Supreme Court of India
COMMISSIONER OF CENTRAL EXCISE, MUMBAIversusM/S. FIAT INDIA (P) LTD. & ANR.
- Citation
- 2012 INSC 362
- Decided
- 29 August 2012
- Disposal
- Appeal(s) allowed
- Bench
- H L DATTU
Holding
The price declared by the assessee was not the normal price nor the sole consideration, so Section 4(1)(b) applies and valuation must be done under the 1975 and 2000 Central Excise Valuation Rules.
Summary
The respondents, manufacturers of Fiat Uno cars, declared wholesale prices that were well below their manufacturing cost, claiming the price was the normal price under Section 4(1)(a) of the Central Excise Act. The Revenue issued show‑cause notices alleging short levy and demanded differential duty, arguing that the price was not the normal price because it was set to penetrate the market and therefore involved extra‑commercial consideration. The adjudicating authority and the first appellate authority upheld the Revenue's view, but the Customs, Excise and Service Tax Appellate Tribunal reversed those findings and accepted the declared price. The Supreme Court examined the meaning of "normal price", "ordinarily sold" and "sole consideration" and held that a loss‑making price driven by market‑penetration motives is not the normal price and is not the sole consideration. Consequently, Section 4(1)(b) of the Act applies and valuation must be carried out under the 1975 Valuation Rules (pre‑1 July 2000) and the 2000 Valuation Rules thereafter. The Court allowed the appeals, restored the assessing authority's order and set aside the Tribunal's decision.
Issues considered
- Whether a price declared by the assessee that is below manufacturing cost can be treated as the 'normal price' for valuation under Section 4(1)(a) of the Central Excise Act.
- Whether such a price constitutes the 'sole consideration' or involves extra‑commercial consideration, thereby invoking Section 4(1)(b) and the applicable valuation rules.
Legislation cited
Subjects
Central Excisevaluationnormal pricesole considerationextra‑commercial considerationSection 4valuation rules 1975valuation rules 2000excise dutymarket penetrationstatutory interpretation
Judgment
[2012] 12 S.C.R. 975
COMMISSIONER OF CENTRAL EXCISE, MUMBAI A
v.
MIS. FIAT INDIA (P) LTD. & ANR.
(Civil Appeal Nos. 1648-1649 of 2004)
AUGUST 29, 2012
B
[H.L. DATTU AND ANIL R. DAVE, JJ.]
Central Excise Act, 1944 - ss. 4(1)(a) and 4(1)(b) -
Applicability - Assessee declaring wholesale price in terms
of s. 4(1)(a) of the cars manufactured by them - Revenue C
determining the value of the goods as per s. 4(1)(b) rlw.
Valuation Rules - Notice issued by Revenue to assessee
alleging short levy and demanding differential duty - The
adjudicating authority as well as the appellate authority
confirming the show cause-cum-demand notice - Appellate D
Tribunal allowing the appeal of the assessee - On appeal,
held: The fundamental criterion for computing the value of an
excisable article is the normal price at which the excisable
article is ordinarily sold by the manufacturer, where the buyer
is not a related person and the price is the sole consideration E
- If there is anything to suggest to doubt the normal price,
recourse to s. 4(1)(b) could be made - In the present case,
the assessee sold its goods at a lower price than the
manufacturing cost and profit to penetrate the market - This
would constitute extra-commercial consideration - Thus price F
is not the sole consideration - Therefore assessing authority
was justified in invoking clause (b) of s. 4(1)- Since s. 4(1)(b)
is applicable, valuation is required to be done on the basis
of 1975 Valuation Rules prior to 1.7.2000 and thereafter in
accordance with 2000 Valuation Rules - The court cannot G
take exception of the assessable value of the excisable goods
quantified by the assessing authority - Central Excise
(Valuation) Rules 1975 - Central Excise Valuation
(Determination of Price of Excisable Goods) Rules, 2000.
975 H
976 SUPREME COURT REPORTS [2012] 12 S.C.R.
A Interpretation of Statutes - Legislative intent - Whenever
legislature uses certain terms of well-known legal significance
or connotations, courts to interpret them as used or
understood in popular sense, if not defined under the Act or
the Rules framed thereunder - The normal rule of
B interpretation is that words used by legislature are generally
a safe guide to its intention - Where statute's meaning is clear
and explicit, words cannot be interpolated.
Precedent - A case is only an authority for what it actually
decides and not for what may seem to follow logically from it.
c
Words and Phrases:
'Value', 'Normal Price', 'Ordinarily Sold' and 'Sole
Consideration' - Meaning of, in the context of s. 4(1)(a) of
0 Central Excise Act.
'Transaction value' - Meaning of, in the context of Central
Excise Act.
'Popular sense' - Meaning of, in the context of
E Interpretation of Statutes.
The respondents-assessee were the manufacturers
of motor cars i.e. Fiat Uno-model. The assessees have
filed several price declarations, declaring wholesale price
F of their cars for sale through wholesale depots during the
period 27 .5.1996 to 4.3.2001. The revenue issued 11
show-cause notices for the period from June 1996 to
February 2000, alleging that the assessee had not paid
the correct duty on the cars, and demanded differential
duty on the assessable value determined as per s. 4(1)(b)
G of Central Excise Act, 1944 rlw. (Valuation) Rules. The
assessee replied that they had declared the assessable
value or normal price in terms of s. 4(1)(a) of Central
Excise Act, 1944 and determination of the assessable
value as per s. 4(1)(b) r/w. the Valuation rules, 1975 would
H not arise; that when normal price is available, the
COMMISSIONER OF CENTRAL EXCISE, MUMBAI v. 977
. FIAT INDIA (P) LTD. & ANR.
recourse to any other method of valuation is incorrect and A
improper; that due to competition in the market, they kept
the price of the cars low and were forced to sell their cars
at a loss; and that the assessable value declared by them
should be accepted even if it is below manufacturing cost
and thus there is no short levy or short payment of duty. B
The Adjudicating Authority confirmed the show
cause-cum-demand notices holding that the cost of the
production of the car was much higher than the price at
which it was sold in the market; that the price was
artificial to capture the market and therefore the price at C
which they were sold cannot be said to be 'normal price'
as per Section 4 of the Act; and that when normal price
cannot be ascertained as per s. 4(1 )(a), the alternate
procedure under the Valuation Rules, 1975 i.e. cost of
production and profit has to be applied. The assesses D
were directed to pay the difference in duty. The order of
the Adjudicating Authority was confirmed by the First
Appellate Authority.
Customs, Excise and Service Tax Appellate Tribunal E
reversed the findings of the Adjudicating Authority and
Appellate Authority and allowed the appeal of the
appellants holding that there was no allegation that the
wholesale price charged by the assessee was for extra-
co mm e rc i a I consideration and that dealing of the F
assesses and their buyers was not at arms length or that
there was a flow back of money from the buyers to the
assesses and, therefore, the price declared by the assesse
is the ascertainable normal price. Hence the present
appeals by the Revenue. G
Allowing the appeals, the Court
HELD: 1.1. Since excise is a duty on manufacture,
duty is payable whether or not goods are sold. Duty is
payable even when goods are used within the factory or H
978 SUPREME COURT REPORTS (2012] 12 S.C.R.
A goods are captively consumed within factory for further
manufacture. Excise duty is payable even in case of free
supply or given as replacement. Therefore, sale is not a
necessary condition for charging excise duty. [Para 23]
[1003-H; 1004-A-B]
B
1.2. Section 4 of the Central Excise 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 exercisable
goods and the value is further defined in express terms
C by the said Section. In every case, the fundamental
criterion for computing the value of an excisable article
is the normal price at which the excisable article is sold
by the manufacturer, where the buyer is not a related
person and the price is the sole consideration. If these
D conditions are satisfied and proved to the satisfaction of
the adjudicating authority, then, the burden which lies on
the assessee under Section 4(1)(a) would have been
discharged and the price would not be ignored and the
transaction would fall under the protective umbrella
E contained in the Section itself. [Para 24] [1004-C-F]
1.3. To determine the value, the legislature has
created a legal fiction to equate the value of the goods
to the price which is actually obtained by the assessee,
F when such goods are sold in the market, or the nearest
equivalent thereof. Though the price at which the
assessee sells the excisable goods to a buyer or the
nearest ascertainable price may not reflect the actual
value of the goods, for the purpose of valuation of excise
duty, by the deeming fiction created in Section 4(1), such
G selling price or nearest ascertainable price in the market,
as the case may be, is considered to be the value of
goods. [Para 26] [1006-F-G; 1007-A-B]
Bangaru Laxman v. State (through CBI) and Anr. (2012)
H 1 SCC 500: 2011 (13) SCR 268; J.K. Cotton Spinning and
COMMISSIONER OF CENTRAL EXCISE, MUMBAI v. 979
FIAT INDIA (P) LTD. & ANR.
Weaving Mills Ltd. v. U.0.1 (1987) Supp. (1) SCC 350 - A
relied on.
1.4. Whenever the legislature uses certain terms or
expressions of well-known legal significance or
connotations, the courts must interpret them as used or B
understood in the popular sense if they are not defined
under the Act or the Rules framed thereunder. Popular
sense means "that sense which people conversant with
the subject matter, with which the statute is dealing,
would attribute to it." [Para 27] [1007-C-D]
c
1.5. The normal rule of interpretation is that the words
used by the legislature are generally a safe guide to its
intention. "No principle of interpretation of statutes is
more firmly settled than the rule that the court must
deduce the intention of Parliament from the words used o
in the Act." 'Where the statute's meaning is clear and
explicit, words cannot be interpolated.' [Para 28] [1007-
D-F]
S. Narayanaswami v. G. Pannerselvam and Ors. (1973)
1 SCR 172 - relied on. E
Westminster Bank Ltd. v. Zang (1966) A.C. 182 -
referred to.
1.6. The expression 'normal price' occurring in
F
Section 4(1)(a) and (b) means the price at which goods
are sold to the public. Where the sale to public is through
dealers, the 'normal price' would be the 'sale price' to the
dealer. Where excise duty is chargeable on any excisable
goods with reference to value, such value shall be
deemed to be the price at which such goods are G
ordinarily sold by the assessee to a buyer in the course
of wholesale trade for delivery at the time and place of
removal and where the assessee and the buyer have no
interest directly or indirectly in the business of each other
and the price is the sole consideration for the sale. H
980 SUPREME COURT REPORTS [2012) 12 S.C.R.
A Normal price, therefore, is the amount paid by the buyer
for the purchase of goods. [Paras 31 and 43] [1008-E-F;
1014-A-C]
Ashok Leyland Ltd. v. Collector of Central Excise, Madras
B (2002) 10 SCC 344; Commissioner of Central Excise
Ahemedabad v. Xerographic Ltd. (2006) 9 SCC 556; Burn
Standard Co. Ltd. and Anr. v. Union of India (1991) 3 SCC
467: 1991 (2) SCR 960; Tata Iron and Steel Co. Ltd. v.
Collector of Central Excise Jamshedpur (2002) 8 SCC
C 338: 2002 (3) Suppl. SCR 244 ; Union of India and Ors.
v. Bombay Tyre International Ltd and Ors. (1984) 1 SCC
467: 1984 (1) SCR 347; Metal Box India Ltd. v. CCE (1995)
2 SCC 90:1995 (1) SCR 136; Calcutta Chromotype Ltd. v.
CCE (1998) 3 SCC 681 :1998 (2) SCR 570; Commissioner
of Central Excise v. Bal/arpur Industries Ltd. (2007) 8 SCC
D 89: 2007 (9) SCR 650; Siddhartha Tubes Ltd. v. CCE
(2005) 13 sec 564: 2005 (5) Suppl. SCR 859; CCE v.
Bisleri International (P) Ltd. (2005) 6 SCC 58: 2005 (1)
Suppl. SCR 841; Procter and Gamble Hygiene and Health
Care Ltd. v. Commissioner of Central Excise, Bhopal
E (2006)1 sec 267: 2005 (5) Suppl. SCR 496 - relied on.
"Advanced Law Lexicon" by P. Ramanatha Aiyar -
referred to.
1,,7 In the show cause notices issued, the Revenue
F doubts the normal price of the wholesale trade of the
assessees. They specifically allege, which is not
disputed by the assessees, that the 'loss making price'
continuously for a period of more than five years while
selling more than 29000 cars, cannot be the normal price.
G It is true that in notices issued, the Revenue does not
allege that the buyer is a related person, nor do they
allege el~ment of flow back directly from the buyer to the
seller, but certainly, they allege that the price was not the
sole consideration and the circumstance that no prudent
H businessman would continuously suffer huge loss only
COMMISSIONER OF CENTRAL EXCISE, MUMBAI v. 981
FIAT INDIA (P) LTD. & ANR.
to penetrate the market and compete with other A
·.manufacturer of more or less similar cars. A prudent
businessman or woman and in the present case, a
company is expected to act with discretion to seek
reasonable income, preserve capital and, in general,
avoid speculative investments. [Para 43] [1014-F-H; 1015- B
A-8]
Union of India v. Hindalco Industries 2003 (153) ELT 481
- relied on.
1.8 If there is anything to suggest to doubt the normal C
price of the wholesale trade, then recourse to clause (b)
of sub-section (1) of Section 4 of the Act could be made.
The price is not the normal price, is established from the
following three circumstances which the assessees
themselves have admitted; that the price of the cars was D
not based on the manufacturing cost and manufacturing
profit, but have fixed at a lower price to penetrate the
market; though the normal price for their cars is higher,
they are selling the cars at a lower price to compete with
the other manufacturers of similar cars. This is certainly E
a factor in depressing the sale price to an artificial level;
and, lastly, the full commercial cost of manufacturing and
selling the cars was not reflected in the lower price.
Therefore, merely because the assessee has not sold the
cars to the related person and the element of flow back F
directly from the buyer to the seller is not the allegation
in the show cause notices issued, the price at which the
assessees had sold its goods to the whole sale trader
cannot be accepted as 'normal price' for the sale of cars.
[Para 43] [1015-8-E] G
1.9 In the context of Section 4(1 )(a) of the Act, the
word 'ordinarily' does not mean majority of the sales;
what it means is that price should not be exceptional. The
word 'ordinarily', by no stretch of imagination, can
include extra-ordinary or unusual. In the instant cases, H
982 SUPREME COURT REPORTS [2012) 12 S.C.R.
A the assessees sell their cars in the market continuously
for a period of five years at a loss price and claim that it
had to do only to compete with the other manufacturers
of cars and also to penetrate the market. If such sales
are taken as sales made in the ordinary course, it would
B be anathema for the expression 'ordinarily sold'. In the
instant cases, since the price charged for the sale of cars
is exceptional, a meaning cannot be given which does
not fit into the meaning of the expression 'ordinarily sold'.
In other words, in the transaction under consideration,
c the goods are sold below the manufacturing cost and
manufacturing profit. Therefore, such sales may be
disregarded as not being done in the ordinary course of
sale or trade. [Para 50] [1019-A-C, E·F]
Eicher Tractors Ltd. Haryana v. Commissioner of
0 Customs, Mumbai (2001) 1 SCC 315: 2000 (4)
Suppl. SCR 597; /spat Industries Ltd. v. Commissioner of
Customs,Mumbai (2006) 12 SCC 583: 2006 (6) Suppl.
SCR 733; Varsha Plastics Private Limited and Anr. v. Union
of India and Ors. (2009) 3 SCC 365: 2009 (1) SCR 896;
E Rajkumar Knitting Mills (P) Ltd. v. Collector of Customs,
Bombay (1998) 3 SCC 163; Ashok Leyland Ltd. v. Collector
of Central Excise, Madras (2002) 10 SCC 344 - referred to.
1.10 For the purpose of Section 4(1 )(a) all that has to
F be seen is: does the sale price at the factory gate
represent the wholesale cash price. If the price charged
to the purchaser at the factory gate is fair and reasonable
and has been arrived at only on purely commercial basis,
then that should represent the wholesale cash price
G under Section 4(1)(a) of the Act. This is the price which
has been charged by the manufacturer from the
wholesale purchaser or sole distributor. What has to be
seen is that the sale made at arms length and in the usual
course of business, if it is not made at arms length or in
H the usual course of business, then that will not be real
COMMISSIONER OF CENTRAL EXCISE, MUMBAI v. 983
FIAT INDIA (P) LTD. & ANR.
value of the goods. The value to be adopted for the A
purpose of assessment to duty is not the price at which
the manufacturer actually sells the goods at his sale
depots or the price at which goods are sold by the dealers
to the customers, but a fictional price contemplated by
the Section. [Para 50] [1019-F-H; 1020-A-B] B
Rajkumar Knitting Mills (P) Ltd. v. Collector of Customs,
Bombay (1998) 3 SCC 163 - relied on.
1.11 When there is fair and reasonable price
stipulated between the manufacturer and the wholesale C
dealer in respect of the goods purely on commercial
basis that should necessarily reflect a dealing in the
usual course of business, and it is not possible to
characterise it as not arising out of agreement made at
arms length. In contrast, if there is an extra-ordinary or D
unusual price, specially low price, charged because of
extra-commercial considerations, the price charged
could not be taken to be fair and reasonable, arrived at
on purely commercial basis, as to be counted as the
wholesale cash price for levying excise duty under E
Section 4(1)(a) of the Act. [Para 51] [1020-D-F] ,
1.12 Consideration means something which is of
value in the eyes of law, moving from the plaintiff, either
of benefit to the plaintiff or of detriment to the defendant.
In other words, it may consist either in some right, F
interest, profit or benefit accruing to the one party, or
some forbearance, detriment, loss or responsibility,
given, suffered or undertaken by the other. [Para 53]
[1021-D-E]
G
Currie v. Misa (1875) LR 10 Ex. 153 - referred to.
Webster's Third New International Dictionary
(unabridged); CorpusJuris Secundum (p.420-421 and425);
Salmond on Jurisprudence - referred to. H
984 SUPREME COURT REPORTS [2012] 12 $.C.R.
A 1.13 'Consideration' means a reasonable equivalent
or other valuable benefit passed on by the promisor to
the promisee or by the transferor to the transferee.
Similarly, when the word 'consideration' is qualified by the
word 'sole', it makes consideration stronger so as to
B make it sufficient and valuable having regard to the facts,
circumstances and necessities of the case. [Para 58]
[1022-G-H; 1023-A]
1.14 Since under new Section 4(1 )(a), the price
should be the sole consideration for the sale, it will be
C open for the Revenue to determine on the basis of
evidence whether a particular transaction is one where
extra-commercial consideration has entered and, if so,
what should be the price to be taken as the value of the
excisable article for the purpose of excise duty and that
o is what exactly has been done in the instant cases and
after analysing the evidence on record it is found that
extra-commercial consideration had entered into while
fixing the price of the sale of the cars to the customers.
When the price is not the sole consideration and there
E are some additional considerations either in the form of
cash, kind, services or in any other way, then according
to Rule 5 of the 1975 Valuation Rules, the equivalent
value of that additional consideration should be added
to the price shown by the assessee. If the sale is
F influenced by considerations other than the price, then,
Section 4(1 )(a) will not apply. In the instant case, the main
reason for the assessees to sell their cars at a lower price
than the manufacturing cost and profit is to penetrate the
market and this will constitute extra-commercial
G consideration and not the sole consideration. The duty
of excise is chargeable on the goods with reference to
its value then the normal price on which the goods are
sold shall be deemed to be the value, provided: (1) the
buyer is not a related person and (2) the price is the sole
consideration. These twin conditions have to be satisfied
H for the case to fall under Section 4(1)(a) of the Act. In the
COMMISSIONER OF CENTRAL EXCISE, MUMBAI v. 985
FIAT INDIA (P) LTD. & ANR.
instant cases, the price is not the sole consideration A
when the assessees sold their cars in the wholesale
trade. Therefore, the assessing CJUthority was justified in
invoking clause(b) of Section 4(1) to arrive at the value
of the exercisable goods for the purpose of levy of duty
of excise, since the proper price could not be B
ascertained. Since, Section 4(1)(b) of the Act applies, the
valuation requires to be done on the basis of the 1975
Valuation Rules. [Para 60] [1023-C-H; 1024-A-C]
1.15 Each removal is a different transaction and duty C
is charged on the value of each transaction. Section 4
after amendment, therefore, accepts different transaction
values which may be charged by the assessee to
different customers for assessment purposes where one
of the three requirements, namely; (a) where the goods
are sold for delivery at the time and place of delivery; (b) D
the assessee and buyers are not related; and (c) price is
the sole consideration for sale, is not satisfied, then the
transaction value shall not be the assessable value and
value in such case has to be arrived at, under the Central
Excise Valuation (Determination of Price of Excisable E
Goods) Rules 2000 which is also made effective from 1st
July, 2000. Since the price is not the sole consideration
for the period even after 1st July, 2000, the assessing
authority was justified in invoking provisions of the Rules
2000. [Para 61] [1024-F-H; 1025-A] F
1.16 Under Section 4(1)(b) of the Act, 1944, any
goods which do not fall within the ambit of Section 4(1)(a)
i.e. if the 'normal price' cannot be ascertained because
the goods are not sold or for any other reason, the G
'normal price' would have to be determined in the
prescribed manner i.e. prior to 1st day of July, 2000, in
accordance with Rules, 1975 and after 1st day of July
2000, in accordance with Rules, 2000. [Para 69] [1030-G-
H; 1031-A]
H
986 SUPREME COURT REPORTS [2012] 12 S.C.R.
A 1.17 A bare reading of Rules 3, 4, 5, 6 and 7 of 1975
Valuation Rules does not give any indication that the
adjudging authority while computing the assessable
value of the excisable goods, ;had to follow the rules
sequentially. The rules only provides for arriving at the
B assessable value under different contingencies. Again,
Rule 7 of the Valuation Rules which provides for the best
judgment assessment gives an indication that the
assessing authority while quantifying the assessable
value under the said Rules, may take the assistance of
c the methods provided under Rules 4, 5 or 6 of the
Valuation Rules. Therefore, it is not correct to say that the
assessing authority before invoking Rule 7 of the 1975
Valuation Rules, ought to have invoked Rules 4, 5 and 6
of the said Rules. Since the assessing authority could
not do the valuation with the help of the other rules, has
0
resorted to best judgment method and while doing so,
has taken the assistance of the report of the 'Cost
Accountant' who was asked to conduct special audit to
ascertain the correct price that requires to be adopted
E during the relevant period. Therefore, the Court cannot
take exception of the assessable value of the excisable
goods quantified by the assessing authority. [Para 70)
[1031-F-H; 1032-A-B]
2. A case is only an authority for what it actually
F decides and not for what may seem to follow logically
from it. "Each case depends on its own facts and a close
similarity between one case and another is not enough
because either a single significant detail may alter the
entire aspect. In deciding such cases, one should avoid
G the temptation to decide cases by matching the colour
of one case against the colour of another. To decide,
therefore, on which side of the line a case falls, the broad
resemblance to another case is not at all decisive." [Para
66) [1029-C-E]
H
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Sushi/ Suri vs. Central Bureau of Investigation and Anr. A
(2011) 5 SCC 708: 2011 (8) SCR 1; Union of India v.
Bombay Tyre International 1983 (14) ELT 1896 (SC) - relied
on.
Commissioner of Central Excise, New Delhi v. Guru 8
NanakRefrigeration Corporation 2003 (153) ELT 249 (SC);
CCE v. Bis/eri International Pvt. Ltd. 2005 (186) ELT 257 (SC)
- distinguished.
A.K. Roy and Anr. v. Voltas Ltd. 1977 (1) ELT 177
(SC); Assistant Collector of Central Excise and Ors. v. M.R.F. c
Ltd. 1987 (27) ELT 553 (SC) - referred to.
· E/gi Equipment Pvt. Ltd. v. CCE, Coimbatore 2007 (215)
ELT 348 (SC); Philips India Ltd. v. Collector of Central Excise,
Pune 1997 (91) E.L.T. 540 (SC); VST Industries Ltd. v. D
Collector of Central Excise, Hyderabad 1998 (97) E.L.T. 395
(SC); Devi Das Gopa/ v. State of Punjab (1967) 20 STC 430;
Basant Industries v. Addi. Collector of Customs, Bombay
1996 (81) E.L.T. 195 (SC); CCE v. Rajasthan Spinning and
Weaving Mills (2007) 218 E.L.T. 641 (SC) - Cited. E
Case Law Reference:
2007 (215) ELT 348 (SC) Cited Para 16
1997 (91) E.L.T. 540 (SC) Cited Para 17
F
1998 (97) E.L.T. 395 (SC) Cited Para 17
(1967) 20 STC 430 Cited Para 18
1996 (81) E.L.T. 195 (SC) Cited Para 19
G
(2007) 218 E.L.T. 641 (SC) Cited Para 19
2011 (13) SCR 268 Relied on Para 26
(1987) Supp. (1) sec 350 Relied on Para 26
(1973) 1 SCR 172 Relied on Para 28 H
988 SUPREME COURT REPORTS [2012] 12 S.C.R.
A (2002) 1o sec 344 Relied on Para 31
s(2006) 9 sec 556 Relied on Para 32
1991 (2) SCR 960 Relied on Para 33
2002 (3) Suppl. SCR 244 Relied on Para 34
B
1984 (1) SCR 347 Relied on Para 35
1995 (1) SCR 136 Relied on Para 36
1998 (2) SCR 570 Relied on Para 37
c Para 38
2007 (9) SCR 650 Relied on
2005 (5) Suppl. SCR 859 Relied on Para 39
2005 (1) Suppl. SCR 841 Relied on Para 40
D (2002) 1o sec 344 Relied on Para 41
2005 (5) Suppl. SCR 496 Relied on Para 42
2003 (153) ELT 481 Relied on Para 43
E 2000 (4) Suppl. SCR 597 Referred to Para 45
2006 (6) Suppl. SCR 733 Referred to Para 46
2009 (1) SCR 896 Referred to Para 47
(1998) 3 sec 163 Referred to Para 48
F
(2002) 10 sec 344 Referred to Para 49
1983 (14) ELT 1896 (SC) Relied on Para 62
1977 (1) ELT 177 (SC) Referred to Para 62
G
1987 (27) ELT 553 (SC) Referred to Para 63
2003 (153) ELT 249 (SC) Distinguished Para 64
2005 (186) ELT 257 (SC) Distinguished Para 64
H 2011 (8) SCR 1 Relied on Para 66
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CIVIL APPELLATE JURISDICTION : Civil Appeal No. A
1648-1649 of 2004.
From the Judgment & Order dated 21.11.2003 of the
Customs, Excise and Service Tax Appellate Tribunal, West
Regional Bench at Mumbai in Appeal Nos. E/3695 & E/302/ B
02.
B. Bhattacharya, ASG, Ashok Bhan, Rahul Kaushik, K.
Swami Krishna Kumar, Ajay Singh, Judy James (for B. Krishna
Prasad) for the Appellant.
,
Joseph Vellapally, Tarun Gulati, Sparsh Bhargava, Rohan C
Batra (for S. Hariharan), V. Lakshmi Kumaran, Alok Yadav,
Krishna Mohan, K. Menon (For Rajesh Kumar) for the
Respondents.
The Judgment of the Court was delivered by D
H.L. DATTU, J. 1. These appeals, by special leave, are
directed against the judgment and order dated 21.11.2003
passed by the Customs, Excise and Service Tax Appellate
Tribunal, West Regional Bench at Mumbai (hereinafter referred
to as "the Tribunal") in Appeal Nos. E/3695/02 & E/302/02. By E
the impugned judgment, the Tribunal has reversed the finding
of the Commissioner (Appeals) and thereby, allowed the
appeals filed by the respondents-assessees.
2. Facts ·in nutshell"are: The respondents-assessees are
the manufacturer of motor cars, i.e. Fiat Uno model cars. The F
said goods are excisable under chapter sub-heading No.
8703.90 of the Central Excise Tariff Act, 1985. The said
business was initially managed by M/s Premier Automobiles
Ltd. However, M/s Premier Automobile surrendered its central
excise registration on 6.4.1998. Thereafter, Mis Ind Auto Ltd. G
(now M/s Fiat India Ltd.) carried on the said business after
obtaining fresh central excise registration. The assessees have
filed several price declarations in terms of Rule 1730 of the
Central Excise Rules, 1944 (hereinafter referred to as 'the 1944
Rules') declaring wholesale price of their cars for sale through H
990 SUPREME COURT REPORTS [2012] 12 S.C.R.
A whole sale depots during the period commencing from
27 .05.1996 to 04.03.2001.
3. The authorities under the Central Excise Act, 1944
(hereinafter referred to as 'the Act') had made enquiries on
20.12.1996 and 31.12.1996, under Sub-rule 3 of Rule 173C
8
of the 1944 Rules read with Section 14 of the Act. They had
prima facie found that the wholesale price declared by the
assessees is much less than the cost of production and,
therefore, the price so declared by them could not be treated
as a normal price for the purpose of quantification of
C assessable value under Section 4(1 )(a) of the Act and for levy
of excise duty as it would amount to short payment of duty.
4. Since further enquiry was required to be conducted
regarding the assessable value of the cars, the Assistant
o Commissioner, Central Excise, Kurla Division, vide his order
dated 03.01.1997, had inter a/ia directed for the provisional
assessment of the cars at a price which would include cost of
production, selling expenses (including transportation and
landing charges, wherever necessary from 28.09.1996) and
E profit margin, on the ground that the cars were not ordinarily
sold in the course of wholesale trade as the cost of production
is much more than their wholesale price, but were sold at loss
for a consideration, that is, to penetrate the market which has
been confirmed by the assessee vide its letter dated
F 30.10.1996 and during the course of enquiry under Section 14
of the Act read with sub Rule (3) of Rule 173C of the 1944
Rules. He had further directed the respondents to execute B-
13 bond for payment of differential duty with surety or sufficient
security, that is, 25% of the bond amount. Thereafter,
respondents executed B-13 bond for Rs. 7.70 crores. However,
G the respondents showed their inability to submit 25% bond
amount as a bank guarantee and requested the Revenue
authorities to reduce the same. On such request, the
Commissioner, vide letter dated 23.04.2007, directed the
respondents to execute bank guarantee equivalent to 5% of the
H bond amount. Accordingly, the respondent furnished a bank
COMMISSIONER OF CENTRAL EXCISE, MUMBAI v. 991
FIAT INDIA (P) LTD. & ANR. [H.L. DATIU, J.]
guarantee of Rs. 38 lakhs which was subsequently renewed A
and later fresh bank guarantees in lieu of original were
submitted by the respondents.
5. The Preventive and Intelligence Branch of the Kurla
Division sometime in the year 1997-98 had conducted B
investigation into the affairs of the respondents, whereby it was
found that the respondents were importing all the kits in CKD/
SKD condition for manufacturing the cars and the cost of
production of a single car was Rs. 3,98,585/- for manufacture
from SKD condition and ' 3,80,883/- for manufacture from CKD
condition against the assessable value of Rs. 1,85,400/-. In C
the investigation, it was also revealed that the respondents had
entered into a spin-off agreement vide Deed of Assignment
dated 30.03.1998, whereby M/s Fiat India Ltd. would be liable
for any excise liability accruing from 29.09.1997 onwards, in
respect of the Cars in issue. D
6. After completion of the investigation, the Commissioner
of Central Excise, Mumbai-II, had appointed Cost Accountant
M/s Rajesh Shah and Associates on 25.01.1999 under Section
14A of the Act to conduct special audit to ascertain the E
correctness of the price declared by the respondents. The Cost
Accountant had calculated the average price of the Fiat UNO
Car by adding material cost (import, local, painting and others),
rejection at 1% of total cost and notional profit at 5% of total
cost for the period from April, 1998 to December, 1998 vide F
his report dated 31.03.1999, which came to Rs. 5,04,982/- per
car.
7. In the meantime, the Superintendent of Central Excise,
Kurla Division had issued 11 show cause notices to assessees
for the period from June 1996 to February 2000, inter alia, G
making a demand of differential duty on the assessable value
calculated on the basis of manufacturing cost plus
manufacturing profit minus MODVAT availed per car, and the
. duty which the respondents were actually paying on the
assessable value. It is alleged in the show cause notices that H
992 SUPREME COURT REPORTS [2012] 12 S.C.R.
A the respondents have failed to determine and pay the correct
duty on Fiat UNO cars while clearing them. It is further stated
that the assessees have not taken into account the cost of raw
material, direct wages, overheads and profits for calculating the
assessable value of the cars which were declared in the
B invoices and declarations for the purpose of Section 4 of the
Act. In this regard, the assessees were required to show cause
as to why the correct duty due on the said goods along with
interest should not be recovered from them under Rule 9 of the
1944 Rules read with Sections 11A and 11AB of the Act, the
c goods should not be confiscated and penalty imposed under
Rule 9 read with Rule 52-A and Rule 1730 of the Rules, and
further, penalty equal to the amount of duty should not be
imposed under Section 11AC of the Act.
8. Assessees had replied in detail to the show cause-cum-
D demand notices. The assessees had submitted that they have
declared assessable value or normal price in terms of Section
4(1 )(a) of the Act. The assessees apart from others had also
stated that the proper interpretation of Section 4(1 )(a) of the
Act would mean that the assessable value should be the normal
E price at which such goods are ordinarily sold in wholesale trade
where price is the sole consideration; that they are not getting
any additional consideration over and above the assessable
value declared by them; that there is no flow back of money from
the buyers and dealings between the assessees and their
F buyers are at arms length and since the price declared by them
is proper as per Section 4(1) (a) of the Act, the question of
determining the assessable value as per Section 4(1)(b) read
with Central Excise (Valuation) Rules. 1975 (hereinafter referred
to as 'the 1975 Valuation Rules) would not arise. In other words,
G the assessees, relying on various decisions of this Court, had
submitted that when normal price is available then recourse to
any other method of valuation is incorrect and improper. They
had also submitted that Section 4 of the Act nowhere mandates
that price should always reflect the manufacturing cost and
H profits and, therefore, the price declared by them requires to
COMMISSIONER OF CENTRAL EXCISE, MUMBAI v. 993
FIAT INDIA (P) LTD. & ANR. [H.L. DATIU, J.]
be accepted. The assessees had further submitted that since A
they have launched new models of the cars which require
import of the cars in kit-form (CKD and SKD), thereafter they
were assembled and sold. This cost of imports, assembly and
overheads lead to increase in overall cost of production of their
cars. Further, they were facing intense competition from Maruti B
car manufacturers which required them to keep the price of their
cars at a lower price. Therefore, they were forced to sell their
cars at a loss in order to compete and attract buyers in the
market. The assessees had also stated that the amount
quantified in the show cause-cum-demand notices is excessive c
since they were based on the initial costs in 1996 which has
continuously come down due to the continuous process of
indigenisation of imported components. They would further
submit that this strategy of indigenisation of imported
components is very common to automobile industry. The 0
assessees had further submitted, the order of provisional
assessment was erroneous as.well not sustainable in the eyes
of the law. They further submitted that the assessable value
declared by them should be accepted even if it is below
manufacturing cost. The assessees had also contended that E
there is no short levy or short payment of duty.
9. After receipt of the reply so filed, the adjudicating
authority vide his order-in-original dated 31.01.2002 has
proceeded to conclude that the assessees' main consideration
was to penetrate the market, therefore, the price at which they F
were selling the Cars in the market could not be considered to
be a normal price as per Section 4 of the Act. He has also
observed that the cost of production of the Fiat UNO Cars is
much higher than the price at which the assessees are selling
them to the general public; that the price is artificial and arrived G
at without any basis just to capture the market and drive out
the opponents from business; that the Fiat UNO Cars in issue
are equipped with powerful Fire Engine and superior quality
gadgets and that when normal price cannot be ascertained as
per Section 4(1) (a) of the Act, the alternate procedure under H
994 SUPREME COURT REPORTS [2012] 12 S.C.R.
A the Valuation Rules, i.e. cost of production and profit has to be
applied. He also observed, by referring to the decisions of this
Court in Bombay Tyre's and MRF Tyre's cases, that all costs
incurred to make goods saleable/marketable should be taken
into account for determining the assessable value and that the
B loss incurred by the assessees to penetrate the market should
be borne by them and in the process Government should not
lose revenue. He further found the basis of the price arrived at
by the Cost Accountant in its report as authentic and
acceptable, but adopted the average price of Rs.4,53,739/-
C reached by the Range Superintendent for different models of
Cars in the show cause-cum-demand notices as more
reasonable and appropriate. Accordingly, he had confirmed the
show cause-cum-demand notices issued and, thereby, had
directed the respondents to pay the difference in duty.
D 10. The assessees had carried the matter in appeal before
the First Appellate Authority, being aggrieved by the order
passed by adjudicating authority. The appellate authority by its
orders dated 11.09.2002 and 30.09.2002 has sustained the
order passed by the adjudicating authority and rejected the
E appeals.
11. The assessees, being aggrieved by the order so
passed, had carried the matter in appeal before the Tribunal.
The Tribunal vide its judgment and order dated 21.11.2003, has
F reversed the findings and conclusions reached by the First
Appellate Authority and the Adjudicating Authority and,
accordingly, allowed the appeals on the ground that there is no
allegation that the wholesale price charged by the assessee
was for extra commercial consideration and that dealing of the
G assessees and their buyers was not at arms length or that there
is a flow back of money from the buyers to the assessees and,
therefore, the price declared by the assessees is the
ascertainable normal price in view of the decision of this Court
in Commissioner of Central Excise, New Delhi v. Guru Nanak·
H Refrigeration Corporation, 2003 (153) ELT 249 (SC). It is the
COMMISSIONER OF CENTRAL EXCISE, MUMBAI v. 995
FIAT INDIA (P) LTD. & ANR. [H.L. DATIU, J.]
correctness or otherwise of the findings and conclusions A
reached by the Tribunal is the subject matter of these appeals.
Submissions
12. Before we proceed to examine the relevant provisions,
it is necessary to notice the submissions made by learned B
counsel on both sides. Shri. Bhattacharya, the learned ASG,
contends that the assessees are not fulfilling the conditions
enumerated in Section 4(1 )(a) of the Act and therefore, the
valuation has to be done in accordance with Section 4(1)(b) of
the Act read with the 1975 Valuation Rules. He would contend C
that the price fixed by the assessees do not reflect the true
value of the goods as manufacturing cost and the profit is much
higher than the sale price. He would further contend that since
the price of the cars sold by the assessees do not reflect the
true value of goods and that sole reason for lowering the price D
by the assessees below the manufacturing cost is just to
penetrate the market and compete with other manufacturers
and, therefore, such price cannot be treated as "normal price"
in terms of Section 4(1 )(a) of the Act. He would submit that
since the price of the cars sold by the assessees was not E
ascertainable, the Revenue is justified in computing the
assessable value of the goods for the levy of excise duty under
Section 4(1)(b) of the Act and the relevant rules. The learned
counsel further contends that under Section 4(1)(a) of the Act,
value shall be deemed to be the normal price. A normal price, F
as per Section 4(1 )(a), is the price at which the goods are
ordinarily sold. A loss making price cannot be the price at which
goods are ordinarily sold and the loss making price cannot be
the normal price. Shri Bhattacharya would heavily rely on the
decision of this Court in Union of India v. Bombay Tyre G
International, 1983 (14) ELT 1896 (SC), and contends that the
judgement makes it abundantly clear that for arriving at the
assessable value, the department is entitled to take into
account the manufacturing cost plus manufacturing profit.
13. Per contra, Shri. Joseph Vellapally learned senior H
996 SUPREME COURT REPORTS (2012] 12 S.C.R.
A counsel would submit that the charging Section and the
computation Section are independent to each other and should
not be mixed up. He would contend that the normal price as
found in Section 4(1 )(a) of the Act is nothing but the price at
which the particular assessee sold his goods to his buyers in
B the ordinary course of business. He would state that the reason
for the assessees for selling the Cars for lower price than the
manufacturing cost was because the assessees had no
foothold in the Indian market and, therefore, had to sell at a
lower price than the manufacturing cost in order to compete in
c the market. He would submit that the issue raised by the
Revenue in the instant case is squarely covered by the decision
of this Court in the case of Guru Nanak Refrigeration (supra).
He submits that the case of Bombay Tyre International (Supra)
would only assist the assessees and not the Revenue. He
would submit that this Court in Bombay Tyre's case has held
0
that though the incident of excise is the manufacturing activity,
the legislature was free to choose the time of collection and
imposition of excise duty. He further points out that this Court
in Bombay Tyre's case (supra) has separated the levy from the
collection, that being the case, the learned senior counsel would
E submit that the cost of manufacture is irrelevant for the purpose
of valuation under Section 4 of the Act. He would submit that
'normal price' is the selling price at which that particular
assessee has sold the goods to all the buyers in the ordinary
course of business. He would refute Shri Bhattacharya's
F argument that the price is not the sole consideration, by stating
the word 'consideration' is used in the Section in the same
sense as used in the Section 2 (d) of the Indian Contract Act,
and it is only the monetary consideration from the buyer to the
assessee that requires to be taken note of for the purpose of
G valuation under the Act. He would point out from the show cause
notice that the sole ground for rejecting the invoice price of the
assessee is that the price was not the sole consideration. He
would submit that the intention and consideration cannot be
treated as same; it is only the intention of the assessee to
H penetrate the market and the only consideration for the
COMMISSIONER OF CENTRAL EXCISE, MUMBAI v. 997
FIAT INDIA (P) LTD. & ANR. [H.L. DATIU, J.]
assessee from the buyer was the sale price. He would further A
submit that the assessable value has to be gathered from the
normal price and not from cost of manufacture which is
irrelevant when normal price is ascertainable. Therefore, he
would submit only when the normal price is not ascertainable
in terms of Section 4(1)(a), then Section 4(1)(b) read with the B
1975 Valuation Rules would come into play to determine
nearest equivalent assessable value of the goods. He would
contend that the Valuation Rules have to be applied
sequentially, namely, Rules 4 and 5 should be invoked first in
order to determine the assessable value and if Rules 4 and 5 c
of the 1975 Valuation Rules are not applicable or assessable
value cannot be ascertained by applying the said Rules, then
only Rule 6 can be invoked. He would further submit that it is
only Rule 6(b)(ii) of the 1975 Valuation Rules which
contemplates determination of assessable value on the basis 0
of cost of manufacture only when the goods are captively
consumed by the manufacturer and value of comparable goods
manufactured by the assessee or any other assessee is not
available. In this regard, he would submit, relying on few
decisions of this Court, that fiscal provisions have to be
E
construed strictly and also where a statute prescribes that a
particular thing has to be done in a particular manner, then, that
thing has to be done only in that manner and not otherwise ..
Shri Vellapally submits that when the normal price is not
ascertainable under Section 4(1)(a) of the Act when transaction
is between related persons or price is not the sole F
consideration, then nearest equivalent at the time of removal
of the goods is the criteria for the purpose of computation of
assessable value. He would contend that it is when there is no
like or identical article available at the time or place of removal,
only then, Rule 6 of the 1975 Valuation Rules is invoked which G
deals with cost of manufacture. He would further submit by
relying on the Bombay Tyre's case (Supra) that even old
Section 4 (b) (prior to the 1973 amendment) suggests that in
case wholesale price for the valuation is not ascertainable under
old Section 4(a), then, the value of nearest equivalent article of H
998 SUPREME COURT REPORTS (2012) 12 S.C.R.
A like kind and quality, which is sold or capable of being sold at
the time and place of removal, is considered for the purpose
of valuation. He would further submit that it is not practical to
go into cost of manufacture in each and every case in order to
determine whether goods are sold below the cost of production.
B He would submit that if wholesale price under Section 4(1 )(a)
is not ascertainable, then, assessing authority can go to the
nearest equivalent to determine assessable value for the
purpose of levy of excise duty under the Act.
14. Shri Vellapally would further submit by referring to
C Section 2(d) of the Indian Contract Act, that the consideration
should flow from buyer to the seller. He would submit that the
meaning of the expression 'consideration' in Section 4 should
be determined by comprehensively reading Section 4 along
with the Valuation Rules. In this regard, he would submit by
D referring to Rule 5 that in case the price is not the sole
consideration then the value of the goods can be determined
by taking into account the monetary value of the additional
consideration flowing directly or indirectly from the buyer to the
seller. He would submit that any additional consideration should
E flow from buyer to seller. He would submit that intention of the
assessee to penetrate the market cannot be treated as a
consideration as no money consideration flows from the buyer
to the seller. Therefore, there is no additional consideration
flowing from buyer to seller and whole transaction is bonafide.
F He would submit that this Court has already answered this issue
of 'sole consideration' in the cases of Guru Nanak Refrigeration
(supra) and CCE v. Bisleri lntemational Pvt.Ltd., 2005 (186)
ELT 257 (SC).
G 15. Shri. V. Lakshmi Kumaran, learned counsel, who also
appears for the assessees but for the period April 1998 to June
2001, would submit that the Cost Auditor's report has not been
relied on or referred to in any of the show cause notices issued
to the assessee, which are the basis of entire proceedings and,
H therefore, proceedings initiated by the assessing authority are
COMMISSIONER OF CENTRAL EXCISE, MUMBAI v. 999
FIAT INDIA (P) LTD. & ANR. [H.L. DATIU, J.)
contrary to the settled principles enunciated by this Court. He A
would submit that all the show cause notices are identical or
verbatim the same while alleging that assessee has not
adopted any basis to determine the price and goods are sold
at loss in order to penetrate the market. The allegations on the
basis of Cost Auditors report amount to an issuance of new B
show cause notice. He would submit that the assessees'
declared price is based on the competitive price in the market
at arms length and where price is the sole consideration. He
would submit that nothing as to sole consideration or transaction
between related person has been alleged in the show cause c
notices, therefore, the show cause notices are without any basis.
He would submit that the assessee has not been furnished with
Cost Auditor's report till date. He would submit that the Revenue.
is not justified in rejecting the assessee's price as the price is
a bench mark in order to sell the goods in market and it is even D
higher in comparison to other similar cars, although it is less
than the cost of manufacture. He would further submit that the
economic concept to penetrate the market is recognized by
Article 6 of the WTO and Article VII of Customs Valuation Rules
of WTO and further, Section 14 of the Indian Customs Act
incorporates the above concept in harmony with other countries. E
He would submit that when the price of assessee is higher than
that of its competitors, it would mean that the assessee is bench
marking his prices. He would submit that the price at which
goods are sold' by the assessee to the buyer is purely a
competitive price and there is no allegation as to transactions F
are with related person(s) and price is not the sole consideration
and that there is flow back from buyer to the assessee in any
form. He would further submit that whenever goods are sold
in a competitive market at a price at arms length then it should
be treated as assessable value. He would submit that value is G
a function of price and where price is not available, one of the
methodology to determine it is cost. He would further submit,
relying on Ship Breaker's case that this Court while explaining
the meaning of expression 'Ordinary sale' occurring in Section
14 of the Customs Act which is in pari materia with Section 4 H
1000 SUPREME COURT REPORTS (2012) 12 S.C.R. ·
A of the Act has observed that "Ordinary Sale' would mean the
sale where goods are sold to unrelated parties and price is the
sole consideration.
16. Shri. V. Lakshmi Kumaran would further submit that
Section 4 of the Act was amended on 1st April 2000 to
8
incorporate 'transaction value' as an assessable value instead
of 'normal price' and the expression 'ordinarily' was dropped.
Therefore, the new Section 4 (after 2000 amendment) is
applicable to the transactions which took place during the
period from July, 2000 to June, 2001. He would further submit
C that the word 'ascertain' and 'determination' have different
meaning and connotation. He would submit that the word
'ascertain' would mean to find a thing which already exists
·whereas determination mean· to arrive at something by adding
or subtracting. He would then submit that when ascertainment
D of normal price is not possible under Section 4(1 )(a) then that
price has to be determined by the process of computation as
provided under Section 4 (1) (b) of the Act read with the Rules
framed thereunder. He would submit by relying on the decision
of this Court in Elgi Equipment Pvt. Ltd. v. CCE, Coimbatore,
E 2007 (215) ELT 348 (SC) that the word 'Ordinary sale' would
mean the normal practice or the practice followed by majority
of persons in the wholesale trade in the concerned goods. He
would submit that in the present case, the assessee is better
placed as the entire sale is at the same price or rate, so the
F condition of the expression 'ordinarily sold' is being satisfied.
17. Shri. V. Lakshmi Kumaran would further submit that
certain considerations for fixing the price like quantity or
volume, long term relationship and status of buyer are all
G commercial consideration. He would further contend that
consideration can be in any form but must flow from buyer to
the seller. He would submit relying on the decision of this Court
in Philips India Ltd. v. Collector of Central Excise, Pune, 1g97
(91) E.L.T. 540 (SC), that where the buyer is taking
responsibility on behalf of the seller, then it would be added in
H
COMMISSIONER OF CENTRAL EXCISE, MUMBAI v.1001
FIAT INDIA (P) LTD. & ANR. [H.L. DATTU, J.]
the sale price of seller while assessing him and in case where A
seller and buyer share expenditure, then, it cannot be added
in the sale price of the seller-assessee. He would further
submit relying on the decision of this Court in VST Industries
Ltd. v. Collector of Central Excise, Hyderabad, 1998 (97)
E.L.T. 395 (SC) that this Court has distinguished Metal Box B
decision by observing that the notional interest on interest free
deposit made by the buyer to the seller should not be included
in the sale price of the seller-assessee as no extra commercial
consideration is flowing from the buyer to the seller, there is no
nexus between the security deposit and sale price, and if c
department is not able to quantify the money value of the
additional consideration, then Rule 7 of the Valuation Rules is
not applicable.
18. Shri. V. Lakshmi Kumaran would further submit that
expression 'sale and purchase' is defined under Section 2(h) D
of the Act which would mean the transfer of possession of
goods from one person to other in the ordinary course of trade
for cash or deferred payment or other valuable consideration.
He would submit by relying on the constitution bench decision
of this Court in Devi Das Gopal v. State of Punjab, (1967) 20 E
STC 430, that the term 'purchase' would mean acquisition of
goods for sale for cash or deferred payment or other valuable
consideration. He would further submit that sale and purchase
are different perspectives of same transaction and the price is
defined in the Sale of Goods Act as "money consideration" and F
the expression 'cash'. 'deferred payment' and 'other valuable
consideration' are consistently used as monetary consideration.
He further contended that Section 4(1 )(a) of the Act has six
ingredients and if any one of these ingredients is missing, then
only the Revenue could invoke the Valuation Rules. He relies G
on Circular, issued by the Board, No.215149/9~-Cx., dated
27.05.1996, wherein the Board has clarified that if price was
not the sole consideration then any additional consideration that
flow from the buyer to assessee would have to be quantified in
terms of money, if the Department was not in a position to H
1002 SUPREME COURT. REPORTS [2012] 12 S.C.R.
A determine the same, then Rule 7 would not be applicable.
Learned counsel would state that Rule 7 was the only Rule
which could be applied in case the price was not sole
consideration and if that Rule was not applicable then no Rule
of the Valuation Rules would apply.
B
19. Shri. V. Lakshmi Kumaran would further submit by
relying on the decision of this Court in Basant Industries v.
Addi. Collector of Customs, Bombay, 1996 (81) E.L.T. 195
(SC), that ordinarily Courts would not interfere in the price
C fixation by merely stating that there is undervaluation and
proceed on such presumption. He further relied on the decision
of this Court in CCE v. Rajasthan Spinning and Weaving Mills,
(2007) 218 E.L.T. 641 (SC), to contend that different methods
prescribed under the Valuation Rules have to converge to a
common valuation and it is not possible to accept wide variation
D in the results in order to ascertain the basis of assessable
value. In conclusion, the learned counsel would submit that the
Tribunal was justified in allowing the assessees' appeals by
relying on the decision of this Court in Guru Nanak
Refrigeration's case (supra). In nutshell, the arguments of both
E the learned senior counsel is that in terms of Section 4 of the
Act, duty liability is on the normal price at which the goods are
sold in wholesale trade to the buyers when the sale price is the
sole consideration. The basis for valuation of excisable goods
is the normal price at which the goods are sold. Only if, such
F a sale price is not available, valuation based on cost production
can be resorted to. In summarization, it is contended that once
the normal price at which the goods are sold is available, the
Revenue cannot reject the normal price merely because it is
less than the cost of production, specially when the genuineness
G of the sale price is not in doubt. Since the adjudicating authority
does not question the genuineness of the sale price in the show
cause notices issued, he cannot resort to Section 4(1)(b) of the
Act read with relevant Rules for the purpose of quantification
of assessable value.
H
COMMISSIONER OF CENTRAL EXCISE, MUMBAI v.1003
FIAT INDIA (P) LTD. & ANR. [H.L. DATTU, J.)
Issues: A
20. 1. Whether the Price declared by assessees for their
cars which is admittedly below the Cost of manufacture can be
regarded as "normal price" for the purpose of excise duty in
terms of Section 4(1) (a) of the Act.
B
2. Whether the sale of Cars by assessees at a price, lower
than the cost of manufacture in order to compete and penetrate
the market, can be regarded as the "extra commercial
consideration" for the sale to their buyers which could be
considered as one of the vitiating factors to doubt the normal C
price of the wholesale trade of the assessees.
21. The decision in the present case turns upon the
interpretation of Section 4(1)(a) and Section 4(1)(b) of the Act
read with relevant Rules in order to determine the correctness 0
or otherwise of impugned judgment and order.
22. lo begin with, we might like to state here that the facts
of the case undoubtedly reveal that if the provisions of the
Section 4(1)(b) were to apply, it may work serious hardship to
the respondents-asseessees as contended by learned senior E
counsel for the assessees, but as we are concerned with
interpretation of a statutory provision, the mere fact that a
correct interpretation may lead to hardship would not be a valid
consideration for distorting the language of the statutory
provisions. F
23. Section 3 of the Act is the charging provision. The
taxable event for attracting excise duty is the manufacture of
excisable goods. The charge of incidence of duty stands
attracted as soon as taxable event takes place and the facility G
of postponement of collection of duty under the Act or Rules
framed thereunder can in no way effect the incidence of duty.
Further, the sale or ownership of the end products is also not
relevant for the purposes of taxable event under the central
excise. Since excise is a duty on manufacture, duty is payable H
1004 SUPREME COURT REPORTS [2012] 12 S.C.R.
A whether or not goods are sold. Duty is payable even when
goods are used within the factory or goods are captively
consumed within factory for further manufacture. Excise duty is
payable even in case of free supply or given as replacement.
Therefore, sale is not a necessary condition for charging excise
B duty.
24. Section 3 of the Act provides for levy of duty of excise
and Section 3(i) thereof states that there shall be levied and
collected in the prescribed manner, a duty of excise on
excisable goods manufactured in India at the rates set forth in
C the first Schedule. Neither Section 3 nor the first Schedule lays
down the manner in which ad valorem price of the goods has
to be calculated. This is found in Section 4 of the Act. 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
D and chargeable with reference to the value of the exercisable
goods and the value is further defined in express terms by the
said Section. In every case, the fundamental criterion for
computing the value of an excisable article is the normal price
at which the excisable article is sold by the manufacturer, where
E the buyer is not a related person and the price is the sole
consideration. If these conditions are satisfied and proved to
the satisfaction of the adjudicating authority, then, the burden
which lies on the assessee under Section 4(1)(a) would have
been discharged and the price would not be ignored and the
F transaction would fall under the protective umbrella contained
in the Section itself.
25. Section 4 of the Act is the core provision containing
statutory formula for assessment and collection at ad valorem
G basis of duty under Central Excise laws. Therefore, the Section
requires to be noticed and some of the expressions contained
therein, which are necessary for the purpose of the case,
require to be analysed to appreciate the stand of the parties.
Since the large part of the demand in question primarily
pertains to the period after the year 1975, we will notice Section
H
COMMISSIONER OF CENTRAL EXCISE, MUMBAI v. 1005
FIAT INDIA (P) LTD. & ANR. [H.L. DATIU, J.]
· 4 of the Act, which has come into force with effect from A
01.10.1975.
"4. Valuation of 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 8
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 at
which such goods are ordinarily sold by the assessee to
a buyer in the course of wholesale trade for delivery at the C
time and place of removal, where the buyer is not a related
person and the price is the sole consideration for the sale:
Provided that -
(i) where in accordance with the normal practice of the D
wholesale trade in such goods, such goods are sold by
the assessee at different prices to different classes of
buyers (not being related persons) each such price shall,
subject to the existence of the other circumstances
specified in clause (a), be deemed to be the normal price E
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 time and place
of removal at a price fixed under any law for the time being F
in force, or at a price, being the maximum fixed under any
such law, then, notwithstanding anything contained in
clause (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; G
•
(iii) where the assessee so arranges 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 H
-
1006 SUPREME COURT REPORTS [2012] 12 S.C.R.
A ordinarily sold by the related person in the course of
wholesale trade at the time of removal, to dealers (not
being related persons) or where such goods are not sold
to such dealers, to dealers (being related persons) who
sell such goods in retail;
B
(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.
c
(2) Where, in relation to any excisable goods, the 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,
D the cost of transportation from the place of removal to the
place of delivery shall be excluded from such price.
(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."
E
26. Section 4 of the Act lays down the valuation of
excisable goods chargeable to duty of excise. The duty of
excise is with reference to value and such value shall be subject
to other provisions of Section 4, that is the normal price at which
F 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. To determine the value,
the legislature has created a legal fiction to equate the value
G of the goods to the price which is actually obtained by the
assessee, when such goods are sold in the market, or the
nearest equivalent thereof. In other words, the legal fiction so
created by Section 4 makes excise duty leviable on the actual
market value of the goods or the nearest equivalent thereof. In
H Bangaru Laxman v. State (through CBI) and Anr.- (2012) 1
COMMISSIONER OF CENTRAL EXCISE, MUMBAI v.1007
FIAT INDIA (P) LTD. & ANR. [H.L. DATTU, J.]
SCC 500, this Court relying on J.K. Cotton Spinning and A
Weaving Mills Ltd. v. U.0.1, (1987) Supp. (1) SCC 350,
observed that a deeming provision creates a legal fiction and
something that is in fact not true or in existence, shall be
considered to be true or in existence. Therefore, though the
price at which the assessee sells the excisable goods to a B
buyer or the nearest ascertainable price may not reflect the
actual value of the goods, for the purpose of valuation of excise
duty, by the deeming fiction created in Section 4(1 ), such selling
price or nearest ascertainable price in the market, as the case
may be, is considered to be the value of goods. c
27. It is well settled that whenever the legislature uses
certain terms or expressions of well-known legal significance
or connotations, the courts must interpret them as used or
understood in the popular sense if they are not defined under
the Act or the Rules framed thereunder. Popular sense means D
"that sense which people conversant with the subject matter,
with which the statute is dealing, would attribute to it."
28. The normal rule of interpretation is that the words used
by the legislature are generally a safe guide to its intention. E
Lord Reid in Westminster Bank Ltd. v. Zang [(1966) A.C. 182]
observed that 'no principle of interpretation of statutes is more
firmly settled than the rule that the court must deduce the
intention of Parliament from the words used in the Act."
Applying such a rule, this Court observed in S. Narayanaswami F
v. G. Pannerse/vam & Ors. (1973) 1 SCR 172 that 'Where the
statute's meaning is clear and explicit, words cannot be
interpolated.'
29. Section 4 of the Act, as we have already noticed,
speaks of valuation of excisable goods, with reference to their G
value. The 'value' subject to other stipulation in Section 4 is
deemed to be the 'normal price' at which the goods are
'ordinarily' sold to the buyer in the course of 'wholesale trade'
where the buyer is not 'related person' and the 'price' is the
'sole consideration' for the sale. Against this background, for H
1008 SUPREME COURT REPORTS [2012) 12 S.C.R.
A the purpose of this case, we have now to consider the meaning
of the words 'value', 'normal price', 'ordinarily sold' and 'sole
consideration', as used in Section 4(1) (a) of the Act.
30. The 'value' in relation to excisable commodity means
normal price or the price at which the goods are ordinarily sold
8
by the assessee to a buyer in the course of wholesale trade at
the time and place of removal where the buyer is not a related
person and price is the sole consideration for sale. Stated
another way, the Central Excise duty is payable on the basis
of the value. The assessable value is arrived on the basis of
C Section 4 of the Act and the Central Excise Valuation Rules.
31. Section 4(1) (a) deems the 'normal price' of the
assessee for selling the excisable goods to buyers to be the
value of the goods for purpose of levy of excise duty. The
D expression 'normal price' is not defined under the Act. In
"Advanced Law Lexicon" by P. Ramanatha Aiyar, it is defined
as the price which would have been payable by an ordinary
customer of the goods. This Court while construing the meaning
of the aforesaid expression in Ashok Leyland Ltd. v. Collector
E of Central Excise, Madras (2002) 10 SCC 344 has stated
"Generally speaking the expression 'normal price' occurring in
Section 4(1)(a) and (b) means the price at which goods are
sold to the public. Where the sale to public is through dealers,
the 'normal price' would be the 'sale price' to the dealer.
F 32. In Commissioner of Central Excise, Ahemedabad v.
Xerographic Ltd. (2006) 9 SCC 556, this Court has explained
the concept of normal price. That was in the context of
transaction between the related persons. It was observed "that
the existence of any extra commercial consideration while fixing
G a price would not amount to normal price."
33. In Bum Standard Co. Ltd. & Anr. v. Union of India
(1991) 3 SCC 467, it is stated, "Section 3 of the Act provides
for levy of the duty of excise. It is a levy on goods produced
H or manufactured in India. Section 4 of the Act lays down the
COMMISSIONER OF CENTRAL EXCISE, MUMBAI v.1009
FIAT INDIA (P) LTD. & ANR. [H.L. DATTU, J.]
measure by reference to which the duty of excise is to be A
·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 express terms by the said section. In
every case the fundamental criterion for computing the value
of an excisable article is the normal price at which the B
excisable article or an article of the like kind and quality is
sold or is capable of being sold by the manufacturer." .
34. In Tata Iron and Steel Co. Ltd. v. Collector of Central
Excise, Jamshedpur (2002) 8 SCC 338, it is held that "it is C
true to be seen that under the said Act excise duty is
chargeable on the value of the goods. The value is the normal
price i.e. the price at which such goods are ordinarily sold by
the assessee to a buyer, where the buyer is not a related
person and the price is the sole consideration for sale."
D
35. In Union of India and Others v. Bombay Tyre
International Ltd & Ors .. (1984) 1 SCC 467, it is held that "it is
true, we think, that the new Section 4(1) contains inherently
within it the power to determine the true value of the excisable
article, after taking into account any concession shown to a E
special or favoured buyer because of extra-commercial
considerations, in order that the price be ascertained only on
the basis that it is a transaction at arm's length. That
requirement is emphasised by the provision in the new
Section 4(1)(a) that the price should be the sole consideration F
for the sale. In every such case, it will be for the Revenue to
determine on 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 article for the purpose of excise duty." G
36. In Metal Box India Ltd. v. CCE (1995) 2 SCC 90, this
Court held:
"10 .... It has been laid down by Section 4(1)(a) that
normal price would be price which must be the sole H
1010 SUPREME COURT REPORTS [2012) 12 S.C.R.
A consideration for the sale of goods and there could not
be other consideration except the price for the sale of the
goods and only under such a situation sub-section (l)(a)
would come into play."
B 37. In Calcutta Chromotype Ltd. v. CCE, (1998) 3 SCC
681, it is held:
14 .... Law is specific that when duty of excise is
chargeable on the goods with reference to its value then
the normal price on which the goods are sold shall be
c deemed to be the value provided (1) the buyer is not a
related person and (2) the price is the sole consideration.
It is a deeming provision and the two conditions have to
be satisfied for the case to fall under clause (a) of Section
4(1) keeping in view as to who is the related person within
D the meaning of clause (c) of Section 4(4) of the Act. Again
if the price is not the sole consideration, then again
clause (a) of Section 4(1) will not be applicable to arrive
at the value of the excisable goods for the purpose of levy
of duty of excise."
E
38. In Commissioner of Central Excise v. Ballarpur
Industries Ltd., (2007) 8 SCC 89, it is observed:
"19. Under Section 4(1)(a) normal price was the basis of
the assessable value. It was the price at which goods were
F ordinarily sold by the assessee to the buyer in the course
of wholesale trade. Under Section 4(1 )(b) it was provided
that if the price was not ascertainable for the reason that
such goods were not sold or for any other reason, the
nearest equivalent thereof had to be determined in terms
G of the Valuation Rules, 1975. Therefore, Rule 57-CC has
to be read in the context of Section 4(1) of the 1944 Act,
as it stood at the relevant time. Section 4(1 )(a) equated
"value" to the "normal price" which in turn referred to
goods being ordinarily sold in the course of wholesale
H trade. In other words, normal price, which in turn referred
COMMISSIONER OF CENTRAL EXCISE, MUMBAI v.1011
FIAT INDIA (P) LTD. & ANR. [H.L. DATIU, J.]
to goods being ordinarily sold in the course of wholesale A
trade at the time of removal, constituted the basis of the
assessable value."
39. In Siddharlha Tubes Ltd. v. CCE, (2005) 13 SCC 564,
at page 567, it is held:
B
"5 ...... The essential basis of valuation under Section 4
of the Act is the wholesale cash price charged by the
appellant. Normal price under Section 4(1)(a) constituted
a measure for levy of excise duty. In the present case, ·
we are concerned with assessment and not with C
classification. Duty under Section 4 was not leviab/e on
the "conceptual value" but on the normal price charged
or chargeable by the assessee. (See Union of India v.
Bombay Tyre International Ltd.)"
D
40. In CCE v. Bisleri International (P) Ltd., (2005) 6 SCC
58, at page 61, it is held:
"10. At the outset, it may be mentioned that under Section
4(1)(a), "value" in relation to any excisable goods is a
function of the price. Jn other words, "value" is derived E
from the normal price at the factory gate charged to an
unrelated person on wholesale basis and at the time and
place of removal.
11. It is for the Department to examine the entire evidence F
on record in order to determine whether the transaction is
one prompted by extra-commercial considerations. It is
well settled that under Section 4 of the said Act, as it stood
at the material time, price is adopted as a measure or a
yardstick for assessing the tax. The said measure or G
yardstick is not conclusive of the nature of the tax. Under
Section 4, price and sale are related concepts. The "value"
of the excisable article has to be computed with reference
to the price charged by the manufacturer, the computation
being made in accordance with Section 4. In every case, H
1012 SUPREME COURT REPORTS [2012] 12 S.C.R.
A it will be for the Revenue to determine on evidence
whether the transaction is one where extra-commercial
considerations have entered and, if so, what should be the
price to be taken into account as the value of the excisable
article for the purpose of excise duty. These principles have
B been laid down in the judgment of this Court in the case
of Union of India v. Bombay Tyre International Ltd."
41. In Ashok Leyland Ltd. v. Collector of Central Excise,
Madras, (2002) 10 SCC 344, at page 348, it is held:
c "10. In our view, the provisions of the Act are very clear.
Excise duty is payable on removal of goods. As there
may be no sale at the time of removal, Section 4 of the
Act lays down how the value has to be determined for the
purposes of charging of excise duty. The main provision
D is Section 4(1)(a) which provides that the value would be
the normal price thereof, that is, the price at which the
goods are ordinarily sold by the assessee to a buyer in
the course of a wholesale trade. Section 4(4)(e) clarifies
that a sale to a dealer would be deemed to be wholesale
E trade. Therefore, the normal price would be the price at
which the goods are sold in the market in the wholesale
trade. Generally speaking, the normal price is the one at
which goods are sold to the public. Here the sale to the
public is through the dealers. So the normal price is the
F sale price to the dealer. The proviso, which has been
relied upon by learned counsel, does not make any
exception to this normal rule. All that the proviso provides
is that if an assessee sells goods at different prices to
different classes of buyers, then in respect of each such
class of buyers, the normal price would be the price at
G
which the goods are sold to that class. The proviso does
not mean or provide that merely because the assessee
sells at different prices to different classes of buyers, the
price of that commodity becomes an unascertainable
price. The price of that commodity will remain the normal
H
COMMISSIONER OF CENTRAL EXCISE, MUMBAI v. 1013
FIAT INDIA (P) LTD. & ANR. [H.L. DATTU, J.]
price at which those goods are ordinarily sold by the A
assessee to the public, in other words, the price at which
they are sold in the market."
42. In Procter & Gamble Hygiene & Health Care Ltd. v.
Commissioner of Central Excise, Bhopal, (2006) 1 SCC 267, B
it is held:
"9. This case relates to valuation. At the outset, we would
like to clarify certain concepts under the excise law. The
levy of excise duty is on the "manufacture" of goods. The
excisable event is the manufacture. The levy is on the C
manufacture. The measure or the yardstick for
computing the levy is the "normal price" under Section
4(1)(a) of the Act. The concept of "excisability" is different
from the concept of "valuation". In the present case, as
stated above, we are concerned with valuation and not D
with excisability. In the present case, there is no dispute
that AMS came under Sub-Heading 3402.90 of the Tariff.
There is no dispute in the present case that AMS was
dutiable under Section 3 of the Act. In Union of India v.
Bombay Tyre International Ltd., this Court observed that E
the measure of levy did not conclusively determine the
nature of the levy. It was held that the fundamental
criterion for computing the value of an excisable article
was the price at which the excisable article was sold or
was capable of being sold by the manufacturer. It was F
further held that the price of an article was related to its
value and in that value, we have several components,
including those components which enhance the
commercial value of the article and which give to the
article its marketability in the trade. Therefore, the G
expenses incurred on such factors inter alia have to be
included in the assessable value of the article up to the
date of the sale, which was the date of delivery."
43. What can be construed from the plain reading of
Section 4 of the Act and the interpretation that is given by this H
1014 SUPREME COURT REPORTS [2012] 12 S.C.R.
A Court on the expression 'normal value' is, where excise duty is
chargeable on any excisable goods with reference to value,
such value shall be deemed to be 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
B removal and where the assessee and the buyer have no
interest directly or indirectly in the business of each other and
the price is the sole consideration for the sale. Normal price,
therefore, is the amount paid by the buyer for the purchase of
goods. In the present case, it is the stand of the revenue that
c 'loss making price' cannot be the 'normal price' and that too
when it is spread over for nearly five years and the
consideration being only to penetrate the market and compete
with other manufacturers who are manufacturing more or less
similar cars and selling at a lower price. The existence of extra
commercial consideration while fixing the price would not be
0
the 'normal price' as observed by this Court in Xerographic
Ltd.'s case (supra). If price is the sole consideration for the
sale of goods and if there is no other consideration except the
price for the sale of goods, then only provisions of Section 4
(1 )(a) of the Act can be applied. In fact, in Metal Box's case
E (supra) this Court has stated that under sub-Section (1) (a) of
Section 4 of the Act, the 'normal price' would be the price which
must be the sole consideration for the sale of goods and there
cannot be any other consideration except the price for the sale
of goods and it is only under such situation Sub-Section (1) (a)
F of Section 4 would come into play. In the show cause notices
issued, the Revenue doubts the normal price of the wholesale
trade of the assessees. They specifically allege, which is not
disputed by the assessees, that the 'loss making price'
continuously for a period of more than five years while selling
G more than 29000 cars, cannot be the normal price. It is true
that in notices issued, the Revenue does not allege that the
buyer is a related person, nor do they allege element of flow
back directly from the buyer to the seller, but certainly, they allege
that the price was not the sole consideration and the
H circumstance that no prudent businessman would continuously
COMMISSIONER OF CENTRAL EXCISE, MUMBAI v.1015
FIAT INDIA (P) LTD. & ANR. [H.L. DATIU, J.]
suffer huge loss only to penetrate the market and compete with A
other manufacturer of more or less similar cars. A prudent
businessman or woman and in the present case, a company
is expected to act with discretion to seek reasonable income,
preserve capital and, in general, avoid speculative investments.
This court in the case of Union of India v. Hindalco Industries B
2003 (153) ELT 481, has observed that, 'if there is anything to
suggest to doubt the normal price of the wholesale trade, then
recourse to clause (b) of sub-section(1) of Section 4 ofthe Act
could be made'. That the price is not the normal price, is
established from the following three circumstances which the C
assessees themselves have admitted; that the price of the cars
was not based on the manufacturing cost and manufacturing
profit, but have fixed at a lower price to penetrate the market;
though the normal price for their cars is higher, they are selling
the cars at a lower price to compete with the other D
manufacturers of similar cars. This is certainly a factor in
depressing the sale price to an artificial level; and, lastly, the
full commercial cost of manufacturing and selling the cars was
not reflected in the lower price. Therefore, merely because the
assessee has not sold the cars to the related person and the E
element of flow back directly from the buyer to the seller is not
the allegation in the show cause notices issued, the price at
which the assessees had sold its goods to the whole sale trader
cannot be accepted as 'normal price' for the sale of cars.
44. We now deal with the second limb of the argument of F
Shri Bhattacharya, learned ASG that the loss price at which the
goods are sold by the assessee clearly indicates ·or reflects that
these goods are not "ordinarily sold" in terms of Section 4 (1)
(a) of the Act. He submits that admittedly assessees are selling
their goods at 100% loss continuously for five years i.e. from G
the year 1996 to 2001 and therefore, the transactions of the
assessees cannot fit into description of expression 'ordinarily
sold'. While countering this argument, Shri Joseph Vellapally
would submit that the selling price at which the goods are sold
in the ordinary course of business by the assessee to all the H
1016 SUPREME COURT REPORTS [2012) 12 S.C.R.
A buyers is the same or uniform without any exception. He would,
therefore, contend that the goods are ordinarily sold in terms
of Section 4 (1) (a) of the Act. While adopting the submission
of Shri Vellapally, Shri Lakshmi Kumaran would further contend,
relying on Ship Breaker's case (supra) that this Court while
B explaining the meaning of the expression 'ordinarily sold',
occurring in Section 14 of the Customs Act, 1962 which is in
pari materia with Section 4 of the Act, would mean the sale
where the goods are sold to un-related persons and price is
the sole consideration. He would also contend that Section 4
c of the Act was amended with effect from 1stApril, 2000, to
incorporate 'transaction value' as an 'assessable value' instead
of 'normal price' and the expression 'ordinarily' was omitted.
Therefore, the new Section is applicable to the transactions
which took place for the period from July 2000 to June 2001.
He would submit by relying on the decision of this Court in Elgi
0
Equipment Pvt. Ltd. 's case (supra), that the word 'ordinarily
sold' would mean the normal practice or the practice followed
by majority of persons in the wholesale trade in the concerned
goods. He would submit that in the present cases, the
assessees are better placed as the entire sale is at the same
E price or rate, so the condition of the expression 'ordinarily sold'
is being satisfied.
45. The expression 'ordinarily sold' is again not defined
under the Act, but came up for consideration before this Court
F while construing the said expression under the Customs Act.
This Court in Eicher Tractors Ltd., Haryana v. Commissioner
of Customs, Mumbai (2001) 1 SCC 315 has held:
"6. Under the Act customs duty is chargeable on goods.
According to Section 14(1) of the Act, the assessment of
G duty is to be made on the value of the goods. The value
may be fixed by the Central Government under Section
14(2). Where the value is not so fixed, the value has to
be determined under Section 14(1). The value, according
to Section 14(1), shall be deemed to be the price at which
H
COMMISSIONER OF CENTRAL EXCISE, MUMBAI v.1017
FIAT INDIA (P) LTD. & ANR. [H.L. DATIU, J.]
such or like goods are ordinarily sold. or offered for sale, A
for delivery at the time and place of importation - in the
course of international trade. The word "ordinarily"
necessarily implies the exclusion of "extraordinary" or
"special" circumstances. This is clarified by the last
phrase in Section 14 which describes an "ordinary" sale B
as one "where the seller and the buyer have no interest
in the business of each other and the price is the sole
consideration for the sale .... ". Subject to these three
conditions laid down in Section 14(1) of time, place and
absence of special circumstances, the price of imported c
goods is to be determined under Section 14(1-A) in
accordance with the Rules framed in this behalf."
46. In /spat Industries Ltd. v. Commissioner of Customs,
Mumbai, (2006) 12 SCC 583, it is held:
D
"14. From a perusal of the above provisions (quoted
above), it is evident that the most important provision for
the purpose of valuation of the goods for the purpose of
assessment is Section 14 of the Customs Act, 1962.
Section 14(1), has already been quoted above, and a E
perusal of the same shows that the value to be
determined is a deemed value and not necessarily the
actual value of the goods. Thus, Section 14(1) creates a
legal fiction. Section 14(1) states that the value of the
imported goods shall be the deemed price at which such F
or like goods are ordinarily sold, or offered for sale, for
delivery at the time and place of importation in the course
of international trade. The word "ordinarily" in Section
14(1) is of great importance. In Section 14(1) we are not
to see the actual value of the goods, but the value at G
which such goods or like goods are ordinarily sold or
offered for sale for delivery at the time of import.
Similarly, the words "in the course of international trade"
are also of great importance. We have to see the value
of the goods not for each specific transaction, but the H
1018 SUPREME COURT REPORTS [2012] 12 S.C.R.
A ordinary value which it would have in the course of
international trade at the time of its import."
47. In Varsha Plastics Private Limited & Anr. v. Union of
India & Ors., (2009) 3 SCC 365, at page371, it is observed:
B "19. Section 14(1) of the Act prescribes a method for
determination of the value of the goods. It is a deeming
provision. By legal fiction incorporated in this section, the
value of the imported goods is the deemed price at which
such or like goods are ordinarily sold or offered for sale
c for delivery at the time and place of importation in the
course of international trade.
20. The word "ordinarily" in Section 14(1) is a word of
significance. The ordinary meaning of the word
D "ordinarily" in Section 14(1) is "non-exceptional" or
· "usual". It does not mean •universally". In the context of
Section 14(1) for the purpose of "valuation" of goods,
however, by use of the word "ordinarily" the indication is
that the ordinary value of the goods is what it would have
been in the course of international trade at the time of
E
import. Section 14(1), thus, provides that the value has
to be assessed on the basis of price attached to such or
like goods ordinarily sold or offered for sale in the
ordinary course of events in international trade at the time
and place of transportation."
F
48. In Rajkumar Knitting Mills (P) Ltd. v. Collector of
Customs, Bombay (1998) 3 SCC 163, at page 165, it is held:
"7 .... The words "ordinarily sold or offered for sale" do not
G refer to the contract between the supplier and the
importer, but to the prevailing price in the market on the
date of importation or exportation."
49. In Ashok Leyland Ltd. v. Collector of Central Excise,
Madras, (2002) 10 SCC 344, at page 348, it is held:
H
COMMISSIONER OF CENTRAL EXCISE, MUMBAI v.1019
FIAT INDIA (P) LTD. & ANR. [H.L. DATTU, J.]
'The price of that commodity will remain the normal price A
at which those goods are ordinarily sold by the assessee
to the public, in other words, the price at which they are
sold in the market."
50. In the context of Section 4(1 )(a) of the Act, the word
8
'ordinarily' does not mean majority of the sales; what it means
is that price should not be exceptional. In our considered
opinion, the word 'ordinarily', by no stretch of imagination, can
include extra-ordinary or unusual. In the instant cases, as we
have already noticed, the assessees sell their cars in the
market continuously for a period of five years at a loss price C
and claims that it had to do only to compete with the other
manufacturers of cars and also to penetrate the market. If such
sales are taken as sales made in the ordinary course, it would
be anathema for the expression 'ordinarily sold'. There could
be instances where a manufacturer may sell his goods at a D
price less than the cost of manufacturing and manufacturing
profit, when the company wants to switch over its business for
any other manufacturing activity, it could also be where the
manufacturer has goods which could not be sold within a
reasonable time. These instances are not exhaustive but only E
illustrative. In the instant cases, since the price charged for the
sale of cars is exceptional, we cannot accept the submission
of the learned counsel to give a meaning which does not fit into
the meaning of the expression 'ordinarily sold'. In other words,
in the transaction under consideration, the goods are sold below F
the manufacturing cost and manufacturing profit. Therefore, in
our view, such sales may be disregarded as not being done in
the ordinary c;:ourse of sale or trade. In our view, for the purpose
of Section 4(1) (a) all that has to be seen is: does the sale price
at the factory gate represent the wholesale cash price. If the G
price charged to the purchaser at the factory gate is fair and
reasonable and has been arrived at only on purely commercial
basis, then that should represent the wholesale cash price
under Section 4(1 )(a) of the Act. This is the price which has
been charged by the manufacturer from the wholesale H
1020 SUPREME COURT REPORTS [2012] 12 S.C.R.
A purchaser or sole distributor. What has to be seen is that the
sale made at arms length and in the usual course of business,
if it is not made at arms length or in the usual course of
business, then that will not be real value of the goods. The value
to pe adopted for the purpose of assessment to duty is not the
8 price at which the manufacturer actually sells the goods at his
sale depots or the price at which goods are sold by the dealers
to the customers, but a fictional price contemplated by the
section. This Court in Ram Kumar Knitting Mills case (supra),
while construing the said expression, has held that the word
C ·ordinarily sold' do not refer to contract between the supplier
and the importer, but, the prevailing price in the market on the
date of importation and exportation. Excise duty is leviable on
the value of goods as manufactured. That takes into account
manufacturing cost and manufacturing profit.
D 51. Excise is a tax on the production and manufacture of
goods and Section 4 of the Act provides for arriving at the real
value of such goods. When there is fair and reasonable price
stipulated between the manufacturer and the wholesale dealer
in respect of the goods purely on commercial basis that should
E necessarily reflect a dealing in the usual course of business,
and it is not possible to characterise it as not arising out of
agreement made at arms length. In contrast, if there is an extra-
ordinary or unusual price, specially low price, charged because
of extra-commercial considerations, the price charged could not
F be taken to be fair and reasonable, arrived at on purely
commercial basis, as to be counted as the wholesale cash
price for levying excise duty under Section 4(1 )(a) of the Act.
52. The next submission of Shri Bhattacharya, learned
ASG, is that the price at which the cars sold by the assessees
G is not the sole consideration as envisaged under Section
4(1)(a) of the Act. He would contend that admittedly there exists
a consideration other than the price, that is, to penetrate the
market. He would also submit that the lower price would enable
the assessee to generate higher turnover and this higher
H
COMMISSIONER OF CENTRAL EXCISE, MUMBAI v. 1021
FIAT INDIA (P) LTD. & ANR. IH.L. DATIU, J.]
turnover is monetary consideration for the assessee received A
directly from various buyers. In other words, he.would submit,
the intention to penetrate the market is intertwined with
receiving a higher monetary turnover. Therefore, the price is
not the sole consideration. However, it is contended by learned
senior counsel Shri Vellapally that the reason for the assessees B
for selling their cars at a lower price than the manufacturing cost
was because the assessees had no foothold in the Indian
market and, therefore, had to sell at a lower price than the
manufacturing cost and profit in order to compete in the market.
He would submit that the intention of the assessees to c
penetrate the market cannot be treated as extra commercial
consideration as it does not flow from the buyer to the seller.
Therefore, there is no additional consideration flowing from
buyer to seller and whole transaction is bona fide.
53. Now what requires to be considered is what is the D
meaning of the expression 'sole consideration'. Consideration
means something which is of value in the eyes of law, moving
from the plaintiff, either of benefit to the plaintiff or of detriment
to the defendant. In other words, it may consist either in some
right, interest, profit or benefit accruing to the one party, or E
some forbearance, detriment, loss or responsibility, given,
suffered or undertaken by the other, as observed in the case
of Currie v. Misa (1875) LR 10 Ex. 153.
54. Webster's Third New International Dictionary F
(unabridged) defines, consideration thus:
"Something that is legally regarded as the equivalent or
return given or suffered by one for the act or promise of
another."
G
55. In volume 17 of Corpus Juris Secundum (p.420-421
and 425) the import of 'consideration' has been described thus:
"Various definitions of the meaning of consideration are
to be found in the text-books and judicial opinions. A H
1022 SUPREME COURT REPORTS [2012] 12 S.C.R.
A sufficient one, as stated in Corpus Juris and which has
been quoted and cited with approval is "a benefit to the
party promising or a loss or detriment to the party to whom
the promise is made .....
At common law every contract not under seal requires a
8
consideration to support it, that is, as shown in the definition
above, some benefit to the promiser, or some detriment to the
promisee."
56. In Salmond on Jurisprudence, the word 'consideration'
C has been explained in the following words.
"A consideration in its widest sense is the reason, motive
or inducement, by which a man is moved to bind himself
by an agreement. It is for nothing that he consents to
0 impose an obligation upon himself, or to abandon or
transfer a right. It is in consideration of such and such a
fact that he agrees to bear new burdens or to forego the
benefits which the law already allows him."
57. The gist of the term 'consideration' and its legal
E significance has been clearly summed up in Section 2(d) of
thelndian Contract Act which defines 'consideration' thus:
"When, at the desire of the promiser, the promisee or any
other person has done or abstained from doing, or does
F or abstains from doing, or promises to do or lo abstain
from doing, something, such act or abstinence or promise
is called a consideration to the promise."
58. From a conspectus of decisions and dictionary
meaning, the inescapable conclusion that follows is that
G 'consideration' means a reasonable equivalent or other valuable
benefit passed on by the promiser to the promisee or by the
transferor to the transferee. Similarly, when the word
'consideration' is qualified by the word 'sole', it makes
consideration stronger so as to /make it sufficient and valuable
H
COMMISSIONER OF CENTRAL EXCISE, MUMBAI v. 1023
FIAT INDIA (P) LTD. & ANR. [H.L. DATIU, J.]
having regard to the facts, circumstances and necessities of A
the case.
59. To attract Section 4(1)(a) of the Act what is required
·1s to determine the 'normal price' of an excisable article which
price will be t~e price at which it is ordinarily sold to a buyer in
the course of wholesale trade. It is for the Excise authorities to 8
show that the price charged to such selling agent or distributor
is a concessional or specially low price or a price charged to
show favour or gain in return extra-commercial advantage. If it
is shown that the price charged to such a sole selling agent or
distributor is lower than the real value of the goods which will C
mean the manufacturing cost plus manufacturing profit, the
Excise authorities can refuse to accept that price.
60. Since under new Section 4(1)(a) the price should be
the sole consideration for the sale, it will be open for the o
Revenue to determine on the basis of evidence whether a
particular transaction is one where extra-commercial
consideration has entered and, if so, what should be the price
to be taken as the value of the excisable article for the purpose
of excise duty and that is what exactly has been done in the E
instant cases and after analysing the evidence on record it is
found that extra-commercial consideration had entered into
while fixing the price of the sale of the cars to the customers.
When the price is not the sole consideration and there are some
additional considerations either in the form of cash, kind, F
services or in any other way, then according to Rule 5 of the
1975 Valuation Rules, the equivalent value of that additional
consideration should be added to the price shown by the
assessee. The important requirement under Section 4(1)(a) is
that the price must be the sole and only consideration for the
sale. If the sale is influenced by considerations other than the G
price, then, Section 4(1 )(a) will not apply. In the instant case,
the main reason for the assessees to sell their cars at a lower
price than the manufacturing cost and profit is to penetrate the
market and this will constitute extra commercial consideration
and not the sole consideration. As we have already noticed, H
1024 SUPREME COURT REPORTS [2012] 12 S.C.R.
A the duty of excise is chargeable on the goods with reference
to its value then the normal price on which the goods are sold
shall be deemed to be the value, provided: (1) the buyer is not
a related person and (2) the price is the sole consideration.
These twin conditions have to be satisfied for the case to fall
8 under Section 4(1)(a) of the Act. We have demonstrated in the
instant cases, the price is not the sole consideration when the
assessees sold their cars in the wholesale trade. Therefore,
the assessing authority was justified in invoking clause(b) of
Section 4(1) to arrive at the value of the exercisable goods for
C the purpose of levy of duty of excise, since the proper price
could not be ascertained. Since, Section 4(1 )(b) of the Act
applies, the valuation requires to be done on the basis of the
1975 Valuation Rules.
61. After amendment of Section 4 :- Section 4 lays
D down that the valuation of excisable goods chargeable to duty
of excises on ad-valorem would be based upon the concept
of transaction value for levy of duty. 'Transaction value' means
the price actually paid or payable for the goods, when sold, and
includes any amount that the buyer is liable to pay to the
E assessee in connection with the sale, whether payable at the
time of sale or at any other time, including any amount charged
for, or to make provisions for advertising or publicity, marketing
and selling, and storage etc., but does not include duty of
excise, sales tax, or any other taxes, if any, actually paid or
F payable on such goods. Therefore, each removal is a different
transaction and duty is charged on the value of each
transaction. The new Section 4, therefore, accepts different
transaction values which may be charged by the assessee to
different customers for assessment purposes where one of the
G · three requirements, namely; (a) where the goods are sold for
delivery at the time and place of delivery; (b) the assessee and
buyers are not related; and (c) price is the sole consideration
for sale, is not satisfied, then the transaction value shall not be
the assessable value and value in such case has to be arrived
H at, under the Central Excise Valuation (Determination of Price
COMMISSIONER OF CENTRAL EXCISE, MUMBAI v. 1025
FIAT INDIA (P) LTD. & ANR. [H.L. DATTU, J.]
of Excisable Goods) Rules 2000 ('the Rules 2000' for short) A
which is also made effective from 1st July, 2000. Since the
price is not the sole consideration for the period even after 1st
July, 2000, in our view, the assessing authority was justified in
invoking provisions of the Rules 2000.
B
62. Reference to the Citations:
Shri Bhattacharya, learned ASG, submits that in view of
the decision of this Court in Bombay Tyre lntemational case
(supra), the nominal price of the goods, even if it is sold for a
loss price, for the purpose of assessable value under Section C
4 of the Act, at least the manufacturing cost and manufacturing
profit should be taken into consideration. In view of this
decision, the learned counsel goes to the extent of saying the
judgements relied upon by the opposite side on the decision
of this Court in Guru Nanak Refrigeration (supra) and Bis/eri D
lntemational (supra) should be treated as per-incurium. We
cannot agree. In Bombay Tyre's case, the issue before the
Court was whether the value of an article for the purpose of
excise duty had to be determined by reference exclusively to
the manufacturing cost and manufacturing profit of the E
manufacturer or should be represented by the wholesale price
charged by the manufacturer which would include post-
manufacturing expenses and post-manufacturing profits arising
between the completion of manufacturing process and the point
of sale by the manufacturer. It is relevant to notice at this stage, F
in the Bombay Tyre's case, this Court considered the scope
of Section 4 before its amendment and after the new section
4 was substituted with effect from 01.10.1975. This Court in
the said case, after detailed consideration of rival contentions
and after referring to several precedents of this Court has G
concluded that the levy of excise duty was on the manufacture
or production of goods, the stage of collection need not in point
of time synchronise with the completion of the manufacturing
process while the levy had the status of a constitutional
concept, the point of collection was located where the statute H
1026 SUPREME COURT REPORTS [2012] 12 S.C.R.
A declared it would be. The Court further went on to observe
when enacting the measure to serve as a standard for
assessing the levy, legislature need not contour it along lines
which spell out the character of the levy itself. From this stand
point, it is not possible to accept the contention that because
B the levy of excise is a levy on goods manufactured or produced,
the value of the excisable article must be limited to the
manufacturing cost plus the manufacturing profit. The Court
further was of the opinion, that a broad-based standard of
reference may be adopted for the purpose of determining the
c measure of levy. Any standard which maintains a manner with
the essential character of levy could be regarded as a valid
basis for assessing the measure of levy. This Court in this
decision also distinguished the view expressed in AK. Roy &
Anr. v. Vo/fas Ltd., 1977 (1) ELT 177 (SC), wherein this Court
had held that the value for the purpose of Section 4 would
0
include only the manufacturing cost plus manufacturing profit
and exclude post-manufacturing cost plus manufacturing profit
but exclude post-manufacturing cost and profit arising from
post-manufacturing operation by observing that this Court in the
E aforesaid decision intended to say was that entire cost of the
article plus profit minus trade discount would represent the
assessable value and in that decision there was no issue on
the question of including the post manufacturing cost and post-
manufacturing profits. In conclusion, insofar as amended
Section 4 of the Act, the Court has observed that the
F assessable value will be the price at which the goods are
ordinarily sold by the assessee to the buyer in the course of
wholesale trade at the factory gate. However, firstly, the buyer
should not be a related person and the price should be sole
consideration for the same. This proposition is subject to
G Section 4(1 )(a). Secondly, if the price of the excisable goods
cannot be ascertained either because the goods are not sold
or for any other reason, the value will have to be determined
as per the Central Excise Valuation Rules.
H 63. Our attention was also drawn by learned counsel Shri
COMMISSIONER OF CENTRAL EXCISE, MUMBAI v. 1027
FIAT INDIA (P) LTD. & ANR. [H.L. DATIU, J.]
Bhattacharya to the decision of this Court in Assistant Collector A
of Central Excise & Ors.. v. M.R.F. Ltd. 1987 (27) ELT 553
(SC), wherein the Court dealt with concept of post-removal
expenses.
64. Shri Vellapally and Shri Lakshmi Kumaran learned B
Counsel by placing reliance on Guru Nanak's case (supra) and
Bisleri's case (supra) contends that the issue raised in these
appeals is no more res integra. We cannot agree. In Guru
Nanak's case, the facts are: the assessee therein was engaged
in the manufacture of refrigeration and air-conditioning C
machinery. They had cleared the goods after approval of the
price list by the department. The adjudicating authority being
of the view that the assessable value declared by the assessee
was low as compared to the cost of material used in the
manufacture of the said machinery, had issued a show cause,
to show cause why the assessable value should not be re-fixed D
and the duty fixed on the re-fixed assessable value after taking
into consideration the cost of raw material plus manufacturing
cost plus reasonable profit margin. The adjudicating authority
after considering the reply filed had confirmed the show cause
notice and had directed the assessee to pay the difference in E
excise duty. In the appeal filed before the Tribunal, the
assessee had succeeded. In the appeal filed by the
department, this Court was of the view that since in the show
cause notice issued by the adjudicating authority there was no
allegation that the wholesale price to the buyers was for F
consideration other than the one at which it was purported to
be sold or that it was not at arms length and further, there was
no allegation that there was any flow back from the buyer to the
assessee and therefore, the department cannot take a stand
that the normal price was not ascertainable for the purpose of G
valuation under Section 4(1 )(a) of the Act and therefore, the
Tribunal was justified in accepting the whole sale price as the
correct price.
65. In Bis/eri's case, the issue as noted by the Court was, H
1028 SUPREME COURT REPORTS [2012] 12 S.C.R.
A whether the assessee had undervalued the aerated water
(Beverages) by excluding two items, namely, the amounts
received under credit notes as price support incentive and rent
on containers as assessable value. The Court after referring
to provisions of Section 4(1 )(a) of the Act and the decision of
B this Court in Bombay Tyre's case (supra) has held that the
amounts received under credit notes as price support
incentives from supplier of raw materials cannot be included
in the assessable value, since the department failed to prove
that there was flow back of additional consideration from buyers
c of aerated waters to the assessee and further, the price was
not uniformly maintained and favour of exra-commercial
consideration was shown to the buyers of aerated waters
(beverages). The Court has also observed that under Section
4, the price and sale are related concepts. The value of the
excisable article has to be computed with reference to the price
0
charged by the manufacturer, the computation being made in
accordance with Section 4. In every case, it will be for the
revenue to determine on evidence whether the transaction is
one where extra-commercial consideration have entered and
if so, what should be the price to be taken into account as the
E value of the excisable article for the purpose of excise duty.
66. In our considered view, either the decision of Guru
Nanak's case (supra) or the decision in Bisleri's case (supra)
would not assist the assessee in any manner whatsoever. We
F say so for the reason, that, in Guru Nanak's case, the
department had accepted the price declared by the assessee
and the narration of the facts both by the Tribunal and this Court
would reveal that ii was one time transaction and lastly, this
Court itself has specifically observed that the view that they
G have taken, is primarily based on the facts and circumstances
of the case. In the instant cases, the department never
accepted the declared value. It is for this reason, provisional
assessments were completed instead of accepting declared
price by the assessee under Rule 98 of the Rules inter a/ia
H holding that during the enquiry, the assessees had admitted
COMMISSIONER OF CENTRAL EXCISE, MUMBAI v. 1029
FIAT INDIA (P) LTD. & ANR. [H.L. DATIU, J.]
that they did not have any basis to arrive at the assessable A
value but they are selling their goods at 'loss price' only to
penetrate the market. Secondly, as we have already noticed
that for nearly five years the assessee was selling its cars in
the wholesale trade for a 'loss price' and therefore, the
conditions envisaged under Section 4(1 )(a) of the Act, namely; B
the normal price, ordinarily sold and sole consideration are not
satisfied. We further hold that the decision in Bisleri's case
(supra) will also not assist the assessees for the reason that
the issue that came up for consideration is entirely different
from the legal issue raised in these civil appeals. Before we c
conclude on this issue, we intend to refer to the often quoted
truism of Lord Halsbury that a case is only an authority for what
it actually decides and not for what may seem to follow logically
from it. We may also note the view expressed by this Court in
the case of Sushi/ Suri vs. Central Bureau of Investigation &
0
Anr. {2011) 5 SCC 708, wherein this Court has observed,
"Each case depends on its own facts and a close similarity
between one case and another is not enough because either
a single significant detail may alter the entire aspect. In
deciding such cases, one should avoid the temptation to decide E
cases (as said by Cardozo) by matching the colour of one case
against the colour of another. To decide, therefore, on which
side of the line a case falls, the broad resemblance to another
case is not at all decisive." We do not intend to overload this
judgment by referring to other decisions on this well settled legal
principle. F
67. Reference to Valuation Rules:
Shri. Bhattacharya, the learned ASG, contends that the
assessees are not fulfilling the conditions enumerated in G
Section 4(1 )(a) of the Act and therefore, the valuation has to
be done in accordance with Section 4(1)(b) read with the 1975
Valuation Rules. He would submit that since the price of the
cars sold by the assessee was not ascertainable, the Revenue
is justified in computing the assessable value of the goods for H
1030 SUPREME COURT REPORTS [2012] 12 S.C.R.
A the levy of excise duty under Section 4(1 )(b) of the Act and the
relevant rules. He would further submit that the Valuation Rules
need not be applied sequentially. He would contend that all the
Rules 3, 4, 5, 6 and 7 of the 1975 Valuation Rules specifically
use the expression "shall... be determined", "shall be based" or
B "shall determine the value" and nowhere word "sequentially"
occurs in these Rules, unlike Rule 3(ii) of the Customs Valuation
Rules, 1988. He would submit that merely the presence of
word "shall" does not imply that all the Rules has to be applied
sequentially. He would further submit that in the facts and
c circumstances of the present cases, Rule 7 is the only
applicable Rule in view of the decision in Bombay Tyre's case
and assessing authority as well as the first appellate authority
correctly adopted the application of this Rule.
68. Per Contra, Shri Joseph Vellapally, would submit that
D only when the normal price is not ascertainable in terms of
Section 4(1 )(a), then Section 4(1 )(b) read with the 1975
Valuation Rules would come into play to determine the nearest
equivalent assessable value of the goods. He would contend
that the Valuation Rules have to be applied sequentially, i.e. first,
E Rules 4 and 5 should be invoked in order to determine the
assessable value and if Rules 4 and 5 are not applicable or
assessable, value cannot be ascertained by applying the said
Rules, and then only Rule 6 can be invoked. He would further
submit that it is only Rule 6(b)(ii) of the 1975 Valuation Rules
F which contemplates determining of assessable value on the
basis of cost of manufacture, only when the goods are captively
consumed by the manufacturer and value of comparable goods
manufactured by the assessee or any other assessee are not
available.
G
69. Under Section 4(1)(b) of the Act, 1944, any goods
which do not fall within the ambit of Section 4(1 )(a) i.e. if the
'normal price' cannot be ascertained because the goods are
not sold or for any other reason, the 'normal price' would have
to be determined in the prescribed manner i.e. prior to 1st day
H
COMMISSIONER OF CENTRAL EXCISE, MUMBAI v.1031
FIAT INDIA (P) LTD. & ANR. [H.L. DATIU, J.]
of July, 2000, in accordance with Rules, 1975 and after 1st day A
of July 2000, in accordance with Rules, 2000.
70. Rule 2 of the 1975 Valuation Rules provides for
definition of certain terms, such as "proper officer", "value" etc.,
Rule 3 of the above Rules, provides that the value of any B
excisable goods, for the purposes of Clause (b) of Sub-Section
(1) of Section 4 of the Act be determined in accordance with
these Rules. Rule 4 provides that the value of the excisable
goods shall be based on the value of such goods by the
assessee for delivery at any other time nearest to the time of C
removal of goods under assessment. Rule 5 provides that
when the goods are sold in the circumstances specified in
Clause (a) of Sub-Section (1) of Section (4) of the Act except
that the price is not the sole consideration, the value of such
goods shall be based on the aggregate price and the amount
of the money value of any additional consideration flowing D
directly or indirectly from the buyer to the assessee. Rule 6
provides, that, if the value of the excisable goods under
assessment cannot be made, then to invoke provisions of Rule
6 of the Rules, wherein certain adjustments requires to be made
as provided therein. Rule 7 is in the nature of residuary clause. E
It provides that if the value of excisable goods cannot be
determined under Rule 4, 5 and 6 of the Rules, the adjudging
authority shall determine the value of such goods according to
the best of his judgment and while doing so, he may have
regard to any one or more methods provided under the F
aforesaid Rules. A bare reading of these rules does not give
any indication that the adjudging authority while computing the
assessable value of the excisable goods, he had to follow the
rules sequentially. The rules only provides for arriving at the
assessable value under different contingencies. Again, Rule G
7 of the Valuation Rules which provides for the best judgment
assessment gives an indication that the assessing authority
while quantifying the assessable value under the said Rules,
may take the assistance of the methods provided under Rules
4, 5 or 6 of the Valuation Rules. Therefore, contention of the H
1032 SUPREME COURT REPORTS [2012] 12 S.C.R.
A learned counsel that the assessing authority before invoking
Rule 7 of the 1975 Valuation Rules, ought to have invoked Rules
4, 5 and 6 of the said Rules cannot be accepted. In our view,
since the assessing authority could not do the valuation with the
help of the other rules, has resorted to best judgment method
B and while doing so, has taken the assistance of the report of
the 'Cost Accountant' who was sisked to conduct special audit
to ascertain the correct price that requires to be adopted during
the relevant period. Therefore, we cannot take exception of the
assessable value of the excisable goods quantified by the
c assessing authority.
71. In the result, the appeals require to be allowed and,
accordingly, they are allowed and the impugned order is set
aside and the order passed by the adjudicating authority is
restored. No order as to costs.
D
K.K.T. Appeals allowed.
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