Supreme Court of India
M/S. MODIPON FIBRE COMPANY, MODINAGAR, U.P.versusCOMMISSIONER OF CENTRAL EXCISE, MEERUT
- Citation
- 2007 INSC 1104
- Decided
- 25 October 2007
- Disposal
- Dismissed
- Bench
- S H KAPADIA
Holding
Only the effective duty of excise payable, i.e., after incorporating any exemption, may be deducted under s.4(4)(d)(ii); consequently the assessee could deduct TOT at 0.5% for backward‑area sales and not at the uniform 2% rate.
Summary
Mis Modipon Fibre Company, a manufacturer of nylon and polyester yarn, cleared its yarn to depots including Surat in Gujarat. A Gujarat notification of 19‑Oct‑1993 exempted yarn sold to special manufacturers in backward areas, allowing a turnover tax (TOT) rate of 0.5% instead of the normal 2%. The assessee claimed a 2% TOT deduction for all clearances, without distinguishing the two rates, and the Department issued a show‑cause notice demanding differential excise duty. The Tribunal upheld the demand but held it beyond limitation because the assessee had informed the Department on 14‑Jan‑1997 of the two sales types. Both parties appealed. The Supreme Court held that under s.4(4)(d)(ii) of the Central Excises Act and its Explanation, only the effective duty payable after accounting for any exemption can be deducted; therefore the assessee was entitled to deduct TOT at 0.5% for backward‑area sales, not at 2% for all. The Court dismissed both appeals, confirming the Department’s right to raise the demand and to invoke the extended limitation period.
Issues considered
- The meaning of "payable" in s.4(4)(d)(ii) of the Central Excises Act, 1944 with respect to deductions for turnover tax.
- Whether the assessee could claim a uniform 2% TOT deduction despite the existence of a 0.5% rate for backward‑area sales under the Gujarat exemption notification.
- Whether the Department could invoke the extended limitation period after the assessee disclosed the dual sales rates on 14‑Jan‑1997.
Legislation cited
- Central Excise Rules, 1944s. Rule 173-C
- Customs Tariff Act, 1975s. Section 3
- Finance Act, 1982s. 47
Subjects
Central ExciseTurnover TaxDeductionEffective dutySection 4(4)(d)(ii)Exemption NotificationBackward area salesLimitation periodPrice declarationRule 173-C
Judgment
·--r
A MIS. MODIPON FIBRE COMPANY, MODINAGAR, U.P.
v.
COMMISSIONER OF CENTRAL EXCISE, MEERUT
OCTOBER 25, 2007
B
[S.H. KAPADIA AND B. SUDERSHAN REDDY, JJ.]
. "-
Central Excises Act, I 944:
c S. 4(4)(d)(ii) and Explanation appended thereto-Yarn-Turnover
tax-Deduction of-By virtue of Exemption Notification, rate of
turnover tax for normal area sales was 2%andfor backward area sales
was 0.5%-Claim of deduction at 2%for entire clearance without
mentioning two types ofsales effected by it-Entitlement for-Held:
D Not entitled-Assessee entitled to deduction of only effective duty
payable-Since exemption has been granted, exemption has to be
deducted fi·om ad valorem duty-Central Excises Rules, I 944-Rule
I 73-C-Finance Act, 1982-s.47.
S. I IA-Demand of duty on clearance of Yarn-By virtue of
E Notification, rate of turnover tax for normal area sales was 2% and
for baclnmrd area sales was 0. 5'Yo-Assessee claimed deduction at 2%
for entire clearance-Demand.for differential duty raised by
department for period March I 994 to March 1997-Extended period
oflimitation-Invocation of-Held: Invokable as assessee was guilty
F of suppression of two types of sales effected by it-However, since
. }-
assessee intimated on I 4.1. I 99 7 about the ll1'0 types of sales,
Department cannot allege suppression after 14.1. I 997-Notification
dated 19.10.1993.
The appellant-assessee had been engaged in the manufacture
G of Nylon and Polyester Yarn in its factory in U.P. which is cleared to
its various Depots situated all over India including Surat from where
the Yarn is sold to dealers. In respect of yarn cleared and despatched
to Surat depot, the assessee claimed deduction at 2% on account of
Turnover Tax (TOT). This was on the footing that the Government
H 688
MODIPONFIBRECOMPANY,MODINAGAR, U.P. v. 689
COMMNR. OF CENTRAL EXCISE, MEERUT
ofGujaratvide Notification dated 19.10.1993 had exempted sale of A
Yarn of all kinds by a registered dealer to a special manufacturer of
processed Yarn or to an eligible unit to the extent to which the rate
of TOT exceeded 0.5% of the total turnover.
The Revenue issued show cause notice dated 19.3.1999 on the
ground that the assessee had suppressed the fact that during the B
~ period March 1994 to March 1997, there were two types of sales,
./ one in the backward area as notified by the Gujarat Government
and the other in areas other than the backward area; that the
assessee had claimed deduction for TOT at the full rate of2% in
respect of entire clearances of Nylon Yarn sent to its Surat depot c
without mentioning that in the State of Gujarat on account of
Notification dated 19.10.1993 two rates of TOT existed and,
therefore, the assessee had claimed wrongfully the deduction at a
higher rate of 2% as against the rate of 0.5%; that since the
assessee had deducted TOT at a higher rate to arrive at the D
y assessable value, it had lowered the assessable value to the extent
of 1.5% and, as such, a demand for difference was made on the
assessee. The demand was confirmed by the authorities. On appeal,
the Tribunal confirmed the demand, however it found that demand
was beyond limitation after the assessee had informed Department E
on 14.1.1997 that there were two types of sales and hence it was not
open to Department to claim suppression after 14.~.1997. The
assessee and Department both filed appeals against th~ order of
Tribunal
-1.. F
Dismissing the appeal of assessee and of department;the' Court
HELD: 1. In terms of s.4(4)(d)(ii) of Central Excises Act, 1944,
the excise duty can be deducted if it had. not b.~en included in the
invoice price. Ac~ording to the Explanation, what is deductible is the
effective rate of duty. Where any exemption has been granted, that G
~
,.....
exemption has to be deducted from the ad valorem duty. Thus, it is
only the net duty liability of the assessee that can be deducted in
~
computing the assessable value. [Para 7] [698-E]
IDL Chemicals Ltd. v. Collector ofCentral Excise, (1997] 5 SCC H
SUPREME COURT REPORTS [2007] 11 S.C.R.
~
690
·-r
A 311; MRF Ltd v. Collectoro/Central Excise, Madras, [1997] 5 SCC
104; JK Synthetics Ltd v. Commercial Taxes Officer, [1994] 4 SCC
276; Harshad Shanti/al Mehta.v. Custodian and Ors., [1998] 5 SCC 1
and Associated Cement Companies Ltd v. State of Bihar and Ors.,
(2004] 7 sec 642, referred to.
B 2. S.4(4)(d)(ii) does not refer to duty leviable under the relevant
tariff entry without reference to exemption Notification that may be A.
in existence at the time of clearance/removal. S.47 of the Finance
Act, 1982 which inserted the Explanation expressly sets out what is '
meant by the expression "the amount of duty of excise payable on
c any excisable goods." By the amount of duty of excise what is meant
is the effective duty of excise payable on such goods under the Act
and, therefore, effective duty of excise is the duty calculated on the
basis of the prescribed rate as reduced by the exemption notification.
This alone is excluded from the normal price under s.4(4)(d)(ii).
D [Para ll] [701-D, E]
3. It is true that the Explanation to s. 4(4)(d)(ii) only refers to
the amount of duty of excise payable on excisable goods, however,
the Explanation expressly sets out what is implicit in s. 4(4)(d)(ii)
E which states that "value" in relation to excisable goods does not
include the amount of duty of excise, sales tax and other taxes if
payable on such goods. Therefore, the test to be applied is that of
the "actual value of the duty payable" and, therefore, the J
Explanation is not restricted to the duty of excise. This principle can
therefore apply also to actual value of any other tax including TOT
F . j- f
payable. Even without the Explanation, the scheme of s. 4(4)(d)(ii)
shows that in computing the assessable value, one has to go by the
actual value of the duty payable and, therefore, only the reduced
duty was deductible from the value of the goods. It is clear that on
the date when the assessee filed its price declaration under Rule
G
173-C of Central Excises Act, 1944, the assessee was aware that
there was an exemption Notification dated 19.10.1993 in the State ,,,--./
of Gujarat; that there were depot sales in Surat; that there were two
types of sales, namely, backward area sales and normal area sales
and that the rate of TOT in respect of backward area sales was 0.5%
H
MODIPONFIBRECOMPANY,MODINAGAR, U.P. v. 691
COMMNR. OF CENTRAL EXCISE, MEER UT
whereas the rate of TOT for normal area sales was at 2% and yet A
the assessee after suppressing the aforestated data claimed the TOT
deductions at the rate of2% across the board for all clearances and,
therefore, the Department was justified in calling upon the asses see
to pay differential excise duty.
[Paras 12and14] [701-F, G, H; 702-A, G; 703-A] B
~ TOMCO v. Union of India, (1980) ELT 768 (Born.); and B.K
I' Paper Mills Pvt. Ltd. v. Union ofIndia and Ors., (1984) 18 ELT 701
(Born.), referred to.
4. Every efficient manufacturer has to plan his operations , C
carefully to know what raw materials he will use and in what
proportion he will use the raw materials in the manufacture of his
final product. Generally, such manufacturers maintain Order Book.
A manufacturer who is prudent would ordinarily work out on
estimation, the extent of exemption which he is likely to get. In the b
y present case, the deduction has been claimed by the assessee-
manufacturer. The burden is on such manufacturer to maintain
proper records, as the burden is on it to file a proper price declaration
under Rule 173-C. The assessee has filed a declaration under the
said Rule 173-C without disclosing to the Department any of the E
aforestated details. Therefore, the Department was right not only
in raising the demand for differential duty but also for invoking the
extended period oflimitation. [Para 15] [703-B, C, D, E]
5. There was no suppression after the Department had acquired
i:. the knowledge for the first time by the assessee's letter dated F
14.1.1997 and, therefore, it was not open to the Department to claim
suppression after 14.1.1997. Therefore there is no reason to
interfere with the findings recorded by the Tribunal on the question
of suppression. [Paras 18and19] [704-A, B]
G
CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 8529-
8531 of 2007.
Appeal against the Final Order No. 294/01-A dated 3.7.2001
passed by the Central Excise & Gold (Control) Appellate Tribunal, New
Delhi in Appeal Nos. E/487, 604-605/2001-A. H
·\
692 SUPREME COURT REPORTS [2007] 11 S.C.R.
. ..,.,
A WITH
Civil Appeal Nos. 2008-2010/2002
S.K. Bagaria, Robina Nath, Javed Mujaffar, Ramesh Singh and
Umesh Kumar Khaitan for the appellant and respondent in C.A. Nos.
B 2008-2010/2002.
Dr. R.G. Padia, T.V. Ratnam and B. Krishna Prasad for the appellant
and respondent in C.A. Nos. 8529-8531/2001. """'
'
The Judgment of the Court was delivered by
c KAPADIA, J. 1. Delay condoned.
2. These cross appeals are filed by Mis Modipon Fibre Company
and the Department under Section 35L of Central Excise Act, 1944
against order dated 3.7.2001 pass~d by the Customs Excise & Gold
D (Control) Appellate Tribunal ("CEGAT") holding that the assessee was
entitled to deduction in respect of turnover tax ("TOT") only at 0.5% and
/
not at 2% as claimed.
Civil Appeal Nos. 8529.,8531 of 2001
E 3. The appellant-assessee is engaged in the manufacture of Nylon
and Polyester Yam which is manufactured in its factory in U.P. and cleared
to its various Depots situated all over India including Surat from where
the Yam is sold to dealers. The assessee used to pay duty during the
relevant period, at the time of removal of yarn, on the basis of the depot
F sale price, after claiming permissible deductions under section 4 of the . j-
Central Excise Act, 1944 ("1944 Act"). One such deduction was TOT
in respect of yam cleared and despatched to Surat depot from the factory
of the assessee in U.P .. In respect of such despatch, the assessee claimed
deduction at 2% on account of TOT. This was on the footing that the
G Government of Gujarat vide Notification dated 19.10.1993 had exempted
sale of Yam of all kinds by a registered dealer to a special manufacturer
of processed Yam or to an eligible unit to the extent to which the rate of ~
TOT exceeded 0.5% of the total turnover. This was provided the specified
manufacturer furnished to the selling dealer a certificate in Form 26 and if
H the processed Yam stood sold within the State of Gujarat.
\
t
MODIPON FIBRE COMPANY, MODINAGAR, U.P. v. 693
"t. COMMNR. OF CENTRAL EXCISE, MEERUT [KAPADIA, J.]
4. On 19.3.1999, a show cause notice was issued by the Department A
to the assessee in which it was alleged that the assessee had filed its price
declaration under Rule 173-C in regard to the goods transferred to its
depot in Surat for sale therefrom; that in the said price declaration, the
assessee had indicated variety-wise ex-depot sale price, amount of various
deductions for sales tax, freight, discount, TOT, excise duty etc.; that in B
f the price declaration, the assessee had also declared the assessable value
/
arrived at by deducting the abovementioned elements from ex-depot sale
price; that, however, in the price declaration, the assessee had suppressed
from the Department the fact that there were two types of sales, one in
the backward area as notified by the Gujarat Government and the other c
in areas other than the backward area; that the assessee had failed to
declare that the TOT was leviable on sale of goods during the period
March, 1994 to March, 1997 at the dual rate of 0.5% (for sales in
backward areas) and at 2% (for sales in areas other than backward areas)
respectively. According to the show cause notice, the assessee had claimed. D
y deduction for TOT at 2% from ex-depot sale price in order to arrive at
the assessable value; that although sales stood effected from the depot at
two different rates, the assessee claimed deduction for TOT at the f1'Jl
rate of 2% in respect of entire clearances of Nylon Yam sent to its Surat
depot without mentioning that in the State of Gujarat on account of ,E
Notification dated 19.10.1993 two rates of TOT existed and, therefore,
according to the show cause notice, the asseS'see had claimed wrongfully
the deduction at a higher rate of2% as against the rate of 0.5%. According
to the show cause notice, since the assessee had deducted TOT at a
1 higher rate to arrive at the assessable value, it had lowered the assessable F
value to the extent of 1.5% and, as such, a demand for difference was
made on the assessee. According to the show cause notice, in the peculiar
facts of this case, there should have been different assessable values in
respect of Normal Areas Sales and Backward Areas Sales, particularly
when the rate of TOT was different for the two types of sales; that in the G
.\.__
case of Normal Areas Sales, the assessable value should have been
arrived at allowing a deduction of2% on account of TOT and in the case
of Backward Areas Sales, the assessable value should have been arrived
at by deduction of0.5% on account of TOT. However, according to the
Department, in the price declaration filed by the assessee, the assessee H
\
694 SUPREME COURT REPORTS [2007) 11 S.C.R.
A has claimed deduction at 2% on account of TOT in respect of the entire
clearance and thus, according to the Department, the assessee had claimed
wrongfully a larger deduction than what he was entitled to. Therefore,
according to the show cause notice, the difference between the amount
of TOT actually paid should have formed part of the assessable value
B and accordingly, the Department called upon the assessee to pay excise
duty on the differential value. According to the Department, the assessee
had wrongfully claimed deduction on account of TOT; that the assessee
had claimed wrongfully deduction on the entire clearances at 2%; that the
assessee had claimed in the price declaration deduction on account of
c TOT at 2% when it had actually paid TOT @ 0.5% in respect of
backward area sales and, to that extent, the assessee had evaded excise
duty by \vrongfully claiming excess amount of deduction on the amount
of deduction on account of TOT as compared to what was actually paid
~y it. The demand has been confirmed by all the authorities. Hence, these
D civil appeals.
5. Mr. S.K. Bagaria, learned senior counsel, appearing on behalf of
the assessee, submitted that the word "payable" in section 4(4)(d)(ii) is a
function of charging duty. If there is a charge, payability exists. If there is
a charge, liability exists. That, levy of duty is the legislative function. The
E first step is liability, whereas the second step is when the tax becomes
due. On completion of assessment, the tax becomes due. Till such
assessment, liability may exist but tax does not become due till
quantification takes place. According to the learned counsel, the
expression "payable" in section 4(4)(d)(ii) is "time related concept" as
F the assessable value has got to be determined at the time of clearance/ · }-
removal. Learned counsel submitted that, therefore, the word "payable"
in section 4(4)(d)(ii) should not be given a notional meaning. According
to the learned counsel, assessable value is a matter relatable to
chargeability. That, liability to be assessed is not the same as payability
G as under the 1944 Act, "payability" has to be decided at the time of
clearance of goods and, therefore, from the ex-depot price, assessee was ,;).
required to deduct under section 4(2) the cost of transportation as well
as elements enumerated in section 4(4)(d)(ii). According to the learned
counsel, on the date of the clearance of the goods, it was not possibl~
H
I
! MODIPON FIBRE COMP ANY, MODIN AGAR, U.P. v. 69.5
"t COMMNR. OF CENTRAL EXCISE, MEERUT [KAPADIA, J.]
for the assessee to visualize as to how many sales would be Normal Area A
Sales and how many sales would be Backward Area Sales as it depended
on eligibility of special manufacturers. According to the learned counsel,
on the date of clearance, the assessee was only aware of the fact that the
turnover tax was 2%. Therefore, there was no mis-declaration as alleged ·
by the Department. According to the learned counsel, the assessee used , B
~ to manufacture variety of yarns. The factory of the assessee was in U.P ..
i' These different varieties of yarns were despatched from the factory in U.P.
to various sales depot of the a<;sessee all over India. One such sales depot
of the assessee was in Surat. Learned counsel pointed out that under the
exemption Notification sales in backward areas were subject to certain c
eligibility criteria and compliance of the procedure mentioned in the
exemption Notification issued by the Gujarat Government in 1993.
According to the learned counsel, it was impossible for the assessee to
have visualized as to how many dealers in Surat in future would be entitled
to the benefit of exemption Notification, particularly at the time when the D
y yarn was cleared at the factory gate of the assessee in U.P. and, therefore,
according to the assessee, eligibility of the dealers in Surat, who were
liable to pay TOT constituted post-clearance event. According to the
learned counsel, such post-clearance events are assumptions; that
chargeability of excise duty cannot depend on such assumptions; that E
liability did not depend on assessment as it is fixed ex-hypothesis and,
consequently, according to the learned counsel, the assessee was right in
claiming deduction on account of TOT at 2% as that was the only rate
which existed on the date when the goods were cleared at the factory
i gate. According to the learned counsel, at the time of filing the price F
declaration under Rule 173-C, the assessee had no means of knowing
whether ultimately the TOT would be payable at 2% or at 0.5% and,
therefore, the assessee was justified in claiming deduction of TOT at 2%
being the prescribed tariff rate. According to the learned counsel, 0.5%
was the concessional rate which depended upon fulfilment of conditions G
and eligibility criteria and, tl1erefore, it was not possible for the assessee
~
to visualize whether ultimately TOT would be payable at 2% or at 0.5%.
According to the learned counsel, section 4 of the 1944 Act provides
for deduction of tax "payable" and since TOT was normally payable at
the prescribed rate of 2%, the assessee was justified in deducting TOT H
696 SUPREME COURT REPORTS (2007] 11 S.C.R.
\ \
A at 2% from the normal price in order to arrive at the assessable value at
th~_factory gate (place ofremoval}. According to the learned counsel
fodhe assessee, in terms of section 4(4)(d)(ii) and the Explanation
thereto, the concept of"effective duty of excise" payable on the goods
was restricted only to excise duty. It wa5 not extended to sales tax!fOT
B payable. and, therefore, the assessee was justified in deducting the TOT
payable in the State of Gujarat at the normal prescribed tariff rate of2%
from the normal price of the yarn to arrive at the assessable value instead
of deducting the concessional rate of TOT at 0.5% prescribed by
Notification dated 19.10.1993, which exempted the processors in
C backward areas in the State of Gujarat from paying TOT at 2% and
instead provided for payment of TOT at 0.5%. According to the learned
counsel, under the above circumstances, at the time of sale, the assessee
was not aware whether ultimately the TOT would be payable at 2% or
at 0.5%, therefore, the learned counsel urged that the assessee was
D justified in claiming deduction for TOT at 2% from the normal price. In
this connection, learned counsel placed reliance on the judgments of this
Court in the cases of IDL Chemicals Ltd v. Collector of Central
Excise, reported in (1997] 5 SCC 311; MRF Ltd v. Collector of
Central Excise, Madras, reported in (1997] 5 SCC 104; J.K.
E Synthetics Ltd v. Commercial Taxes Officer, reported in (1994] 4 SCC
276; Harshad Shanti/al Mehta v. Custodian and ors., reported in
(1998} 5 sec J and Associated Cement Companies Ltd V. State of
Bihar and Ors., reported in (2004] 7 SCC 642.
6. Dr. R.G. Padia, learned senior counsel appearing on behalf of
F the Department, submitted that on the date when the assessee had filed · }-
price declaration under Rule 173-C, the assessee was aware of
Notification dated I 9.10.1993 issued by the Gujarat Government; that
the assessee was also aware that there existed backward area sales and
normal area sales on the date when it filed the price declaration; that the
G assessee had never informed the Department that there were two separate
rates prevalent under the above Notification dated 19.10.1993; that if ~
the amount of TOT paid by the assessee was less than the amount
claimed as TOT deduction at the time of ex-factory clearances, tne
assessee should have paid the differential excise duty but the assessee
H
MODIPON FIBRE COMPANY, MODINAGAR, U.P. v. 697
"+- COMMNR. OF CENTRAL EXCISE, MEERUT [KAPADIA, J.]
never disclosed to the Department that there were two types of sales, A
namely, backward area sales and normal area sales and nor did the
assessee inform the Department about the TOT actually paid by it and,
therefore, Department was right in con:finning the show cause notice dated
19-.3 .1999 for the period March, 1994 to March, 1997.
7. The question to be answered is the meaning of the word "payable" B
in section 4(4)(d)(ii). The said word is descriptive. One has to see' the
context in which the said word finds place in the aforestated section
4(4)(d)(ii). We quote hereinbelow section 4(4)(d)(ii), which reads as
under:
c
"4. Valuation of excisable goods for purposes of charging of duty
of excise.-
(1) to (3) xxx xxx xxx
(4) For the purposes of this section, - D
(a) to (c) xxx xxx xxx
(d) "value", in relation to any excisable goods,-
(i) xxx xxx xxx
E
(ii) does not include the amount of the duty of excise, sa/ifs
tax and other taxes, if any, payable on such goods and,
subject to such rules as may be made, the trade discount (sudh
discount not being refundable on any account whatsoever)
allowed in accordance with the normal practice of th'e F
wholesale trade at the time of removal in respect of such goods
sold or contracted for sale.
Explanation.- For purposes of this sub-clause, the amount of th~
duty of excise payable on any excisable goods shall be the sum
total of-- G
(a) the effective duty of excise payable on such goods under this
Act; and
(b) the aggregate of the effective duties of excise payable under.
H
698 SUPREME COURT REPORTS [2007] 11 S.C.R.
A other Central Acts, if any, providing for the levy of duties of excise
on such goods, an~ the effective duty of excise on. such goods
under each Act referred to in clause (a) or clause (b) shall be, -
(i) in a case where a notification or order providing for any
exemption (not being an exemption for giving credit with respect
B
to, or reduction of duty of excise under such Act on such goods
equal to, any duty of excise under such Act, or the additional duty
under Section 3 of the Customs Tariff Act, 1975 (51of1975),
already paid on the raw material or component parts iised in the
production of manufacture of such goods) from the duty of excise
c under such Act is for the time being in force, the duty of excise
computed with reference to the rate specified in such Act, in respect
of such goods as reduced so as to give full and complete effect to
such exemption; and
D (ii) in any other case, the duty of excise computed with reference
to the rate specified in such Act in respect of such goods."
(emphasis supplied)
As can be seen from the above quoted section, excise duty can be
E deducted if it had not been included in the invoice price. According to
the Explanation, what is deductible is the effective rate of duty. Where
any exemption has been granted, that exemption has to be deducted from
the ad valorem duty. In other words, it is only the net duty liability of the
assessee that can be deducted in computing the assessable value. The
F said principle stands incorporated in the E_xplanation. For example, ifthe . f-
assessee recovers duty at the tariff rate but pays duty at concessional rate,
then excise duty has to be a part of the assessable value. Similarly, refund
of excise duty cannot be treated as net profit and added on to the value
of clearances. There is no provision in section 4 of the 1944 Act to treat
G refund as part of assessable value. If excise duty paid to the Government
is collected at actuals from the customers and if, subsequently, exemption _.;i
becomes available, such excise duty which is not passed on to the assessee,
would become part of assessable value under section 4(4)(d)(ii).
8. In the case of TOMCO v. Union of India reported in (1980)
H
--- MODIPON FIBRE COMPANY, MODINAGAR, U.P. v.
COMMNR. OF CENTRAL EXCISE, MEERUT [KAPADIA, J .]
699
ELT 768 (Born.) the assessees were manufacturers of vegetable product A
known as 'Pakav'. The prices were fixed by the Controller, who fixed
the prices statutorily under the Vegetable Control Order, 1947. These
prices were fixed by the Controller, net of any tax during the period
March, 1969 to December, 1969. The prices so fixed by the Controller
included the element of excise duty payable thereon. TOM CO contended B
,;.__ that it was entitled to claim rebate of duty by virtue of Notification No.
6/62-CE dated 10.2.1962. TOM CO further contended that, it was
declaiing the assessable value after deducting the element of duty at 5%
from the price fixed by the Controller and, therefore, entitled to deduct
from the selling price the duty payable at 5% ad valorem. At this stage, G
it may be noted that TOMCO showed the deduction at 5% from the price
fixed by the Controller on the duty payable under the above Notification
whereas, according to the Department, the correct method to arrive at
the assessable value ("a.v.'') was to deduct from the selling price not the
duty payable under the Notification but the duty actually payable after D
y the rebate, which the assessee was entitled to on account of cotton seed
oil content. In other words, according to the Department, the duty element
of the rebate was also admissible for deduction from the selling price in
order to arrive at the correct a.v .. This was the controversy before the
Bombay High Court. Therefore, the main issue, which arose before the B
High Court was whether TOM CO was entitled to deduction of 5% ad
valorern or whether it was entitled to the deduction of 5% ad valorem
minus the rebate which it was entitled to receive under exemption
Notification No. 6/62-CE dated l 0.2.1962. According to TOMCO. the
rebate of 6 paise was admissible to the manufacturers who used F
indigenous cotton seed oil in the manufacture of vegetable product, namely,
Pakav (ghee) and, therefore, according to TOMCO, what was given by
rabate/exemption under the above Notification was not deductible from
the excise duty. In short, as in the present case, TOMCO claimed higher
deduction of 5% whereas Department contended that the assessee was G,
entitled to deduction of 5% minus 6 paise (rebate). On behalf of TOMCO,
as in the present case, it was argued that exemption was given under the
Notification by way of ai1 encouragement to a manufacturer to make use
of cotton seeds in the manufacture of Pakav. The rebate in duty was not
a general rebate. It was a rebate admissible only to the manufacturer H 1
700 SUPREME COURT REPORTS [2007]_ l l S.C.R.
A satisfying certain conditions. ll1erefore, the position, in the present case,
and the position prevalent in TOMCO' s case were identical. In the present
case also the TOT deducti<;m was available only on fulfilment of certain
conditions. Rejecting the arguments of TOMCO, the Bombay High Co wt
held that the rebate of 6 paise had to be deducted from 5% ad valorem
B duty as the exemption under the Not(ftcation was not by way of a
windfall for the manzifacturer but it was admissible only on account of ,-\
the use of cotton seed oil in the manufacture of Pakav.
9. At this stage, we may note that there was a conflict of views at
C the relevant time when TOM CO case was decided by Bombay High
Court on 24.7.1980. It is precisely in order to avoid the conflict that the
Legislature inserted the above Explanation in section 4(4)(d)(ii) of the 1944
Act by using the words "the effective duty of excise payable on goods
under this Act."
D IO. In the case of B.K. Paper Mills Pvt. Ltd v. Union of India
and Ors., Reported in ( 1984) 18 ELT 701 (Born.) the assessee was the y
manufacturer of various types of papers at their facto1y in Bombay. The
papers manufactured by the assessee was liable to excise duty under Tariff
Item 17 of the First Schedule to the 1944 Act (as it then stood) at the
E rate specified therein. Under Notification No. 45173 dated 1.3.1973 an
exemption from excise duty to the extent mentioned in the Notification
was given in respect of ce1tain types of papers cleared by the assessee
(manufacturer). In preparing the invoices, the assessees did not give the
benefit of exemption Notification to their customers. The assessees
F contended that the exempted duty of excise was, in fact a subsidy and, . }-
therefore, they were not required to pass on the benefit of exemption to
their customers. The assessees filed their price lists for the period July,
1976 to July, 1979 under Rule 173-C. The Department issued a show
cause notice stating that the assessees were paying duty al a
G concessional rate while, in fact, they were charging full tariff rate of duty
to their buyers and, therefore, they were liable to pay the differential duty j,,
calculated on the revised a.v. by applying section 4 of the 1944 Act. 111e
Department directed the a.v. to be determined by deducting from the
normal price the actual value ofthe duty payable. This dete1mination /
H
}
f-
MODIPON FIBRE COMPANY, MODIN AGAR, U.P. v. 701
COMMNR.OFCENTRALEXCISE,MEERUT[KAPADIA,J.]
'")'
was challenged by the assessee. The Bombay High Court, speaking A
through Sujata v. Manohar, J, as she then was, held vide para 25 that
looking to the provisions of section 4(4)(d)(ii) of the 1944 Act and the
language used therein, it was clear that only the reduced rate ofduty
was excludible from the value ofthe goods. That, the Explanation did
not add something extra to section 4(4)(d)(ii) as it merely explained B
what was implicit in that Section.
/
~.
11. In our view, the above two judgments of the Bombay High Court
lay down the correct principle underlying the Explanation to section
4(4)(d)(ii). As held in TOMCO 's case (supra), the exemption was not
by way of a windfall for the manufacturer-assessee but on account of
c
cotton seed oil used by TOMCO in the manufacture of Pakav. Similarly,
in the case of B. K. Paper Mills (supra), the Bombay High Court has
correctly analysed section 4(4)(d)(ii) with the Explanation to say that only
the reduced rate of duty can be excluded from the value of the goods
D
and that Explanation explains what was implicit in that Section. That, the
said section 4(4)(d)(ii) did not refer to duty leviable under the relevant
tariff entry without reference to exemption Notification that may be in
existence at the time of clearance/removal. That, section 47 of the Finance
Act, 1982 which inserted the Explanation expressly sets out what is meant
by the expression "the amount of duty of excise payable on any excisable E
goods." By the amount of duty of excise what is meant is the effective
duty of excise payable on such goods under the Act and, therefore,
effective duty of excise is the duty calculated on the basis of the prescribed
rate as reduced by the exemption notification. This alone is excluded from
the normal price under section 4(4)(d)(ii). F
·-i
12. It is true that the Explanation to section 4(4)(d)(ii) only refers
to the amount of duty of excise payable on excisable goods, however,
as held by the Bombay High Court in the case of B.K. Paper Mills
(supra), the Explanation expressly sets out what is implicit in section G
4(4)(d)(ii) which states that "value" in relation to excisable goods does
not include the amount of duty of excise, sales tax and other taxes if
payable on such goods. Therefore, the test to be applied is that of the
"actual value of the duty payable" and, therefore, there is no merit in the
argument advanced on behalf of the assessee that the Explanation is H
702 SUPREME COURT REPORTS [2007] 11 S.C.R.
A restricted to the duty of excise. This principle can therefore apply also to
actual value of any other tax including TOT payable. Even without the
Explanation, the scheme of section 4(4)(d)(ii) shows that in computing
the assessable value, one has to go by the actual value of the duty payable
and, therefore, only the reduced duty was d.eductible from the value of
B thegoods.
13. To the same effect is the judgment of the Division Bench of the -~
Bombay High Court in the case of Central India Spinning, Weaving
and Manufacturing Co. Ltd. and Ors. v. Union of India and Ors.,
C reported in (1987) 30 ELT 217 (Born.). We quote hereinbelow para 7
of the said judgment, which reads as follows:
"It is true that according to Section 4(4)(d)(ii) of the Central
Excises Act, the value does not include the amount of duty of
excise, if any payable on such goods, but in view of Explanation
D to Section 4(4)(d)(ii), the 'duty of excise' means the duty payable
in terms of the Central Excise Tariff read with Exemption
Notification issued.under Rule 8 of the Central Excise Rules. In
this view of the matter, the only deduction that is permissible is of
the actual duty paid or payable while· fixing the assessable value.
E Thus where the company/ manufacturer whose goods were liable
to excise duty at a reduced rate in consequence of an exemption
notification, while paying duty at reduced rate collected duty at a
higher rate i.e. tariff rate from its customers the authorities were
justified in holding that what was being collected by the company
F as excise duty was not excise duty but the value in substance of
the goods and therefore, the excess value collected by the petitioner
from the customers was recoverable under Section 11 A of the
Central Excises and Salt Act, 1944."
14. Applying the above tests to the facts of the present case, it is
G clear that on the date when the assessee filed its price declaration under
Rule 173-C the assessee was aware that there was an exemption .:'.
Notification dated 19.10.1993 in the State of Gujarat; that there were
depot sales in Surat; that there were two types of sales, namely, backward
area sales and normal area sales and that the rate of TOT in respect of
H
MODIPONFIBRECOMPANY,MODINAGAR, U.P. v. 703
COMMNR.OFCENTRALEXCISE,MEERUT[KAPADIA,J.]
backward area sales was 0.5% whereas the rate of TOT for normal area A
sales was at 2% and yet the assessee after suppressing the aforestated
data claimed the TOT deductions at the rate of 2% across the board for
all clearances and, therefore, the Department was justified in calling upon
the assessee to pay differential excise duty. We accordingly confifQl the
demand. B
I
f· 15. Before concluding, we may add that every efficient manufacturer
has to plan his operations sufficiently carefully to know what raw materials
he will use and in what proportion he will use the raw materials in the
manufacture of his final product. Generally, such manufacturers maintain C
what is called as Order Book. A manufacturer who is prudent would
ordinarily worked out on estimation, the extent of exemption which he is
likely to get, in which event, the uncertainty to which the learned counsel
has made reference would in fact hardly arise. In the present easel we
are concerned with the amount of deduction. That deduction has been
claimed by the assessee-manufacturer (appellant). The burden is on such D
manufacturer to maintain proper records, as the burden is on it to fi,le a
proper price declaration under Rule 173-C. The burden to claim
deduction is on the manufacturer. In the present case, the assessee has
filed a declaration under the said Rule 173-C without disclosing to .the
Department any of the aforestated details. We are, therefore, of the view E
that the Department was right not only in raising the demand for differential
duty but also for invoking the extended period of limitation.
16. For the aforestated reasons, we find no merit in these civil
-1. appeals and the same are accordingly dismissed with no order as to costs. F
Civil Appeal Nos. 2008-2010 of 2002
17. This batch of civil appeals have been filed by the Department
against order dated 3. 7.2001 passed by the CEGAT ("the Tribunal'') which
order stands confirmed by our above judgment in civil appeal Nos. 8529- G
t 8531 of2001 in favour of the Department.
18. By the impugned order, the Tribunal has confinned the demand
made on the assessee vi de show cause notice dated 19.3 .1999 for the
period March, 1994 to March, 1997. However, tl1e Tribunal found that H
704 SUPREME COURT REPORTS [2007] 11 S.C.R.
A the demand made by the Department was beyond limitation after the
assessee had categorically informed the Department vide letter dated
14.1.1997 that there were two types of sales, namely, backward area
sales and normal area sales. According to the Tribunal, therefore, there
was no suppression after the Department had acquired the knowledge
B forthe first time vide the assessee's letter dated 14.1.1997 and, therefore,
it was not open to the Department to claim suppression after 14.1.1997.
19. We see no reason to interfere with the findings recorded by the
Tribunal on the question of suppression. I-
C 20. Accordingly, civil appeal Nos. 8529-8531 of 2001 filed by 'the
assessee and the cross civil appeal Nos. 2008-2010of2002 filed by
the Department stand dismissed with no order as to costs.
D.G. Appeals dismissed.
',•
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