PROCTER & GAMBLE HYGIENE & HEALTH CARE LTD.versusCOMMISSIONER OF CENTRAL EXCISE, BHOPAL.

A            PROCTER & GAMBLE HYGIENE & HEALTH CARE LTD.
                                          v.
                COMMISSIONER OF CENTRAL EXCISE, BHOPAL.

                               NOVEMBER 28, 2005

B                    [ASHOK BHAN AND S.H. KAPADIA, JJ.]


          Central Excise Act, 1944/Central Excise Tariff Act, 1985; Chapter 34
    of the Schedule to the Act with amendment; Ss. 2(/), 3, 4(4)(d)(i) and 1lA(J):
    Valuation-Detergent powder-Repacking in sachets from bulk packs-Levy
    of differential amount of duty-Justification of-Held: Taxable event took
    place when detergent powder manufactured-Tribunal ought to have decided
    the assessable value of bulk packs of the product in question as at the factory
    gate-Since repacking in sachets did not amount to manufacture at tf:le
    relevant time, tribunal ought to have decided the justification of assessing
    the value of bulk packs based on retail price of sachets for the purpose of
    levying of excise duty by the Revenue-Tribunal also erred in not considering
    the defence of the assessee in the context of suppression offacts and also on
    invocation of extended period of limitation-Hence, the matter .remitted ta,
    the Tribunal for decision afresh in the light of the principle laid down.

          The question which arose for determination in this appeal was as to
    whether, on the facts and circumstances of this case, cost of repacking of the
    product Ariel Micro System (AMS), detergent powder into 20 gms. and 30
    gms. Sachets from the bulk packs of the product, which did not amount to
    manufacture at the relevant time, was includible in the assessable value of
    the product in question which was manufactured and cleared by the assessee/
    appellant in bulk packs of 25 kgs. and engaged another firrn for repacking
    of the product into sachets from bulk packs.

          Appellant-assessee contended that the show-cause notice issued by the
    Revenue did not contain allegations regarding valuation of 25 kgs. bulk packs
    and the demand of differential amount of duty was made only on the basis of
    the price of 20 gms. and 30 gms. Sachets; that since repacking did not
    constitute "manufacture" at the relevant time, the demand for differential
    amount of duty only on the basis of the price of the sachets was untenable in
    law; that the value of the bulk packs was approved by the Revenue as declared

                                         4%



                                                                                      .....
         PROCTER & GAMBLE HYGIENE & HEALTH CAREL TD. 1•. COMMR. OF CENTRAL EXCISE   497

in the price list for captive consumption and, therefore, there was no question           A
of suppression of facts; that since the clearance of the bulk packs was for
captive consumption and not for sale, the concept of"normal price" was not
applicable; and that the tribunal has not at all gone into the question of
valuation, particularly, when the entire case related to the scope of section
4(4)(d)(i) of the Act;
                                                                                          B
       Revenue submitted that during the relevant period, the product in
question was manufactured by the assessee and not by the firm engaged in
manufacturing sachets, and therefore, the authorities were right in demanding
the differential duty on the price of the sachets; that the assessee removed
the detergent powder in bulk packs from the factory gate with the sole                    C
intention of getting it repacked into sachets; that the assessee had deliberately
declared only the cost of the bulk packs but suppressed the price of the
product; that the firm engaged in repacking was an independent job worker
and was not an extended arm of the assessee; that the retail packs were in
fact cleared through the depots of the assessee and in the circumstances, the
authorities were right in coming to the conclusion that there was a wilful                D
suppression on the part of the assessee.

      Allowing the appeal, the Court

     HELD: 1.1. The levy of excise duty is on the "manufacture" of goods.
The excisable event is the manufacture. The measure or the yardstick for                  E
computing the levy is the "normal price" under Section 4(1)(a) of the Central
Excise Tariff Act. [503-E]

     Union of India & Ors etc. v. Bombay India International Ltd etc., AIR
(1984) SC 420 and Sidhartha Tubes Ltd v. Collector ofCentral Excise, (2000)
115 ELT 32, referred to.                                                                  F
      1.2. The concepts of "manufacture" and "valuation" are two different
and distinct concepts. The present case is concerned with valuation. Value is
the function of price under section 4(l)(a) of the Central Excise and Tariff
Act. The taxable event took place when detergent powder was manufactured
by the assessee. The said powder was packed into bulk packs of 25 kgs. They               G
were cleared from the factory of the assessee on payment of excise duty.
                                                                     [504-Cf

      1.3. Two key questions were required to be decided by the tribunal in
the present case. Firstly, whether "repacking" amounted to manufacture.
Secondly, if "repacking" amounted to manufacture, was the department                      H
    498                     SUPREME COURT REPORTS [2005] SUPP. 5 S.C.R.

A   entitled to include the retail price of smaller packs into the value of the "bulk
    packs". It may be noted that in this case the issue was regarding valuation of
    bulk packs~ These questions were required to be decided by the tribunal;
    particularly, in the light of the provisions of Section 4(4)(d)(i) of the Act.
    Hence, the matter is remitted to the tribunal for decision afresh in accordance
B   with the principles enunciated in the Judgment. (505-A-EJ

          CIVIL APPELLATE JURISDICTION : Civil Appeal No. 3844 of2000.

           From the Judgment and Order dated 19.6.2000 of the Customs, Excise
    and Gold (Control) Appellate Tribunal, New Delhi in F.O. No. 513/2000-A in
C   A .. No. E/529of1998~A.

         V. Lakshmikumaran, Alok Yadav, Ms. Ruby Singh Ahuja, Ms. Saloni
    Gupta and Mrs. Manik Karanjawala for the Appellant.

          Mohan Parasaran, Additional Solicitor General, Ravinder Agarwal, Arijit
D   Prasad, Gaurav Dhingra, Senthilvelan, Chaidanand D.L. and P. Parmeswaran
    for the Respondent.

          The Judgment of the Court was delivered by

          KAPADIA, J. This is a statutory appeal under section 35-L (b) of the
E   Central Excise Act, 1944 (hereinafter referred to as "the said Act") against the
    judgment and order dated· 19.6:2000 passed by the Customs, Excise & Gold
    (Control) Appellate Tribunal, New Delhi ("tribunal" for short).

          A short question which arises for determination in this civil appeal is
    - whether, on the facts and circumstances of this case, cost of repacking of
p   detergent powder into 20 gms. and 30 gms. sachets, which did not amount
    to manufacture at the relevant time, was includible in the assessable value of
    "ariel micro-system" (AMS) cleared by Procter & Gamble ("assessees" for
    short") in bulk packs of 25 kgs. at its factory ~ate at Mandideep, Bhopal.

          Assessees - appellants are engaged in the manufacture of detergent
G powder (AMS) falling under chapter 34 of the schedule to the Central Excise
    Tariff Act, 1985 (for short "the 1985 Act") at their factory at Mandideep,
    Bhopal within the jurisdiction of the Commissioner of Central Excise, Indore.
    On 8/10.6.1994, a show-cause notice was issued by the collector in which it
    was alleged that during the period December, 1992 to December, 1993, the
    appellants had removed AMS in bulk packs of 25 kgs. for further repacking
H
    PROCTER & GAMBLE HYGIENE & HEALTH CARE LTD. ••. COMMR. OF CENTRAL EXCISE [KAPADIA.   J.J499

in 20 gms. and 30 gms. sachets by Mis. Industrial Enterprises (Detergent), A
Kanpur ("IED" for short); that, the said IED was an extended arm of appellants;
that, the appellants had cleared 25 kgs. bulk packs of AMS on pricing, based
on the cost method, and thereby did not pay the appropriate amount of duty
on AMS in the condition in which it emerged after repacking by IED, Kanpur;
that, the appellants did not pay duty on the prices of the sachets; that, the B
appellants had failed to disclose to the department the particulars of the
agreement with IED for the repacking of the detergent powder (AMS); that,
the appellants had removed the AMS in 25 kgs. packs with the sole intention
of getting it packed in 20 gms. and 30 gms. sachets by IED Kanpur; that, the
entire modus operandi on the part of the appellants was to deliberately
declare only the cost of 25 kgs. bulk packs for payment of excise duty; and, C
consequently, there was suppression of the true price of AMS in the condition
in which it was removed after packing in the sachets of the above dimensions.
In the show-cause notice, it was further alleged that the appellants had
wilfully suppressed the facts; that the 20 gms. sachets in blue and green
colours were sold through the depots of the appellants at a price of Rs.2.50
and Rs.2.00 per piece. That the said sachets were supplied by IED to the D
appellants, who in tum sold the same through their depots. Consequently, the
department issued the above show-cause notice as to why differential duty
of Rs. l, 10,40,613/- should not be levied on the appellants. By the said show-
cause notice, the department invoked the extended period of limitation in
terms of the proviso to section llA(l) of the said Act.                         E
       In its reply to the show-cause notice, the appellants denied that the
IED, Kanpur was the extended arm of the appellants. According to the
appellants, effective from January 1993, they had started clearing AMS in 25
kgs. bulk packs, on payment of duty to IED, Kanpur for repacking into 20
gms. and 30 gms. sachets; that, the repacking in sachets was undertaken by F
IED on job work basis; that, such repacking was not a manufacturing activity
under the said Act and consequently, no duty was payable by IED on the
repacking of AMS 25 kgs. packs into 20 gms. and 30 gms. sachets till 1.3.1994,
when chapter note 6 was introduced in chapter 34 making such repacking
activity a "manufacture" in terms of section 2(f) of the said Act. After G
1.3.1994, IED had applied and obtained registration under the Act. They are
since then paying duty on 20 gms. and 30 gms. sachets repacked by them.
In their reply, the appellants further pointed out that prior to the period in
question, IED used to manufacture AMS; and that, vide letter dated 26.11.1992,
IED had informed the Assistant Collector, Kanpur that it had entered into a
contract with the appellants for repacking AMS from bulk packing into sachets, H
    500                    SUPREME COURT REPORTS [2005) SUPP. 5 S.C.R.

A   hence, there was no suppression on the part of the appellants as alleged. By
    the said reply, lED further pleaded that "repacking did not amount to
    manufacture and, consequently, the department had erred in including the
    repacking charges into the assessable value. Similarly, by another letter dated
    5.3.1994, IED had informed the department that it had stopped carrying out
B   manufacturing operations and that it had surrendered L-4 license. Further,
    vide letter dated 11.11.1991, addressed by the Assistant Collector, Kanpur,
    clarification was given that "repacking" of the detergent powder did not
    amount to "manufacture". The appellants relied upon the aforestated
    circumstances in support of their contention that there was no wilful
    suppression on their part and, therefore, the department was not entitled to
C   invoke the extended period of limitation, as was sought to be done vide the
    above show-cause notice. In reply to the show-cause notice, the appellants
    further submitted that the demand for differential duty was proposed by the
    department on the ground that the duty was payable on the price of the
    sachets, which were sold. In reply, the appellants contended that 25 kgs. bulk
    packs were cleared at their factory's gate at Mandideep, Bhopal; that, they
D    were not sold; that, 25 kgs. bulk packs were sent by the appellants to IED
    for repacking in sachets and since such repacking did not constitute
    "manufacture", the department was not entitled to levy differential duty on
    the price of the sachets. According to the appellants, the demand for
    differential duty was not on the value of 25 kgs. bulk packs but on the price
E   at which 20 gms. and 30 gms. sachets were sold. According to the appellants,
    at the relevant time, "repacking" did not amount to "manufacture" under
    section 2(t) of the said Act, and, therefore, the cost of repacking or the
    repacking charges were not includible in the assessable value of the bulk
    packs. According to the appellants, the clearance of 25 kgs. bulk packs on
    payment of duty was known to the department. They had filed a price list in       •
F   which they had indicated such clearance. These bulk packs were not sold in
    the market. They were cleared for subsequent repacking into retail packs at
    IED Kanpur and, therefore, even assuming that IED was an extended arm of
    the appellants, the department was not entitled to demand differential duty
    because "repacking" did not constitute "manufacture" and since "repacking"
G   did not amount to "manufacture" at the relevant time, the department had
    erred in demanding differential duty on the price of the sachets. According
    to the appellants, since the clearance at the factory gate at Mandideep was
    not by way of sale, the appellants were entitled to value the bulk packs on
    the basis of costing under rule 6(b) of the Valuation Rules, 1975. According
    to the appellants, the impugned demand was not legally sustainable because
H   the department had demanded duty on the price at which the retail packs were
         PROCTER & GAMBLE HYGIENE & .HEALTH CARELTD. "· COMMR. OF CENTRAL EXCISE [KAPADIA, J.)   50}

     sold. Lastly, they contended that the impugned show-cause notice has                              A
     proceeded on the basis that the detergent powder cleared in bulk packs and
     subsequently repacked into sachets and sold at a higher price in wholesale
     resulted in loss of revenue. However, vide Finance Bill, l 994, which was not
     retrospective, note 6 was added in chapter 34 of the schedule to the 1985 Act,
     by which repacking amounted to "manufacture" and, therefore, there was no                         B
     suppression on the part of the assessees, as alleged by the department.
     According to the appellants, the subsequent change in the law itself indicated
     that there was some confusion on the aforestated point which was clarified
     vide Finance Bill, l 994 and, therefore, under any circumstances, wilful
     suppression cannot be alleged against the appellants.

           By the adjudication order dated 10.12.1997, passed by the Commissioner,
                                                                                                       c
     Indore, it was held that IED was an extended arm of the appellants; that, under
     the contract between the appellants and the IED, activity of IED was not
     disclosed by the appellants; that, the appellants had removed the AMS in 25
     kgs. packs with the sole intention of getting it packed in 20 gms. and 30 gms.
     sachets by IED, Kanpur; that, the appellants had deliberately declared only                       D
     the cost of 25 kgs. bulk packs for payment of excise duty; and, that, the
     appellants had suppressed the true price of AMS in the condition in which
     the said AMS was removed after repacking in 20 gms. and 30 gms. sachets
     on which the appellants failed to pay duty and, consequently, the demand
     raised by the department was legal and justifiable. Consequently, the                             E
•    commissioner confirmed the show-cause notice.

           Being aggrieved by the order of the commissioner dated 10.12.1997, the

..   assessees carried the matter in appeal to the tribunal. By the impugned
     judgment, the tribunal came to the conclusion that the IED was an extended
     arm of the appellants; that, the entire dispute was about under-valuation of                      p
     the 25 kgs. bulk packs cleared from Mandideep and, therefore, the commissioner
     of central excise at Indore had jurisdiction to decide the issue of valuation.
     According to the tribunal, the appellants had cleared the AMS in 25 kgs. by
     bulk packs at Mandideep. They had valued the clearance at Mandideep on
     cost basis. According to the tribunal, every assessee was required to give
     reasons as to why "normal price" was not ascertainable under section 4(l)(a)                      G
     of the Act or the Valuation Rules, 1975. According to the tribunal, although,
     the appellants were fully aware that 25 kgs. bulk packs were cleared in order
     to be repacked by IED into sachets, the details of repacking were deliberately
     suppressed by the appellants and, therefore, the department was right in
     invoking the extended period of limitation. In the circumstances, the tribunal                    H
    502                    SUPREME COURT REPORTS (2605] SUPP.° 5 S.C.R.

A   dismissed the appeal filed by the assessee. Hence, this civil appeal.

          Briefly stated, Mr. V. Lakshmikumaran, learned counsel for the appellants
   submitted that the show-cause notice did not contain allegations regarding
   valuation of 25 kgs. bulk packs; and that, the said notice had worked out the
   demand only on the basis of the price of 20 gms. and 30 gms. sachets. Before
B us, the learned counsel did not challenge the concurrent finding of fact,
   namely, that the IED was the extended arm of the appellants. Learned counsel
   however submitted that even according to the department at the relevant time,
   repacking did not constitute "manufacture" and, therefore, the demand for
   differential duty only on the basis of the price of the sachets was untenable
C in law. Learned counsel also· contended that the value of the 25 kgs. bulk
   packs was approved by the department as declared in the price list for captive
   consumption and, therefore, there was no question of suppression on the part
   of the appellants. Learned counsel further submitted that the price list filed
   by the appellants was prepared on the basis of costing because the clearance
   of 25 kgs. bulk packs was for captive consumption and not for sale and,
D consequently, the concept of"normal price" was not applicable in the present
   case. Learned counsel further submitted that repacking at the relevant time
   did not amount to "manufacture" in terms of section 2(f) of the said Act, and
   consequently, the repacking charges, in any event, were not includible in the
   assessable value of the AMS. Learned counsel further urged that the tribunal
E has not at all gone into the question of valuation, particularly, when the entire
   case related to the scope of section 4(4)(d)(i) of the said Act. Learned counsel   •
   also submitted that if repacking activity did not amount to "manufacture" at
   the relevant time then the cost of repacking cannot be included in the
   assessable value. Lastly, it was urged that repacking amounted to
   "manufacture" only after the Finance Act No.2 of 1994; that, after the said        ..
F 1994 Act, IED had obtained the requisite registration, and that JED has since
 . been paying excise duty on the manufacture of retail packs. Consequently, it
   was urged that there was no suppression on the part of the appellants.
   Learned counsel submitted that none of these facts have been considered by
   the tribunal.

G         Shri Mohan Parasaran, learned Additional Solicitor General submitted
    on behalf of the appellants that during the relevant period, AMS was
    manufactured by the appellants and not by the IED and, therefore, the
                                                                                      •
    department was right in demanding the differential duty on the price of the
    sachets. He submitted that the appellants removed the detergent powder in
H   25 kgs. bulk packs from the factory gate at Mandideep, Bhopal with the sole
         PROCTER & GAMBLE HYGIENE & HEALTH CARE LTD. 1•. COMMR. OF CENTRAL EXCISE [KAPADIA. I.]   503

      intention of getting it packed into sachets of the aforestated dimensions by                      A
      IED, Kanpur. He contended that the appellants had deliberately declared only
      the cost of 25 kgs. bulk packs and they had suppressed the price of AMS
      in the condition in which the powder was removed after packing in 20 gms.
      and 30 gms. sachets. Learned counsel urged that in the entire proceedings
      before the adjudicating authority, the appellants contended that the IED was                      B
      an independent job worker and that the IED was not an extended arm of the
      appellants, whereas the finding of the commissioner that IED was an extended
      arm of the appellants is not challenged. In this connection, learned counsel
      submitted that the retail packs were in fact cleared through the depots of the
      appellants and in the circumstances, the commissioner was right in coming
      to the conclusion that there was a wilful suppression on the part of the                          C
      appellants under the proviso to section l IA{l). Learned counsel submitted
      that in the present case, the commissioner has categorically recorded a finding
      of fact to the effect that the appellants had suppressed the true price of AMS
      in the condition it was'removed after packing in sachets. He submitted that
      even on valµation; the commissioner has recorded a finding that the appellants
      were required to pay duty on the assessable value of 20 gms. and 30 gms.                          D
    . sachets supplied by the IED to the depots of t~e appellants. Learned counsel
      submitted that this finding on valuation has been accepted by the tribunal
      and, therefore, no interference was called for in the present case.



-           This case relates to valuation. At the outset, we would like to clarify E
     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 manufacture. The measure or the yardstick for computing the levy is
     the "normal price" under section 4(l)(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 with excisability. F
     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 the case of Union of India & Ors etc.
     v. Bombay India International Ltd etc., reported in AIR {1984) SC 420, this
     Court observed that the measure of levy did not conclusively determine the
     nature of the levy. It was held that the fundamental criterion for computing G
     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 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 H
    504                     SUPREME COURT REPORTS [2005) SUPP. 5 S.C.R.

A in the trade. Therefore, the expenses incurred on such factors inter a/ia have
    to be included in the assessable value of the article up to the date of the sale,
    which was the date of delivery.

          In the case of Sidhartha Tubes Ltd v. Collector of Central Excise,
    reported in (2000) 115 EL T 32, this court held that the process of galvanization,
B   though did not amount to "manufacture", resulted in value addition and,
    therefore, the galvanization charges were includible in the assessable value
    of the M.S. black pipe.

          The concepts of "manufacture" and "valuation" are two different and
C distinct concepts. In the present case, we are concerned with valuation. Value
    is the function of price under section 4(l)(a) of the said' Act. In the present
    case, the taxable event took place when detergent powder was manufactured
    by the appellants. The said powder was packed into bulk packs of 25 kgs.
    They were cleared from the factory of the appellants at Mandideep, Bhopal
    on payment of excise duty. The appellants followed self-removal procedure.
D   These bulk packs were sent to JED, Kanpur. The appellants contended that
    JED, Kanpur was their job-worker. The commissi~ner found on facts that IED,
    Kanpur was the extended arm of the appellants. The commissioner found
    price manipulation. According to the commissioner, the appellants had removed
    AMS in bulk packs from its factory gate at Mandideep, Bhopal with the sole



                                                                                         -
    intention of getting AMS packed in the sachets of 20 gms. and 30 gms. by
E   IED, Kanpur from where the sachets were taken to the depots of the appellants
    and cleared at the price list indicated in the show-cause notice. According to
    the commissioner, the appellants had suppressed the true price of AMS in the
    condition in which it'was removed after packing in 20 gms. and 30 gms.
    sachets. Therefore, the .commissioner took the price of the sachets at the
p   depots of the appellants as the basis for computing the assessable value of
    AMS cleared by the appellants in 25 kgs. bulk packs at Mandideep, Bhopal.

           Unfortunately, when the matter came before the tribunal in the appeal
    preferred by the assessees, the tribunal has not adverted to the valuation of
    the bulk packs cleared by the appellants at Mandideep, Bhopal. Before the
G   tribunal, the appellants contended that the department had cleared the bulk
    packs on payment of duty by the appellants. According to the appellants, the
    activity of "repacking" did not amount to "manufacture" at the relevant time
    and if the said activity did not amount to manufacture, the department was
    not entitled to compute the assessable value of the bulk packs based on the
H
                                                                                         -
    retail price of 20 gms. and 30 gms. sachets. The appellants contended that
    PROCTER & GAMBLE HYGIENE & HEALTH CARELTD. v. COMMR. OF CENTRAL EXCISE [KAPADIA, J.J   505

even if JED was taken as an extended arm of the appellants, the department                       A
was not entitled to compute· the assessable value based on the retail prices
of the sachets, particularly, when the activity of "repacking" did not amount
to "manufacture". The appellants also contended that they were not guilty
of suppression because the activity of "repacking" amounted to "deemed
manufacture" under section 2(t) only after introduction of note 6 in chapter                     B
34 of the schedule to the Tariff Act vide Finance Bill, 1994.

       The key question which was required to be decided by the tribunal in
the present case was concerning determination of the "assessable value" of
25 kgs. bulk packs of AMS from the appellants' factory at Mandideep,
Bhopal. If the activity of repacking did not amount to manufacture at the                        C
relevant time, was tlw commissioner justified in computing the assessable
value of the bulk packs based on the retail price of 20 gms. and 30 gms.
sachets sold through the depots of the appellants? This question has not
been decided by the tribunal. Similarly, in the context of suppression and in
the context of invocation of the extended period of limitation, the tribunal has
not considered the argument of the appellants that they were not guilty of                       D
suppression as the law was amended vide Finance Bill, 1994, when the
activity of "repacking" was treated as "manufacture" for the first time. In our
view, these questions were required to be decided by the tribunal in the
present case, particularly, in the light of the provisions of section 4(4)(d)(i)
of the said Act. They have not been decided by the tribunal.                                     E
      In the circumstances, this civil appeal filed by the assessees is allowed,
the impugned judgment of the tribunal is set aside and the matter is remitted
to the tribunal for its fresh decision in accordance with the principles
enunciated hereinabove. There will be no order as to costs.
                                                                                                 F
S.K.S.                                                                   Appeal allowed.