was the appropriate
method of valuation. D
5. CESTAT in the second round, after remand held, inter alia, as
follows after considering the evidence on the record :
“The normal price of the goods is the price at which the
goods are ‘ordinarily’ sold in the course of wholesale trade,
it is a sort of representative price of the course of wholesale E
trade. It is a sort of representative price of the goods during
a particular period. Hon’ble Supreme Court in the case of
A.K. Roy ad another vs. Voltas Limited (supra), in para ‘19’
the judgment has observed the while determining the price
which is to represent the real value of the goods to be taxed,
the price must be conservative in every respect. Therefore, F
while determining the price of the goods being cleared for
captive consumption by invoking Rule 6(b) (i), on the basis
of the price of comparable goods of the same assessee or
other assesses, the most conservative price must be adopted,
not the highest of the prices as itwill loose the character of G
the normal price.”
6. Learned counsel for the revenue submitted that CESTAT fell
into error in not accepting the Commissioner’s determination that the
value of the goods were properly determined under Rule 6(b)(i). He
submitted that given the various ingredient mentioned in that provision,
H
4 SUPREME COURT REPORTS [2023] 2 S.C.R.

A the revenue was under an obligation to decide the value based upon
factors such as material characteristics and the nearest ascertainable
value of the goods. Given these circumstances, the discretion exercised
by the Commissioner in basing himself upon the value of the goods on a
particular day (when it was in its highest price) in the Sarai Distillery at
Gorakhpur was valid and legal one.
B
7. Having considered the records and the submissions of the
parties, this Court is of the opinion that the impugned order cannot be
faulted. This Court in its judgment reported as ‘A.K. Roy Vs. Voltas
Limited1’ held as follows :-
“21. The next question is : what exactly is the meaning of the
C term the ‘wholesale cash price’? In Vacuum Oil Company v.
Secretary of Statefor India in Council, it was held that the
term means the price paid by retail traders on wholesale
purchase. The essence of the idea is that the purchase must
be a wholesale purchase and not a retail one. In other words,
D the sale must be wholesale and not a retail one in order that
the price realised may be termed the ‘wholesale cash price’.
In that case the appellants before the Privy Council imported
at Bombay, very large quantities of lubricating oil of a
particular manufacture and mark. They sold it direct to
numerous customers, never to dealers. The price they charged
E was the same whether a large or small quantity was bought,
except that if a consumer contracted to buy from them all his
requirements for a year, he was entitled to a discount from 2-
1/2 to 15 per cent according to the quantity bought in the
year. No other lubricating oil of a like kind and quality was
F sold in Bombay. On the question whether the appellant was
bound to pay customs duty on the basis of clause (a) or clause
(b) of Section 30 of the Sea Customs Act, 1878, the Privy
Council held that since the sales were to customers direct, the
real value of the goods cannot be ascertained under clause
(a) of Section 30and that clause (b) of Section 30 was
G applicable. Their Lordships said that in determining the price
which is to represent the real value of the goods to be ‘taxed,
“the price must be conservative in every respect and free in
particular from any loading for any post- importation charges
incurred in relation to the goods”. “The price is to be a price
H 1
1973 (3) SCC 503
COMMISSIONER OF CENTRAL EXCISE, ALLAHABAD 5
v. M/S J.R. ORGANICS LTD. [S. RAVINDRA BHAT, J.]

for goods. as they are both at the ‘time’ and ‘place’ of A
importation. It is to be a ‘cash price’, that is to say a price
free from any augmentation for credit or other advantage
allowed to a buyer; it is to be a net price, that is to say it is a
price ‘less trade discount’”. Their Lordships, therefore, held
that the words the ‘wholesale price’ were used in the section
B
in contradistinction to a ‘retail price’, and that not only on
the round that such is a well recognised meaning of the words
but because their association with the words ‘trade discount’
indicates that sales to the trade are those in contemplation,
and also because only by attaching that meaning to the word
is the ‘wholesale price’ relieved of the loading representing C
post- importation expenses which, as a matter of business,
must always be charged to the consumer, and which are
eliminated.”
8. As is evident in Voltas Ltd. (supra) had cited previous authorities
such as ‘Vacuum Oil Company Vs. Secretary of State for India 2’ and D
‘Union of India vs. Delhi Cloth and General Mills3’.
9. In view of the clear principle enunciated by this Court which is
that the most conservative price is to be taken into account while
determining the value of goods, CESTAT approach and conclusions, in
the opinion of this Court cannot be faulted. The impugned order of the E
CESTAT is accordingly affirmed.
10. The appeal is, therefore, dismissed. There shall be No order
as to costs. Pending application(s), if any, shall stand disposed of.

Ankit Gyan Appeal dismissed. F
(Assisted by : Mahendra Yadav, LCRA)

G

2
AIR 1932 PC 168
3
1963 Suppl. (1) SCC 586 H