Holding

The Notification permits the invoice value to be less than the assessable value, and the exemption under Clause (iv) applies to duty in excess of that calculated on the invoice price, without requiring the invoice to include the value of wheel sets supplied free of charge.

Summary

Texmaco Ltd. manufactured wagon bodies for the Railways and mounted them on wheel sets supplied free of charge by the Railways. Its invoices reflected only the price of the wagon bodies, excluding the wheel sets, and excise duty was paid on this invoice value. The Revenue demanded duty on the wheel sets, arguing that the assessable value of the goods includes the full commercial value of the wheel sets and that the exemption under Central Excise Notification No. 120/75 could not be claimed because Clause (iv) required the invoice price to reflect the full commercial price. The Tribunal rejected Texmaco’s claim for exemption. The Supreme Court held that the Notification expressly allows the invoice value to be lower than the assessable value and that the exemption applies to duty in excess of that calculated on the invoice price; Clause (iv) does not compel inclusion of the wheel‑set value in the invoice. Consequently, Texmaco was entitled to exemption for the duty on the excess value and the Tribunal’s order was set aside.

Issues considered

Whether the exemption under Central Excise Notification No. 120/75 (Clause iv) applies when the invoice value excludes the value of components supplied free by the buyer.
Whether the assessable value of goods can exceed the invoice value and still qualify for exemption from duty on the excess portion.

Legislation cited

Subjects

central exciseassessable valueinvoice valueexemption notificationwheel setsmanufacturerdutyshort levycontract manufacturing

Judgment

TEXMACO LTD.
A
v.
COLLECTOR OF CENTRAL EXCISE, CALCUTTA

... 1 JULY 31, 1991

[M.N. VENKATACHALIAH AND S.C. AGRAWAL, JJ.] B

Central Excise Rules, 1944-Rule 8-Notification No. 120/75
CE-D /-30. 4. 1975-Clause (iv )-Exemption from levy of duty-Value
of wheel sets supplied by Railways-Whether exempted.

- The appellant pursuant to contracts entered into with the Railway
Administration fabricated and delivered to the Railways wagon-bodies
mounted on "wheel sets" supplied by the Railways,
c

The appellant's invoices, reflected only the price of the wagon-
bodies without including the value of the "wheel-sets" on which the
wagon-bodies were mounted. The goods were cleared for purposes of D
Excise duties on such invoice-value.

The Revenue raised demand for recovery of short-levy and sought
~· to recover the unpaid duty on the value of the "wheel-sets" also.
•
The claim for recovery of the short-levy having been adjudicated E
against the appellant, appeals were filed before the Tribunal, by the
appellant contending that the goods manufactured by the appellant
were only the wagon-bodies mounted on the "wheel-sets" supplied by
the Railway Administration; and therefore, the assessable value could
only be the value of the wagon-bodies excluding the "wheel-sets" sup-
' plied by the Railways; and that at all events the value in excess of the F
'invoice value' which represented the price of the wagon-bodies was
exempt from levy of duty under the Exemption Notification No. 120/75-
CE dated 30th April, 1975 issued under Rule 8 of the Central Excise
Rules, 1944.

The Tribunal dismissed the appeals, against which, the present G
appeals were filed before this Court.
,.
The appellant contended that the Tribunal misdirected itself in
law in its construction of the exemption Notification and in its reasoning
that there was something in Clause (iv) of the Notification which
detracted from the permissibility of its benefit in the present case; that H

323
324 SUPREME COURT REPORTS [1991) 3 S.C.R.

it was erroneous to read the condition as requiring the 'invoice value' to
A
he the full commercial price of the goods including therein the value of
the "wheel-sets"; that the very purpose of the exemption was to relieve
the manufacturer from heaiing the burden of the duty on such part of
the assessable-value as did not reflect the value of his •upply and
services but represented the value of the "wheel-sets" supplied by the
B Railway Administration itseilffree of charge.

The Revenue-Respondent contended that Clause (iv) of the Notifi-
cation signified and imported the idea of full-value of the manufactured
goods being required to be reflected in the invoice and that the reason-
ing of, and the conclusion reached by, the Tribunal was correct. ,,.-
c This Court allowing th" appeals,

HELD. I. The Notification posits and predicates the possibility
that the invoice-value' could be lesser than the "assessable-value" and,
taking into account the need to mitigate the hardship on the manu-
D facturer of being called upon to pay duty on the value in excess of
the invoice value, seeks to exempt the manufacturer from payment of
duty "inexcess of the duty" calculated on the basis of the 'invoice-
price'. [328G-H)
.•.
2. The way in which lthe Tribunal looked at the Notification is
E neither good sense nor good law. Such construction would make the
Notification and the exemption contemplated thereunder meaningless.
The need for the exemption arose in view of the fact that "assessable-
value" was higher than the ''invoice-value'. Requiring the former and
the latter to be the same as something compelled by Clause (iv) is really
to construe the Notification against itself. [329B-C)
F
3. In this case, there is no dispute that the invoice price rep-
resented the value of the wagons, less the value of the "wheel-sets"
supplied by the Railways. The invoice-price could not be reqnired to
include the value of the "wheel-sets". But the "assessable-value"
would take into account the full commercial value including that of the
G "wheel-sets". It is in order to mitigate the hardship that may arise by
requiring the manufacturer to pay duty on this difference in such cases
that the Notification No. 120/75 came to be promulgated. [328H-329B I

4. There is nothing in Clause (iv) which enjoins upon the appel-
lant to include the value of the "wheel-sets". The contract between the
H parties does not also require this. [329B I
TEXMACO v. C.C.E. 325

M/s. Burn Standard Company Ltd. & Anr. v. Union of India &
A
Ors., [1991] 3 Judgments Today 108, distinguished.

'.' CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.
5969-70 (NM) of 1990.

From the Order dated 21.8.1990 of the Customs, Excise and B
Gold (Control), Appellate Tribunal, New Delhi in Appeal Nos.
ED/SB/T/945/80-A and ED/SB/T/A. No. 586/81-A (Order No. 1284
to 1286/90-A. ).

Dr. Debi Paul, Harish Salve, Darshan Singh, Ms. Suman J.
Khaitan and Ms. Priya Hingorani for the appellant.

A. Subba Rao for the Respondent.

The following Order of the Court was delivered:

These. appeals arise out of and directed against the common D
appellate order dated 21.8.1990 of the Customs, Excise and Gold
(Control) Appellate Tribunal, New Delhi ('Tribunal' for short) in
7 Appeals Nos. ED/SB/T 945/SOA and ED/SB/T/586/SIA. By the same
order another appeal of the appellant was also disposed of but that
matter is not carried up in appeal here.
E
2. The appellant, M/s. Texmaco Ltd., pursuant to contracts
entered into in this behalf with the Railway Administration fabricated
and delivered to the Railways wagon-bodies mounted on "wheel sets"
supplied by the Railways. The invoices raised by the appellant respect-
ing these wagons reflected only the price of the wagon-bodies without
including the value of the "wheel-sets" on which the wagon-bodies F
were mounted. The goods were cleared for purposes of Excise duties
on such invoice-value. The Revenue raised demand for recovery of
short-levy and sought to recover the unpaid duty on the value of the
"wheel-sets" also. This claim for recovery of the short-levy having
Heen adjudicated against the appellant, an appeal was taken before the
Tribunal. G'

3. Before the Tribunal, it would appear, two contentions were
raised: First that the goods manufactured by the appellant were only
the wagon-bodies mounted on the "wheel-sets" supplied by the Rail-
way Administration and that, therefore, the assessable value could
only be the value of the wagon-bodies excluding the "wheel-sets" H
326 SUPREME COURT REPORTS (1991) 3 S.C.R.

supplied by the Railways and, secondly, that at all events the value in
A
excess of the 'invoice value' which represented the price of the wagon-
bodies was exempt from levy of duty under the Exemption Notifica-
tion No. 120/75-CE dated 30 April, 1975 issued under Rule 8 of the •
Central Excise Rules, 1944. What is implicit in the second contention
"
is that, but for the said Notification No. 120/75-CE dated 30.4.1975,
B the assessable-value would otherwise require the exclusion in it the
value of the "wheel-sets" also on the premise that the "wheel-sets"
became an integral part of the wagons, even though the "wheel-sets"
had been supplied free of cost by the Railways themselves. The Notifi-
cation No. 120/75-CE exempted "so much of the duty of excise
........ as is in excess of the duty calculated on the basis of invoice .~

prices".
c
4. On the first contention:-that the 'assessable-value' of the
'goods' could not include the "wheel-sets" which were not fabricated
or manufactured by the appellant, the Tribunal, rejecting the conten-
tion said:
D
"On going through the facts and in view of the clear find-
ings given by the lower authorities that no wagon is comp-
lete without the wheels; what has been cleared and remo-
ved by the appellants is the wagon mounted on wheel sets
and not the wagon body alone ....
E
On the issue of determination of assessable value, the
Supreme Court has held that for the purpose of levy of
excise duty, the value of the article is the full intrinsic value
of the article inclusive of the cost of the materials and com- "
ponents supplied free by the customer and irrespective of
F the fact that no expenditure was incurred by the manufac-
turer on such components."

No fault can be. found with this reasoning of the Tribunal, indeed,
considerations of ownership of the goods are extraneous to levy of
duties of excise which are imposts on manufacture.
'
G
5. The second contention on which Dr. Pal laid particular ..
emphasis, indeed, assumes the correctness of the first proposition and
claims exemption on the strength of the Notification No. 120/75-CE.
That Notification says:

H "The Central Government has exempted goods falling
TEXMACO v. C.C.E. 327

under Item No. 68 of the First Schedule to the Central
Excises and Salt Act, 1944 ( 1 of 1944), cleared from the A
factory of manufacture, on sale, from so much of the duty
... of excise leviable thereon as is in excess of the duty calcu-
' lated on the basis of the invoice price (excluding duty and
local taxes, if any, included in such price) charged by the
manufacturer for the sale of such goods: B

Provided that the aforesaid exemption shall be admis-
·sible only if-

-,... (i) the manufacturer files with the Superintendent of
Central Excise having jurisdiction a written declara-
tion to the effect that he opts to avail of the said c
exemption:

(ii) Omitted as unnecessary

(iii) D

(iv) the invoice price is not influenced by any com-
mercial, financial or other relationship whether by
contract or otherwise between the manufacturer or
any person associated in business with the manufac-
lurer and the buyer other than the relationship E
created by sale of the aforesaid goods:

(v) Omitted as unnecessary.
"
Provided ... (Omitted as unnecessary)
F
The Tribunal also rejected the claims for exemption under the Notifi-
cation. It said:

"We are unable to agree with the arguments of the
appellants' counsel that assessable value of the article is.
different from the consideration received by the appellants G
/• to claim benefit under Notification 120/75.
• . ..... To claim exemption on benefit under Notification
120/75 it should be subjected to in compliance with the
) conditions specified therein. Condition No. IV of Notifica-
tion No. 120/75 required that the invoice value should be H
328 SUPREME COURT REPORTS [1991] 3 S.C.R.

the full commercial price of the article. According to the
A
decision of the Supreme Court (supra) the value of the
article is the intrinsic value and not restricted consideration
received by the appellant as urged by the appellants'
counsel. Jn the view we have taken, the appellants are not
entitled to concession under Notification No. 120/75 dated
B 30.4.1975."

6. Dr. Pal appearing in support of the appeals urged that the
Tribunal misdirected itself in law in its construction of the exemption
Notification and in its reasoning that there was something in Clause
(iv) of the Notification which detracted from the permissiblity of its
benefit in the present case. Dr. Pal said that it was erroneous to read
c the said condition as requiring the 'invoice value' to be the full com-
mercial price of the goods including therein the value of the "wheel-
sets''. Dr. Pal said that clause (iv) did no more than merely importing
the requirement that the invoice price should reflect a transaction at
arms' length and not that appellant's invoice-price should also include
D the value of the "wheel-sets" supplied by the Railways. Dr. Pal
further urged that the very purpose of the exemption was to relieve the
manufacturer from bearing the burden of the duty on such part of the
assessable-value as did not reflect the value of his supply and services
but represented the valu·e of the "wheel-sets" supplied by the Railway
Administration itself free of charge. If Clause (iv) was construed in the
E way in which the Tribunal did, the effect, counsel said, would be to
take away with one hand what the notification gave with the other.

7. Shri Subba Rao, learned counsel for the Revenue, with his
1usual tenacity contended that Clause (iv) of the Notification signified
and imported idea of full-value of the manufactured goods being
F required to be reflected in the invoice and that the reasoning of, and
the conclusion reached by, the Tribunal was correct.

8. On a consideration of the matter we are afraid the Tribunal
fell into an error in its understanding of the notification. The Notifica-
. tion posits and predicates the possibility that the 'invoice-value" could
G be lesser than the "assessable-value" and, taking into account the need '
to mitigate the hardship on the manufacturer of being called upon to
pay duty on the value in excess of the invoice value, seeks to exempt
the manufacturer from payment of duty "in excess of the duty calcu-
lated on the basis of the 'invoice-price' . There is no dipute in this case
that the invoice price represented the value of the wagons, less the
H value of the "wheel-sets" supplied by the Railways. The invoice-price
TEXMACO v. C.C.E. 329

could not be required to include the value of the "wheel-sets". But the A
"assessable-value" would take into account the full commercial value
• including that of the "wheel-sets". It is in order to mitigate the hard-
ship that may arise by requiring the manufacturer to pay duty on this
difference in such cases that the Notification No. 120/75 came to be
promulgated. There is nothing in Clause (iv) which enjoins upon the
appellant to include the value of the "wheel-sets''. The contract bet- B
ween the parties does not also require this. The way in which the
Tribunal looked at the Notification is neither good sense nor good law.
Such construction would make the Notification and the exemption
contemplated thereunder meaningless. The need for the exemption
~· arose in view of the fact that "assessable-value" was higher than the
'invoice-value'. Requiring the former and the latter to be the same as c
something compelled by Clause (iv) is really to construe the Notifica-
tion against itself.

9. Shri Subba Rao placed strong reliance on the pronouncement
of this Court in M/s. Burn Standard Company Ltd. & Anr. v. Union of
India & Ors., [ 1991] 3 Judgments Today 108. On the contentions D
raised and argued in that case the judgment, if we may say so with
great respect, is correct. The question of the effect of the exemption
Notification No. 120/75-CE was not raised and argued in that case.
That apart, the exemption Notification itself makes it clear that it does
not apply or is attracted to every case automatically, but that the
manufacturer should expressly opt for the benefit of the Notification. E
Since no such claim was made in that case, the decision therein is of no
assistance to the revenue.

JO. We accordingly allow these appeals; set aside the order of
the authorities as well the affirming1order of the Tribunal under appeal
and hold that the appellant was entitled under the said Notification F
No 120/75/CE, to exemption from that part of the duty as was in
excess of the invoice-price which, we hold, was not required to include
the value of the "wheel-sets".

V.P.R. Appeals allowed.