Holding

Excise duty is payable on the market value of the goods at the factory gate, i.e., the price paid by the buyer, excluding the goodwill value of the brand name belonging to the buyer.

Summary

The petitioners, a manufacturer of electrical goods, entered into a contract with Bajaj Electricals Ltd., the buyer, to produce goods that would be sold under the buyer's brand name. After the buyer accepted the goods, the manufacturer affixed the 'Bajaj' label, but the goods were never sold by the manufacturer in the open market. The dispute centered on the appropriate market value for computing excise duty under the Central Excise and Salt Act, 1944, s.2(f): whether it should be the price agreed between the manufacturer and the buyer (excluding brand goodwill) or the wholesale price fetched by the buyer when selling to its distributors (including brand goodwill). The Supreme Court held that excise duty must be levied on the market value at the factory gate, i.e., the price paid by the buyer, excluding the value of the brand name goodwill which belongs to the buyer. The Court clarified that this rule does not apply when the manufacturer sells under its own brand or a brand it has acquired. Consequently, the writ petitions were allowed, directing the respondents to levy excise duty based on the manufacturer‑buyer price and discharging any bank guarantee, with no order as to costs.

Issues considered

What is the correct market value for assessing excise duty under s.2(f) of the Central Excise and Salt Act, 1944 when goods are manufactured for a buyer who applies its own brand name?

Legislation cited

Central Excise and Salt Act, 1944s. 2(f)

Subjects

excise dutymarket valuebrand name goodwillfactory gate valuationCentral Excise and Salt Actcontract manufacturingArticle 32writ petition

Judgment

SIDHOSONS & ANR. ETC. ETC.
A
v.
UNION OF INDIA & ORS. ETC. ETC.

OCTOBER 28, 1986

B [M.P. THAKKAR AND B.C. RAY, JJ.]

Central Excise and Salt Act, 1944, s.2(f)-Market valu.,_..What
is-For payment of excise duty-Brand name-Value of-When inclu-
dible. ·

The petitioner-company in W .P. No. 1685 of 1979 is manufactur- _ 1
C ing electrical goods for M/s. Bajaj Electricals Limited, the buyers. As ""\.... .,_
per agreement the goods are not at all sold in the open market by the
petitioner-company. After the manufactured goods are accepted by the
buyers, the petitioner-company app6es the label of the brand name of "
the buyers, namely, •Bajaj' on the manufactured goods. The right to
D sell these goods with the aforesaid brand name is solely and exclusively
that of the buyers having regard to the fact that they alone are owners
of the brand name.

Couruiel for the petitioner in this writ petition contended that the
market value of the goods manufactured by the petitioner should be
E assessed at the price at which the goods are agreed to be sold under the
agreement between the manufacturer and the buyers. On the other .(
band, it was argued by counsel on behalf of the respondent-Union of
India that the excise duty must be levied on the basis of market value

F
fetched by the sale of these goods by the buyers to their wholesalers.
Similar question of law arose in the other writ petitions.

Allowing the writ petitions, this Court,
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HELD: 1.1. Excise duty is payable on the market value fetched
by the goods, in the wholesale market at the factory gate manufactured
by the manufacturers. It ~ he assessed on the basis of the market
G value obtained by the buyers who also add to the value or the manu-
factured goods the value of their own property in the goodwill of the
'Brand name'. [84F]

1.2. Where a manufacturer who manufactures and sells his goods
under his own brand name or under a brand name which he has .
H acqnired in use, the sale price fetched by sales effected by him under

82
·•
SI.DHOSONS v. UNION OF INDIA TfHAKKAR, !.] 83

such brand Daine in wbolesale, will be the basis for computation of A
excise duty payable by ·iilm. So also nothing said herein will come to the
rescue of a braud name owner who himself is the manufacturer of goods
or to sales effected. in favour of 'related' persons as defined· by the
Central Excises and Salt Act, 1944. [8SA-B)

Union of India v. Cibatul Ltd., (1985) 22 E.L.T 30~, Joint Secret- B
ary to the Government of India v. Food Specialities Ltd., (1985) 22
E.L.T 324 and M/s. R.O. Industries v. Union of India & Ors., Civi!
Appeal No. 1496 of tm decided on 3.4.86, relied upou.

-.. _}--- In the instant case, the price fetched by the goods manufactured
by the petitioner-company is the price of'the electrical goods sans the c
braud name. And that should be the market value for the purposes of
assessing the excise duty payable by the petitioner-company which
m811UfactUres the excisable goods. The enbancemeut in the value· of the
goods by reasou of the appHcation of the brand name is because of the
;
augmentation attributable to the value of the goodwill of the brand
uame which does not belong to the manufacturer and which added D
market value does not accrue to the petitioner-company or go into its ·
coffers. It acerues to the buyers to whom the brand name belongs and to '
whom the fruits oftbe goodwill belong. (890-E)

ORIGINAL JURISDICTION: Writ Petition No. 1685-1691 of
~-- 1979 E

Und.er Article 32 ·of the Constitution of India.

Soli J. Sorabjee and·K.C. Dua for the Petitioners.

V. Parthasarthy, Girish Chandra and C. V. Subba Rao for the F
' Respondents.
)'
The Order of the Court was delivered by

THAKKAR,•J. The question raised in this Writ Petition under
Article 32 of the Constitution of India as regards the determination of G
the market value of the goods manufactured by the petitioner com-
pany for the purposes of computation of the excise duty leviable on the
same. The petitioners (manufacturers) are manufacturing electrical
goods under a contract with another company known as the Bajaj
Electricals Ltd. (here-after referred to as buyers). The agreement bet-
ween the parties provides for the buyers having the right to reject the H
84 SUPREME COURT REPORTS [ 1987) l S.C.R.

A goods if the goods are not in accordance with the buyers' specifications )r--
or do not come up to the stipulated standard of quality. After the '
manufactured goods are tested, approved and accepted, by the buyers
the manufacturers apply the label of the brand name of the buyers (in
this case 'Bajaj') on the manufactured goods. The petitioners contend
that the market value of the goods manufactured by the petitioners
B should be assessed at the price at which the goods are ageed to be sold
under the agreement between the manufacturers and the buyers. On
the other hand the respondent conte.nts that the excise duty must be
levied on the basis of the market value fetched by the sale of these
goods by the buyers to their wholesalers. The goods manufactured by f.
the Petitioner Company, which are accepted by the buyers and to \
C which the brand name label 'Bajaj' is applied are sold by the manu-
facturers to the buyers at the stipulated price and to none-else. They
are not at all sold in the open market by the manufacturers. The right
to sell these goods with the brand name is solely and exclusively that of
the buyers having regard to the fact that they alone are the owners of
the brand name 'Bajaj'. The price fetched by the goods manufactured
D by the petitioner company is the price of the electrical goods 'sans' the
brand name. And that should be the market value for the purposes of
assessing the excise duty payable by the petitioner company which
manufactures the excisable goods. The enhancement in the value of
the goods by reasons of the application of the brand name is because of
the augmentation attributable to the value of the goodwill of the brand
E name which does not belong to the manufacturers and which added
market value does not accrue lo the petitioner company or go ii:ito its
'"'
coffers. It accrues to the buyers to whom the brand name belongs and
to whom to fruits of the goodwill belong. Excise duty is payable on the
market value fetched by the goods, in the wholesale market at the
factory gate manufactured by the manufacturers. It cannot be assessed
F on the basis of the market value obtained by the buyers who also add _.....(
/ '
to the value of the manufactured goods the value of their own property ·
in the goodwill of the 'brand name'-The Petitioners are theFefore ~
right and the respondents wrong. This point is covered by earlier deci- '
sions of this Court, namely, (1) Union of India v. Cibatul Ltd., [1985]
22 E.L.T. 302, (2) Joint Secretary to the Government of India v. Food
.G specialities Ltd., [ 1985) 22 E.L.T. 324 and (3) Civil Appeal No. 1496 of
1977 disposed of by a Bench of three Judges of this Court by its
judgment dated 3rd April, 1986. The petition must therefore be al-
lowed. The respondents shall levy excise duty on the basis of the price ....;
charged by the manufacturers to the buyers namely M/s. Bajaj Electri-
cals Ltd. A word of caution is however called for.-Our decision must
H be understood correctly-not misunderstood conveniently. We, there-
SIDHOSONS v. UNION OF INDIA [THAKKAR, J.] 85

fore, clarify that our pronouncement will not enable a manufacturer A
who manufactures and sells his goods under his own brand name or
under a brand name which he has acquired a right to use. In such a
case the sale price fetched,by sales effected by him under such brand
name in wholesale will be the basis for computation of excise duty
payable by him-So also nothing said herein will come to the rescue of
13
a brand name owner who himself is the manufacturer of goods or ·to
sales effected in favour of 'related' persons as defined by the Act. The
Central Excises & Salt Act, 1944. The Bank guarantee, if any, fur-
nished by the petitioners in the context of the present Writ Petition
will stand discharged. No Other point has been argued. The petition is
allowed and the Rule is made absolute to the aforesaid extent. The
Writ Petition is disposed of accordingly. There will be no order as to C
costs.

Writ Petitions Nos. 1686-1691 of 1979 raise the same point in the
context of other brand names. These petitions will also stand disposed
of in terms of this order with the same direction regarding computation D
of levy and discharge of guarantee bonds and with no order as to costs.

M.L.A. Petition allowed.

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