Supreme Court of India
COMMISSIONER OF CENTRAL EXCISE, INDOREversusM/S. GRASIM INDUSTRIES LTD.
- Citation
- 2009 INSC 975
- Decided
- 30 July 2009
- Disposal
- Matter referred to larger bench
- Bench
- D K JAINA K GANGULY
Holding
The Court held that the interpretation of the substituted Section 4 and its relationship with Section 3 raises substantial questions of law that merit consideration by a larger Bench.
Summary
The Supreme Court examined a batch of appeals filed by the Central Excise Commissioner against several manufacturers of industrial gases who charged customers for containers such as cylinders, canisters and tanners. The issue was whether these ancillary charges should be included in the "transaction value" for determining the assessable value of excisable goods under the substituted Section 4 of the Central Excise Act, 1944. The Court reviewed the legislative scheme of Sections 3 and 4, the definition of "transaction value" in Section 4(3)(d), and earlier decisions in Collector of Central Excise, Madras v. Indian Oxygen Ltd., Union of India v. Bombay Tyre International Ltd., Government of India v. Madras Rubber Factory Ltd., and Commissioner of Central Excise v. Acer Ltd. It concluded that the questions raised are of seminal importance and require a larger Bench to interpret the interplay between Sections 3 and 4 and the scope of "transaction value". Consequently, the matter was referred to the Chief Justice of India for directions to a larger Bench.
Issues considered
- Whether Section 4 of the Central Excise Act, 1944 (as substituted with effect from 01.07.2000) and the definition of "Transaction Value" in Clause (d) of sub‑Section 3 are subject to Section 3 of the Act?
- 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?
- 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?
Legislation cited
- Central Excise Act, 1944s. 3, s. 4, s. 4(3)(d)
- Central Excise Tariff Act, 1985
- Finance Act, 2000s. 94
Subjects
central excisetransaction valuevaluation of excisable goodsSection 3Section 4assessable valuelegal interpretationlarger bench referral
Judgment
[2009] 12 S.C.R. 204
A COMMISSIONER OF CENTRAL EXCISE, INDORE
v. I
MIS. GRASIM INDUSTRIES LTD.
(Civil Appeal No. 3159 of 2004)
JULY 30, 2009
B
[D.K. JAIN AND ASOK KUMAR GANGULY, JJ.]
CENTRAL EXCISE ACT, 1944:
,.
c s. 4 (as substituted w.e.f. 1. 7.2000) ands. 3- 'Transaction
value' - Supply of dissolved and compressed industrial gas
by ,assessee manufacturer to customers - Charges
recovered by assessee from buyers for cylinders, tanners,
canisters etc. - Whether to be taken into consideration for
determining value of excisable goods in terms of substituted
D
s.4 for purposes of charging of duty of excise on excisable
goods - Matter referred to larger Bench. -l.
,
Collector of Central Excise, Madras vs. Mis Indian
Oxygen Ltd. (1988) 4 SCC 139; Union of India & Ors. Vs.
E Bombay Tyre International Ltd. & Ors. (1984) 1 SCC 467;
Government of India & Ors. Vs. Madras Rubber Factory Ltd.
& Ors., (1995) 4 SCC 349 and Commissioner of Central
Excise Vs. Acer Ltd. (2004) 8 SCC 173, referred to.
F Case Law Reference:
(1988) 4 sec 139 referred to para 1
(1984) 1 sec 467 referred to para 10
(1995) 4 sec 349 referred to para 11
G
(2004) s sec 113 referred to para 12
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
3159 of 2004.
H 204
COMMISSIONER OF CENTRAL EXCISE, INDORE v. 205
GRASIM INDUSTRIES LTD.
From the Judgment & Order dated 10.12.2003 of the A
t Customs, Excise & Service Tax Appellate Tribunal, New Delhi
in Appeal No. E/1370/2003-NB(A).
WITH
C.A. Nos. 7143, 2986, 2982-2985 of 2005, 2261 of 2006 & B
2246-2247, 3528, 4820, 6695, 2934~2935 of 2008.
K. Radhakrishnan, S.K. Bagaria, S.W.A. Qadri, Rashmi
... Malhotra, Arijit Prasad, Anil Katiyar, Shreekant N. Terdal, B.V .
Balaram Das, Madhav Rao, Manish, Rajesh Kumar, S. c
Sukumaran, Anand Sukumar, Rajesh Khaware, P.K.
Mahapatra, Meera Mathur, K. Rajeev, R. Santhanam, Rajendra
Singhvi, K.K.L. Gautam, Brij Bhushan, Anurag Sharma, Joseph
Pookkatt, Prashant Kumar, Ravinder Narain, Sonu Bhatnagar,
Ajay Aggarwal, Kanika Gomber, Rajan Narain, S. Nanda D
_,_ Kumar, G. Ananda Selvam, V.N. Raghupathy, Jai Kumar, Nikhil
....
Nayyar, T.V.S. Raghavendra Sreyas, Ambuj Agrawal for the
appearing parties.
The following Order of the Court was delivered
E
ORDER
1. This batch of appeals, by the Revenue, under Section
)(
35L(b) of the Central Excise Act, 1944 (for short "the Act") is
directed against the orders. passed by the Customs, Excise & F
Service Tax Appellate Tribunal (for short "the Tribunal"). By the
impugned orders, the Tribunal has held that despite insertion
of amended Section 4 of the Act w.e.f. 1st July, 2000 introducing
the concept of "transaction value" in Section 4 (1 )(a) of the Act,
the ratio of the decision of this Court in the case of Collector
G
of Central Excise, Madras Vs. Mis Indian Oxygen Ltd., (1988)
-\
4 SCC 139, still holds the field. Therefore, the charges
recovered by the assessees from their customers for providing
them the containers and/or canisters etc. for supply of gases
or other items etc., manufactured by them are not to be added
H
206 SUPREME COURT REPORTS [2009) 12 S.C.R.
A to the price of the goods etc., for the purpose of determination
of the assessable value under Section 4 of the Act, as
substituted by Section 94 of Finance Act of 2000.
2. The factual position in regard to the nature and design
of the containers, canisters etc., in each of the appeals being
8
different, for the purpose of this order, we refrain from narrating
the facts obtaining in each of the cases. However, in order to
appreciate the controversy involved, a brief reference to the
common and admitted factual background may be necessary.
C 3. The period of assessment involved in all the appeals is
post 1st July, 2000.
4. The respondents-assessees in these appeals are
manufacturers of dissolved and compressed industrial gases
D etc. post mix concentrates (POM) and some other products.
These gases are transported and supplied to the customers
in tanners, cylinders, carboys, paper cones and HOPE bags, "'
BIBs, pipeline and canisters. Tanners, cylinders and pipelines "'
etc., are specially designed as per the given specifications.
E Canisters are specially designed containers to be used in the
vending machines. The cylinders etc., are either provided by
the assessees or the customers bring their own cylinders etc.,
at the factory gates of the assessees. For providing cylinders,
gas lines etc., the assessees collect certain amounts from their "
customers under different heads, viz., packing charges, wear
F and tear charges, facility charges, service charges, delivery and
collection charges, rental charges, repair and testing charges.
These amounts are not shown in the sale invoices for the
purpose of computing the assessable value. However, the
assessees treat the amounts so received as their income from
G ancillary or allied ventures.
5. The question for consideration in all these appeals is
whether such charges recovered by the assessees from the i
buyers for being provided with cylinders, tanners, canisters etc.,
H are to be taken into consideration for determination of value of
COMMISSIONER OF CENTRAL EXCISE, INDORE v. 207
GRASIM INDUSTRIES LTD.
excisable goods in terms of Section 4 of the Act as substituted A
1: for purposes of charging of duty of excise on the excisable
goods.
6. Section 3 of the Act inter alia provides that there shall
be levied and collected in such manner as may be prescribed,
B
a duty of excise to be called the Central Value Added Tax
(CENVAT) on all excisable goods 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. Section 4 of
-+
the Act provides for valuation of excisable goods for the
purposes of charging of duty of excise.
c
7. Section 4 of the Act was substituted by a new Section
w.e.f. 01.07.2000 by Section 94 of the Finance Act, 2000. Prior
to substitution, Section 4 (1) (a) inter alia read as under:
D
4. Valuation o1 excisable goods for purposes of charging
_;..
of duty of excise.-(1) Where under this Act, the duty of
....
excise is chargeable on any excisable goods with
reference to value, such value, shall, subject to the other
provisions of this Section, be deemed to be-
E
(a) the normal price thereof, that is to say, the price at
which such goods are ordinarily sold by the assessee to
a buyer in the course of wholesale trade for delivery at the
time and place of removal, where the buyer is not a related
person and the price is the sole consideration for the sale. F
Section 4(1 )(a), as it stands after the substitution with
effect from 01.07.2000 provides as under:
4. Valuation of excisable goods for purposes of charging
G
of duty of excise.-(1) Where under this Act, the duty of
"\ excise is chargeable on any excisable goods with
reference to their value, then, on each removal of the
goods, such value shall-
(a) in a case where the goods are sold by the assessee, H
208 SUPREME COURT REPORTS [2009] 12 S.C.R.
A for delivery at the time and place of the removal, the
assessee and the buyer of goods are not related and the )
price is the sole consideration for the sale, be the
transaction value;
8. The expression "Transaction Value", for the purposes
8
of Section 4, has been defined in Clause (d) of sub-Section
(3) thereof and the said definition reads as under:
(d) "transaction value" means the prices actually paid or
payable for the goods, when sold, and includes in addition
c to the amount charged as price, any amount that the buyer
is liable to pay to, or on behalf of, the assessee, by reason
of, or in connection with the safe, whether payable at the
time of the sale or at any other time, including, but not
limited to, any amount charged for, or to make provision
D for, advertising or publicity, marketing and selling
organization expenses, storage, outward handling,
servicing, warranty, commission or any other matter; but
does not include the amount of duty of excise, sales tax
and other taxes, if any, actually paid or actually payable on
E such goods.
9. The scope and purport of Section 4 (prior to the
substitution) was considered by a Three Judges Bench of this
Court in Union of India & Ors. Vs. Bombay Tyre International .,.
Ltd. & Ors., (1984) 1 SCC 467. In the said Judgment, while
F considering the relationship between Section 3 and Section 4,
it was inter alia held as under:
"... Section 3 of the Central Excises and Salt Act provides
for the levy of the duty of excise. It creates the charge, and
G defines the nature of the charge. That it is a levy on
excisable goods, produced or manufactured in India, is
mentioned in terms in the Section itself. Section 4 of the
Act provides the measure by reference to which the
charge is to be levied. The duty of excise is chargeable
H with reference to the value of the excisable goods, and the
COMMISSIONER OF CENTRAL EXCISE, INDORE v. 209
GRASIM INDUSTRIES LTD.
value is defined in express terms by that Section. It has A
t
long been recognized that the measure employed for
assessing a tax must not be confused with the nature of
the tax.
B
It is apparent, therefore, that when enacting a measure to
serve as a standard for assessing the levy the Legislature
need not contour it along lines which spell out the character
-i
of the levy itself. Viewed from this standpoint, it is not
possible to accept the contention that because the levy of c
excise is a levy on goods manufactured or produced the
value of an excisable article must be limited to the
manufacturing cost plus the manufacturing profit. We are
of opinion that a broader based standard of reference may
be adopted for the purpose of determining the measure D
+ 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. In our opinion,
the original Section 4 and the new Section 4 of the Central
Excises and Salt Act satisfy this test. E
x As we have said, it was open to the Legislature to specify
the measure for assessing the levy. The Legislature has
done so. In both the old Section 4 and the new Section 4, F
the price charged by the manufacturer on a sale by him
represents the measure. Price and sale are related
concepts, and price has a definite connotation. The "value"
of the excisable article has to be computed with reference
to the price charged by the manufacturer, the computation G
being made in accordance with the terms of Section 4.
A contention was raised for some of the assessees, that
the measure was to be found by reading Section 3 with
Section 4, thus drawing the ingredients of Section 3 into H
210 SUPREME COURT REPORTS (2009] 12 S.C.R.
A the exercise. We are unable to agree. We are concerned
'j'
with Section 3(1), and we find nothing there which clothes
the provision with a dual character, a charging provision
as well as a provision defining the measure of the
charge."
B
(Emphasis supplied by us)
10. The principles enunciated in the case of Bombay Tyre
(supra) were reaffirmed in Government of India & Ors! Vs.
Madras Rubber Factory Ltd. & Ors., (1995) 4 SCC 349. +
c
11. The new Section 4 substituted with effect from
01.07.2000 came up for consideration before a three-Judge
Bench of this Court in Commissioner of Central Excise Vs.
Acer Ltd., (2004) 8 SCC 173. Wt-l+le considering the
D relationship between Sections 3 and 4 of the Act and
particularly the effect of definition of "Transaction Value" in
~
Section 4(3)(d), it has been held as under: .,,,
"It may be true that the definition of "Transaction Value"
which is incorporated in Clause (d) of Sub-section (3) of
E Section 4 for the purpose of said Section states that the
price actually paid or payable for the goods, when sold,
would include in addition to the ~mount charged as price,
any amount that the buyer is liable to pay to, or on behalf
of, the assessee, by reason of, or in connection with the "
F sale. Only because the expressions "by reason of, or in
connection with the sale" have been used in the definition
of "Transaction Value", the same by itself would not take
away the rigours of Sub-section· (1) of Section 4 as also
the requirement of charging ·section as contained in
G Section 3.
J..
It must be borne in mind that central excise duty cannot be
equated with sales tax. They have different connotations
and apply in different situations. Central excise duty is
chargeable on the excisable goods and not on the goods
H
COMMISSIONER OF CENTRAL EXCISE, INDORE v. 211
GRASIM INDUSTRIES LTD.
which are not excisable. Thus, a "goods" which is not A
' t excisable if transplanted into a goods which is excisable
would not together make the same excisable goods so as
to make the assessee liable to pay excise duty on the
combined value of both. Excise duty, in other words, would
be leviable only on the goods which answer the definition B
of "excisable goods" and satisfy the requirement of
Section 3. A machinery provision contained in Section 4
and that too the explanation contained therein by way of
definition of "transaction value" can neither override the
charging provision nor by reason thereof a "goods" which
is not excisable would become an excisable one only
c
because one is fitted into the other, unless the context
otherwise requires.
D
In other words, computers and softwares are different and
~-
distinct goods under the said Act having been classified
.....
~ differently and in that view of the matter, no Central excise
duty would be leviable upon determination of the value
thereof by taking the total value of the computer and E
software. So far as the valuation of goods in terms of
"transaction value" thereof, as defined in Section 4(3)(d)
of the Act is concerned, suffice it to say that the said
->: provision would be subject to the charging provisions
contained in Section 3 of the Act as also sub-section (1)
F
of Section 4. The expressions "by reason of sale" or "in
connection with the sale" contained in the definition of
"transaction value" refer to such goods which is excisable
to excise duty and not the one which is not so excisable.
Section 3 of the Act being the charging section, the
G
definition of "transaction value" must be read in the text
and context thereof and not de hors the same."
(Emphasis by us)
12. Thus, in Acer (supra), it has been held that Section 4 H
212 SUPREME COURT REPORTS [2009] 12 S.C.R.
A is a machinery provision and that the said machinery provision
as well as the definition of ''Transaction Value" contained therein -Y •
would be subject to the charging provision of Section 3.
13. With utmost respect to the learned Judges constituting
the Bench in Acer (supra), we feel that the interpretation of
B Sections 3 and 4 of the Act after the substitution of Section 4
is not in conformity with the scheme of the Act prima facie, for
the reasons that (i) Section 3 is a charging Section providing
for levy of excise duty on excisable goods, whereas Section 4
provides for the measure for valuation of excisable goods with +
C reference to which the charge of excise duty is to be levied,
(ii) both operate in their independent fields even though there
may be a link between the two and (iii) in the case of Bombay
Tyre (supra), (a three-Judge Bench), the contention of the
assessees that "the measure was to be found by reading
D Section 3 with Section 4, thus drawing the ingredients of
Section 3 into the exercise" was specifically rejected. Besides,
we also have reservation with the observation in Acer's case
(supra) that the definition of "transaction value" must be read
in the text and context of Section 3 of the Act. In our prima facie
E view, this would amount to diluting the width of "transaction
value" as defined in the substituted provision.
14. Since the issues arising in these appeals are of
seminal importance and are likely to have serious ramifications
F on the question of determination of assessable value of the
excisable goods for the purpose of levy of duty of excise, we
are of the view that the following issues require consideration
by a larger Bench:
1. Whether Section 4 of the Central Excise Act, 1944
G (as substituted with effect from 01.07.2000) and the
definition of "Transaction Value" in Clause (d) of
sub-Section (3) of Section 4 are subject to Section
3 of the Act?
H
2. Whether Sections 3 and 4 of the Central Excise
COMMISSIONER OF CENTRAL EXCISE, INDORE v. 213
GRASIM INDUSTRIES LTD.
Act, despite being interlinked, operate in different A
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 8
Act?
15. Accordingly, we direct the Registry to place this order
before Hon'ble the Chief Justice of India for appropriate
directions.
c
R.P. Matter referred to larger Bench.
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