Valuation of Goods . Statutory Provisions.

Valuation under the Central Excise Act.

SECTION 4. Valuation of goods for purposes of

charging of duty of excise. -
(1) Where under this Act, the duty of excise is
chargeable on any excisable goods with reference to
their value, then, on each removal of the goods, such
value shall -
(a) in a case where the goods are sold by the assessee,
for delivery at the time and place of the removal, the
assessee and the buyer of the goods are not related and
the price is the sole consideration for the sale, be the
transaction value;

(b) in any other case, including the case where the

goods are not sold, be the value determined in such
manner as may be prescribed.
Explanation. - For the removal of doubts, it is hereby
declared that the price-cum-duty of the excisable goods
sold by the assessee shall be the price actually paid to
him for the goods sold and the money value of the
additional consideration, if any, flowing directly or
indirectly from the buyer to the assessee in connection
with the sale of such goods, and such price-cum-duty,
excluding sales tax and other taxes, if any, actually
paid, shall be deemed to include the duty payable on
such goods.
(3) For the purpose of this section,-
(a) “assessee” means the person who is liable to pay the
duty of excise under this Act and includes his agent;
(b) persons shall be deemed to be “related” if -
(i) they are inter-connected undertakings;
(ii) they are relatives;
(iii) amongst them the buyer is a relative and a
distributor of the assessee, or a subdistributor of such
distributor;
or
(iv) they are so associated that they have interest,
directly or indirectly, in the
business of each other.
Explanation. — In this clause –
(i) “inter-connected undertakings” shall have the
same meaning assigned to it in clause (g) of
section 2 of the Monopolies and Restrictive
Trade Practices Act, 1969 ;
(ii) “relative” means the meaning assigned to it in
clause (41) of section 2 of the Companies Act, 1956 ;

(c) “place of removal” -

(i) factory or any other place or premises of production
or manufacture of the
excisable goods;
(ii) warehouse or any other place or premises wherein
the excisable goods have
been permitted to be deposited without [payment of
duty;]
(iii) depot, premises of a consignment agent or any
other place or premises from
where the excisable goods are to be sold after their
clearance from the factory;
from where such goods are removed;

(cc) “time of removal”, in respect of the excisable

goods removed from the place of removal referred to in
sub-clause (iii) of clause (c), shall be deemed to be the
time at which such goods are cleared from the factory;
(d) “transaction value” means the price actually paid or
payable for the goods, when sold, and includes in
addition to the amount charged as price, any amount
that the buyer is liable to pay to, or on behalf of, the
assessee, by reason of, or in connection with the sale,
whether payable at the time of the sale or at any other
time, including, but not limited to, any amount charged
for, or to make provision for, advertising or publicity,
marketing and selling organization expenses, storage,
outward handling, servicing, warranty, commission or
any other matter; but does not include the amount of
duty of excise, sales tax and other taxes, if any, actually
paid or actually payable on such goods.

Valuation under the GST Act.

 Section15 of The GST Act.
15. (1) The value of a supply of goods or services or
both shall be the transaction value, which is the price
actually paid or payable for the said supply of goods or
services or both where the supplier and the recipient of
the supply are not related and the price is the sole
consideration for the supply.
(2) The value of supply shall include–––
(a) any taxes, duties, cesses, fees and charges levied
under any law for the time being in force other than this
Act, the State Goods and Services Tax Act, the Union
Territory Goods and Services Tax Act and the Goods
and Services Tax (Compensation to States) Act, if
charged separately by the supplier;
(b) any amount that the supplier is liable to pay in
relation to such supply but which has been incurred by
the recipient of the supply and not included in the price
actually paid or payable for the goods or services or
both;
(c) incidental expenses, including commission and
packing, charged by the supplier to the recipient of a
supply and any amount charged for anything done by
the supplier in respect of the supply of goods or services
or both at the time of, or before delivery of goods or
supply of services;
(d) interest or late fee or penalty for delayed payment of
any consideration for any supply; and
(e) subsidies directly linked to the price excluding
subsidies provided by the Central Government and
State Governments.
Explanation.––For the purposes of this sub-section, the
amount of subsidy shall be included in the value of
supply of the supplier who receives the subsidy.
(3) The value of the supply shall not include any
discount which is given––
(a) before or at the time of the supply if such discount
has been duly recorded in the invoice issued in respect
of such supply; and
(b) after the supply has been effected, if—
(i) such discount is established in terms of an agreement
entered into at or before the time of such supply and
specifically linked to relevant invoices; and
(ii) input tax credit as is attributable to the discount on
the basis of document issued by the supplier has been
reversed by the recipient of the supply.
Value of taxable supply.
(4) Where the value of the supply of goods or services
or both cannot be determined under sub-section (1), the
same shall be determined in such manner as may be
prescribed.
(5) Notwithstanding anything contained in sub-section
(1) or sub-section (4), the value of such supplies as may
be notified by the Government on the recommendations
of the Council shall be determined in such manner as
may be prescribed.
Explanation.—For the purposes of this Act,––
(a) persons shall be deemed to be “related persons” if––
(i) such persons are officers or directors of one
another’s businesses;
(ii) such persons are legally recognised partners in
business;
(iii) such persons are employer and employee;
(iv) any person directly or indirectly owns, controls or
holds twenty-five per cent or more of the outstanding
voting stock or shares of both of them;
(v) one of them directly or indirectly controls the other;
(vi) both of them are directly or indirectly controlled by
a third person;
(vii) together they directly or indirectly control a third
person; or they are members of the same family;
(b) the term “person” also includes legal persons;
(c) persons who are associated in the business of one
another in that one is the sole agent or sole distributor
or sole concessionaire, howsoever described, of the
other, shall be deemed to be related.

Time of Supply.

Section 12 of the GST Act.

12. (1) The liability to pay tax on goods shall arise at
the time of supply, as determined in accordance with
the provisions of this section.
(2) The time of supply of goods shall be the earlier of
the following dates, namely:—
(a) the date of issue of invoice by the supplier or the last
date on which he is required, under sub-section (1) of
section 31, to issue the invoice with respect to the
supply; or
(b) the date on which the supplier receives the payment
with respect to the supply:
Provided that where the supplier of taxable goods
receives an amount upto one thousand rupees in excess
of the amount indicated in the tax invoice, the time of
supply to the extent of such excess amount shall, at the
option of the said supplier, be the date of issue of
invoice in respect of such excess amount.
Explanation 1.––For the purposes of clauses (a) and (b),
“supply” shall be deemed to have been made to the
extent it is covered by the invoice or, as the case may
be, the payment.
Explanation 2.––For the purposes of clause (b), “the
date on which the supplier receives the payment” shall
be the date on which the payment is entered in his
books of account or the date on which the payment is
credited to his bank account, whichever is earlier.
(3) In case of supplies in respect of which tax is paid or
liable to be paid on reverse charge basis, the time of
supply shall be the earliest of the following dates,
namely:—
(a) the date of the receipt of goods; or
(b) the date of payment as entered in the books of
account of the recipient or the date on which the
payment is debited in his bank account, whichever is
earlier; or
(c) the date immediately following thirty days from the
date of issue of invoice or any other document, by
whatever name called, in lieu thereof by the supplier:
Provided that where it is not possible to determine the
time of supply under clause (a) or clause (b) or clause
(c), the time of supply shall be the date of entry in the
books of account of the recipient of supply.
(4) In case of supply of vouchers by a supplier, the time
of supply shall be—
(a) the date of issue of voucher, if the supply is
identifiable at that point; or
(b) the date of redemption of voucher, in all other cases.
(5) Where it is not possible to determine the time of
supply under the provisions of sub-section (2) or sub-
section (3) or sub-section (4), the time of supply shall––
(a) in a case where a periodical return has to be filed, be
the date on which such return is to be filed; or
(b) in any other case, be the date on which the tax is
paid.
(6) The time of supply to the extent it relates to an
addition in the value of supply by way of interest, late
fee or penalty for delayed payment of any consideration
shall be the date on which the supplier receives such
addition in value.

Time of supply of Services.

Section 13 of the GST Act.

13. (1) The liability to pay tax on services shall arise at
the time of supply, as determined in accordance with
the provisions of this section.
(2) The time of supply of services shall be the earliest
of the following dates, namely:—
(a) the date of issue of invoice by the supplier, if the
invoice is issued within the period prescribed under
sub-section (2) of section 31 or the date of receipt of
payment, whichever is earlier; or
(b) the date of provision of service, if the invoice is not
issued within the period prescribed under sub-section
(2) of section 31 or the date of receipt of payment,
whichever is earlier; or
(c) the date on which the recipient shows the receipt of
services in his books of account, in a case where the
provisions of clause (a) or clause (b) do not apply:
Provided that where the supplier of taxable service
receives an amount upto one thousand rupees in excess
of the amount indicated in the tax invoice, the time of
supply to the extent of such excess amount shall, at the
option of the said supplier, be the date of issue of
invoice relating to such excess amount.
Explanation.––For the purposes of clauses (a) and (b)––
(i) the supply shall be deemed to have been made to the
extent it is covered by the invoice or, as the case may
be, the payment;
(ii) “the date of receipt of payment” shall be the date on
which the payment is entered in the books of account of
the supplier or the date on which the payment is
credited to his bank account, whichever is earlier.
(3) In case of supplies in respect of which tax is paid or
liable to be paid on reverse charge basis, the time of
supply shall be the earlier of the following dates,
namely:––
(a) the date of payment as entered in the books of
account of the recipient or the date on which the
payment is debited in his bank account, whichever is
earlier; or
(b) the date immediately following sixty days from the
date of issue of invoice or any other document, by
whatever name called, in lieu thereof by the supplier:
Provided that where it is not possible to determine the
time of supply under clause (a) or clause (b), the time of
supply shall be the date of entry in the books of account
of the recipient of supply:
Provided further that in case of supply by associated
enterprises, where the supplier of service is located
outside India, the time of supply shall be the date of
entry in the books of account of the recipient of supply
or the date of payment, whichever is earlier.
(4) In case of supply of vouchers by a supplier, the time
of supply shall be––
(a) the date of issue of voucher, if the supply is
identifiable at that point; or
(b) the date of redemption of voucher, in all other cases.
(5) Where it is not possible to determine the time of
supply under the provisions of sub-section (2) or sub-
section (3) or sub-section (4), the time of supply shall––
(a) in a case where a periodical return has to be filed, be
the date on which such return is to be filed; or
(b) in any other case, be the date on which the tax is
paid.
(6) The time of supply to the extent it relates to an
addition in the value of supply by way of interest, late
fee or penalty for delayed payment of any consideration
shall be the date on which the supplier receives such
addition in value.

Time of Supply in case of rate of change of Tax.

Section 14 of the GST Act.

14. Notwithstanding anything contained in section 12 or
section 13, the time of supply, where there is a change
in the rate of tax in respect of goods or services or both,
shall be determined in the following manner, namely:––
(a) in case the goods or services or both have been
supplied before the change in rate of tax,––
(i) where the invoice for the same has been issued and
the payment is also received after the change in rate of
tax, the time of supply shall be the date of receipt of
payment or the date of issue of invoice, whichever is
earlier; or
(ii) where the invoice has been issued prior to the
change in rate of tax but payment is received after the
change in rate of tax, the time of supply shall be the
date of issue of invoice; or
(iii) where the payment has been received before the
change in rate of tax, but the invoice for the same is
issued after the change in rate of tax, the time of supply
shall be the date of receipt of payment;
(b) in case the goods or services or both have been
supplied after the change in rate of tax,––
(i) where the payment is received after the change in
rate of tax but the invoice has been issued prior to the
change in rate of tax, the time of supply shall be the
date of receipt of payment; or
(ii) where the invoice has been issued and payment is
received before the change in rate of tax, the time of
supply shall be the date of receipt of payment or date of
issue of invoice, whichever is earlier; or
(iii) where the invoice has been issued after the change
in rate of tax but the payment is received before the
change in rate of tax, the time of supply shall be the
date of issue of invoice:
Provided that the date of receipt of payment shall be the
date of credit in the bank account if such credit in the
bank account is after four working days from the date of
change in the rate of tax.
Explanation.––For the purposes of this section, “the
date of receipt of payment” shall be the date on which
the payment is entered in the books of account of the
supplier or the date on which the payment is credited to
his bank account, whichever is earlier.
Leading Cases.

1. Burn Standard Company Ltd. vs Union Of India

1991 SCR (2) 960

Facts
Appellant Burn Standard Company Limited,
manufactured wagons for supply primarily to the
Railway Board.
The wagons are manufactured inaccordance with the
specifications, terms and conditions contained in the
agreements entered between the appellant and the
Railway Board from time to time.
The Railway Board supplies wheel- sets, axle boxes and
various other finished components of wagons to the
appellant which are termed as "free supply items".
These items are not manufactured by the appellant.
The readymade "free supply items" are made available
to the appellant by the Railway Board without charging
any price.
There items are fitted in the wagons manufactured by
the appellant and are ultimately supplied to the Railway
Board.
The invoice-value of the wagon charged by the
appellant from the Railway Board does not include the
value of the "free supply items".
The central excise authorities issued various show cause
notices in respect of different transactions calling upon
the appellant to show cause as to why the excise duty be
not computed and charged on the value of the
completed wagon including that of the "Free supply
items".
The appellant challenged the show cause notices by
way of writ petition before the Calcutta High Court.
The Court allowed the writ petition and quashed the
demand raised by the central excise authorities.
The Court came to the conclusion that the excise duty
could only be charged on the basis of the invoice-value
under the contract based on the following reasoning:
"There is no dispute that certain items of finished
components are supplied by the Railway Board to the
petitioner. The value of these items is not taken into
consideration in fixing the price of the wagons sold by
the petitioner to the Railway Board. The price of the
completed wagons is calculated on the basis of the
manufacturing cost of the petitioner including the price
of components acquired by the petitioner for which the
petitioner has actually to pay the price.
But the components which are supplied free of cost by
the Railway Board do not enter into the pricing
mechanism of the petitioner at all. Therefore, the excise
value of the wagons manufactured by the petitioner
cannot be calculated after adding back the price of the
components supplied free of cost by the Railway
Board."
However on appeal by the Union of India, a Division
Bench of the High Court set aside judgment of the
single judge and allowed the appeal in the following
words:
"Admittedly, in this case, the cost of wagon as a whole
has not been mentioned in the agreement .
But normal price should include cost of construction
and furthermore, whenthe sale means actual price of
the goods viz. wagon as a whole, so the value of a
wagon as a whole, will form part of the relevant and
necessary assessable value under section 4 of the Excise
Act, as the manufacturing cost of a complete wagon
cannot be conceived of without taking into account or
consideration the cost of free supply items ......
Therefore the valuation cost of the free supply items
should be included in the manufacturing cost of
wagons.
Section 4(1)(a) of the Excise Act applies in this case
and as such, the valuation of excisable goods will be
charged or will take place when manufacture takes
place.
While determining the valuation of wagons for charging
the duty, the Revenue Authorities had acted duly and
with justification, in adding the cost of free supply
items under the provisions of the Act , the more so
when, under the agreement in this case, the said
petitioners were and are required to manufacture and
supply completed wagons, in which the free supply
items were and are required to be fixed at the time of
manufacture.
There cannot be any doubt that without fixing the free
supply items, the production and manufacture of a
wagon would not be effectively completed.
The manufacture of a complete wagon thus takes place
as soon as or as and when the free supply items are
fitted and fixed by the said petitioners and with such
manufacture, the process of manufacture would be
complete under section 2(f) of the Excise Act and the
liability to duty will also be attracted.
We hold that the value of the manufactured goods must
be determined at the factory gate i.e. at the stage when
the manufactured goods here in this case wagons, leave
the factory."
The Burn standard Company has come in appeal against
the judgment of the high court.

On the basis of above facts, the question for

determination is whether the excise duty under Section
3 and 4 of the Central Excises and Salt Act, is to be
charged on the invoice-value of the wagon or on the
value of completed wagon including that of the "free
supply items".

Relevant statutory Provisions:

Section 3 of the Central Excise Act states that:
Duties specified in the First Schedule to be levied-
(1) There shall be levied and collected in such manner
as may be prescribed duties of excise on all excisable
goods other than salt which are produced or
manufactured in (India)
Section 4 states that:
Valuation of excisable goods for purposes of charging
of duty of excise.-
(1) Where under this Act, the duty of excise is
chargeable on any excisable goods with reference to
value, such value shall, subject to the other provisions
of this section, be deemed to be-
(a) the price at which such goods are ordinarily sold by
the assessee to a buyer in the course of trade for
delivery at the time and place of removal, where the
buyer is not a related person and the price is the sole
consideration for the sale:
Reasoning of the Court
Section 3 of the Act provides for levy of the duty of
excise. It is a levy on goods produced or manufactured
in India.
Section 4 of the Act lays down the measure by
reference to which the duty of excise is to be assessed.
The duty of excise is linked and chargeable with
reference to the value of the excisable goods and the
value is further defined in express terms by the said
section.
In every case the fundamental crite rion for computing
the value of an excisable article is the normal price at
which the excisable article is sold or is capable of being
sold by the manufacturer..
It is not disputed that the appellants are manufacturers
of wagons. What comes down from the assembly-line
of the appellant's factory is a complete wagon and as
such the appellant being manufacturer of wagons, is
liable to pay duty of excise on the value of a complete
wagon.
The "free supply items" like wheel-sets etc. in the
process of manufacturing become part of the complete
wagon and loose their identity.
It hardly matters how and in what manner the
components of the wagon are procured by the
manufacturer, so long as the appellant is manufacturing
and producing the goods called "wagons" it is liable to
pay duty of excise on the normal value of the wagon.
For the purpose of excise duty , ownership of the goods
is irrelevant.
In Empire Industries Limited and Others v. Union of
India and Others, [1985] 3 S.C.C. 314 while
interpreting Sections 3 and 4 of the Act , the supreme
Court held that:
"The fact that the petitioners are not the owners of the
end product is irrelevant. Taxable event is manufacture-
not ownership.
In Ujagar Prints and Others v. Union of India and
Others, [1989] 3 S.C.C. 488, it was held that :
"Duties of excise are imposed on the production or
manufacture of goods and are levied upon the
manufacturer or the producer in respect of the
commodity taxed. The question whether the producer or
the manufacturer is or is not the owner of the goods is
not determinative of the liability."In the present case ,
though the ownership of free articles rests with the
railway board but the Burn Standard Company which
uses these free supplies in manufacture of wagons
becomes liable to pay excise duty on total value of the
wagon .
The position of law is clear in this regard that the excise
duty is a duty on manufacture .The fact that wagons are
manufactured by the company with inputs of free
supplies from the railways , the total values of wagon is
value on which tax will be calculated.
The reasoning and the findings reached by the Division
Bench of the High Court therefore is correct.Appeal
dismissed.
2. The Tata Iron & Steel Co. vs CCE. AIR 2003 SC
144

Facts :
Under the Essential Commodities Act the Government
of India set up a Joint Plant Committee (JPA) and a
Steel Priority Committee (SPC) for determining ,
prices (base prices as well as extras) from time to time
of all categories of iron or steel as ex-works prices.
The Committee added an element to the ex- works
prices for constituting a fund for modernisation,
research and development with the object of ensuring
the production of iron and steel in the desired categories
and grades by the main steel plants.
Pursuant to the orders of the committee , the steel
companies started adding element to their ex-works
price for the fund.
However while declaring value of their goods, the steel
companies did not add these ex-works elements for the
purpose of asessment of excise duty.
 The revenue claimed that excise is payable even on
this component as total value of goods is relevant for
assessment of excise duty an whatever is added to ex-
works prices will the value for calculation of excise
duties.

The questions for consideration .

(i) Whether the elements required to be added by the

members steel plants, as per the decision of the
Committee , are admissible deductions under Section
4(4)(d)(ii) of the Central Excise Act i.e. whether they
fall within the definition of the term "other taxes" and
(ii) whether such addition, which is a compulsory
impost, can be considered and be price on which excise
duty is payable by the parties.

Contention of TISCO
(i) Iron or Steel Companies have to compulsory add
this element to the ex-works price and as such it is a
compulsory exaction.
 Such compulsory exaction is in the nature of "tax" and
is covered by the words "other taxes" in Section 4(4)(d)
(ii) of the Central Excise Act
Reasoning of the Court:

In order to understand the submission made by the

Tisco and other steel companies , the provisions of
Section 4 of the said Act need to be look at.
Section 4 of the Central Excise Act states that where
the duty of excise is chargeable on any excisable goods
with reference to value, such value shall, subject to the
other provisions of this section, be deemed to be
(a) the normal price thereof, that is to say, the price at
which such goods are ordinarily sold by the assessee to
a buyer in the course of trade for delivery at the time
and place of removal, where the buyer is not a related
person and the price is the sole consideration for the
sale:
(d) "value" in relation to any excisable goods,-
(ii) does not include the amount of the duty of excise,
sales tax and other taxes, if any, paid or payable on
such goods
Thus excise duty is chargeable on the value of the
goods. The value is the normal price i.e. the price at
which such goods are ordinarily sold by the assessee to
a buyer, where the buyer is not a related person and the
price is the sole consideration for sale.
From the price at which the assessee sells to the buyer
the only deductions permissible are those under sub-
clause 4(d)(ii) i.e. excise, sales tax and other taxes .
It is clear that extra elements added to ex- works price
of steel is not an excise duty or a sales tax .
The only question is whether it would fall within the
meaning of the term "other taxes".

Case laws

In D. G. Guose and Co. v. State of Kerala (1980) 2 SCC

410. the question was regarding the validity of tax
imposed by the Kerala State on buildings by virtue of
the Kerala Building Tax Act.
The validity of this Act was challenged, inter alia, on
the ground that this was the tax on the capital value and
assessee of an individual or a Company and therefore
fell within the scope of Entry 86 of the Union List and
not under Entry 49 of the State List.
Therefore the State did not have the statutory authority
to impose such a tax.
The Court held as follows:
" The word 'tax' in its widest sense includes all money
raised by taxation. It therefore includes taxes levied by
the Central and the State legislatures, and also those
known as 'rates", or other charges, levied by local
authorities under statutory powers.
“Taxation" has therefore been defined in clause (28) of
Article 366 of the Constitution to include "the
imposition of any tax or impost, whether general or
local or special", and it has been directed that "tax"
shall be "construed accordingly"."
Thus it is to be seen that even though the term "tax" has
been given a wide interpretation to include all monies
raised, the levy still has to be by the Central or State
legislatures or by some statutory authority.
In CCE v. Kisan Sahkari Chinni Mills Ltd. 2001 (132)
ELT 523 (S.C.).
State of Uttar Pradesh enacted a legislation called
Uttar Pradesh Sheera Niyantaran Adhiniyam .
This Act regulated storage, gradation, price, supply and
distribution, in Uttar Pradesh, of molasses produced by
the sugar factories.
The Act provided that sugar factories would be liable to
pay to the State Government administrative charges .
These administrative charges were based on the
quantity of molasses sold and supplied by the sugar
factories.
The Act enabled the factories to recover these charges
from the person to whom the molasses were sold.
The question before the Court was whether this
compulsory exaction fell within the term "other taxes"
in Section 4(4)(d)(ii) of the Central Excise Act.

It was held as follows:

"Under Section 4(4)(d)(ii) of the Central Excise Act
what is to be excluded from the assessable value is the
amount of duty of excise, sales tax and "other taxes".
Taxes, as such, are not defined in the Central Excise
Act. If the expression "tax" is to be understood in the
absence of any definition, it would certainly cover any
levy.”
Since the imposition was under a statute enacted by the
State of Uttar Pradesh the levy was by the State.
It was thus held that that levy fell within the definition
of the term "other taxes".
In the present case there is no backing of any statutory
provision for the creation of these funds.
Further the levy was only on main steel plants and the
fund was created for the utilization by these member
steel plants only.
Also to be noted that even though the Essential
Commodities Act empowers regulation of price, it does
not empower imposition of any taxes. The addition of
an element to the ex- works price has no statutory
backing or force.
It is not by the Central Government or the State
Government or any local authority. It is a levy by a
Committee majority of whose members are
representatives of the steel plants. The purpose of
creating funds is for the benefit of these member steel
plants.Such a levy, even though, it may be compulsory
can never be "tax".

In C.I.T. v. Tollygunge Club Ltd. (1977) 2 SCC 790.

the question was whether a surcharge collected by the
assessee Club from all race goers but which had been
earmarked for charity could be deemed to be an income
of the assessee and therefore includible in the taxable
income of the assessee.
It was held that income tax was a tax on income. It was
held that "income" is what reaches the assessee and that
it is that income which is intended to be charged to tax
under the Income Tax Act.
Every receipt by the assessee is not necessarily income
in his hands.
The surcharge collected by the assessee was for the
purposes of being paid over to local charities.
This surcharge was clearly impressed with an obligation
in the nature of trust for being applied for the benefit of
charities.
Therefore it was held that this surcharge was diverted
before it reached the hands of the assessee and did not
become part of the income of the assessee and such a
surcharge would therefore not be regarded as income
assessable to tax.

In C.I.T. v. Bijli Cotton Mills (1979) 1 SCC 496.

The question was whether certain amounts realized by
the assessee on account of Charity in addition to the
price from his customers could be stated to be income
in the hands of the assessee which were assessable to
income tax.
It was held that the amount was being collected for
purposes of giving to charities and were held by the
assessee under an obligation to spend them for
charitable purposes.Therefore it did not form income of
the assessee.
These amounts were not part of the price of the goods
but were payments for specific purpose of being spent
on charitable purposes.
It was submitted by TISCO that all the abovementioned
cases clearly show that when there is a compulsory
impost or exaction, the assessee has to collect but the
assessee cannot retain for himself and he has to pass on
the same, then such a compulsory exaction cannot be
included in the value for purposes of assessing excise
duty. Such imposts cannot be deemed to be price.

What was being levied was an element to the ex-works

price and the price for purpose of assessment of duty
remained the ex-works price. The Companies sold to
the customers at the ex-works price.
The additional amount was merely collected by the
Companies for and on behalf of JPC and the companies
did not retain this amount. Therefore this element could
not be considered to be price.
Therefore the price which the buyer pays is the price on
which excise duty is leviable. From the price that the
buyer pays, the only deductions allowed are taxes paid
or payable on such goods. The levy in the present case
is not a "tax" and does not fall within the meaning of
the term "other taxes". This element cannot be deducted
from the assessable value of the goods.
Countering this the revenue submitted that the
principles under the Income Tax Act cannot be made
applicable to the Central Excise Act. Under the Income
Tax Act what is taxable is the actual income received
by the assessee for his own benefit. Under the Central
Excise Act excise duty is chargeable on the value of the
goods.
This value is the price at which the goods are ordinarily
sold by the assessee to the buyer.
The element which has been added is an "element of
price".
This element could only have been added as price
because the JPC is established by virtue of the order
based on the Essential Commodities Act and under that
Act there was no power to make any levy or impose any
tax on a purchaser.
The addition being an element of price it has to be
included in the assessable value for purposes of excise
duty.
Reasoning of the Court.
Principles on which "income" is to be determined under
the Income Tax Act cannot apply when determining
"value" for purposes of Excise Duty.
Under the Income Tax Act, tax is payable on income
which reaches the assessee. On the other hand, Section
4 of the Excise Act shows that excise is payable on the
price at which goods are ordinarily sold to the buyer.
Thus the principles on which Bijli Cottons Mills' case
and Tollygunge Club's case were decided would not be
appropriate and would not apply for deciding "value"
for the purposes of the Excise Act.
In Hindustan Sugar Mills v. State of Rajasthan. (1978)
4 SCC 271.
The question was whether the assessee was liable to pay
Sales Tax on the amount of railway freight collected by
them from the purchaser.
It was held that the assessee was bound to pay Sales
Tax on such amounts.
In E.I.D. Parry (I) Ltd. v. Asst. Commissioner of
Commercial Taxes (2000) 2 SCC 321. it was held that
the purchase price is the total amount of consideration
for the purchase of goods. This would include price and
also other amounts payable by the purchaser.
These cases have been decided under the Sales Tax
Act,but the principles for computing value for purposes
of Sales Tax are similar to those of computing value for
purposes of Excise Duty. It is these principles which
would apply. What has been added is an "element of
price".
The JPC could not have made any compulsory
exaction from the purchaser. They could only regulate
prices by adding elements to the ex-works price. In
other words the ex-works price could be increased by
adding an element to it. Thus what was being added
was to the price.
Another aspect to be kept in mind is ultimate
beneficiaries of these amounts are the steel plants
themselves.Therefore while assessing excise duty,such
levy cannot be exempted as taxes .
In this view of the matter the appeal of TISCO is
dismissed.

3. Acer India Ltd. Vs CCE. 2004 (8) SCC 173 .

Summary
Levy of Excise duty-On operational Software loaded in
hardware- Software exempted from duty.
Held: Duty is not leviable on such software while it is
not provided under Tariff Act-Computer and Software
both are distinct and separate both as a matter of
commercial parlance as also under the statute-
Despite being loaded in the hardware the software does
not lose its character as is still marketable as a separate
commodity.

Facts.
Appellant Acer India Ltd. is a Company manufacturing
computers, and accessories falling under different
headings of Chapter 84 of Central Excise Tariff Act,
1985. Upon a licence, it also used to load operational
softwares.
It used to deduct the value of the operational software
from the total value of the Computer, while calculating
the amount of central excise payable thereupon.
Revenue issued show cause notices to it demanding a
differential duty on the premise that duty is payable on
the entire value of the computer including the value of
operational softwares.
Revenue thereafter directed payment of differential
duty.
In an appeal before the Supreme Court following
contentions were raise.
Contentions of the Revenue.
An operational software implanted in a hardware
becomes a part thereof and as such central excise duty
is leviable on the total value of the computer.
"Transaction Value" as contained in Section 4 (3) (d)
of the Excise Act would include the value of all
manufactured goods charged as price including any
amount that the buyer is liable to pay by reason of or in
connection with the sale together therewith any other
amount which adds to the value thereof.
As a software implanted is a part of the computer,
excise duty would be payable on the total value thereof.
Furthermore, the Company was also being under an
obligation to preload a software on the computer before
clearing the same from the factory, the central excise
duty would be payable on the entire value thereof.
Contentions of Acer India Ltd.
The operational softwares which are implanted on
specific orders would retain the characteristics of
software and would not lose its identity only because
information contained therein together with the right to
use the same is implanted in the computer itself.
That hardwares and softwares are classified separately
under different headings of the Tariff Act.
That in respect of computers rate of duty is 16% and
for softwares it is nil and thus assessee was entitled to
claim deduction of the value thereof from the total
value of the computer.
That as both the hardware and software are assessed
separately, in view of relevant chapter note of the Tariff
Act, the valuation of a computer and software cannot be
clubbed together for the purpose of assessment.
A computer which is a hardware is marketable as such
containing a firm or etched software being implanted
therein, the valuation thereof also is taken into
consideration for the purpose of excise duty but the
operational softwares which are implanted on specific
orders placed by the customers would retain the
characteristics of software and would not lose its
identity only because the informations contained
therein together with the right to use the same is
implanted in the computer itself.

RELEVANT STATUTORY PROVISIONS

Central Excise Act.
Section 2(d) "excisable goods" means goods specified
in the First Schedule and the Second Schedule to the
Central Excise Tariff Act as being subject to a duty of
excise ;
Section 3. Duties specified in the Schedule to the
Central Excise Tariff Act, 1985 to be levied.
(1) There shall be levied and collected in such manner
as may be prescribed,-
(a) a duty of excise, to be called the Central Value
Added Tax (CENVAT) on all excisable goods which
are produced or manufactured in India.

Section 4 . Valuation of excisable goods for purposes of

charging of duty of excise.
(1) Where under this Act, the duty of excise is
chargeable on any excisable goods with reference to
their value, then, on each removal of the goods, such
value shall-
(a) in a case where the goods are sold by the assessee,
for delivery at the time and place of the removal, the
assessee and the buyer of goods are not related and the
price is the sole consideration for the sale, be the
transaction value;
(3) for the purposes of this section, -
(d) "transaction value" means the price actually paid or
payable for the goods, when sold, and includes in
addition to the amount charged as price, any amount
that the buyer is liable to pay to, or on behalf of, the
assessee, by reason of, or in connection with the sale,
whether payable at the time of the sale or at any other
time, including, but not limited to, any amount charged
for, or to make provision for, advertising or publicity,
marketing and selling organization expenses, storage,
outward handling, servicing, warranty, commission or
any other matter; but does not include the amount of
duty of excise, sales tax and other taxes, if any, actually
paid or actually payable on such goods."

Reasoning of the Court.

Interpreting Taxing/Fiscal Statute:

In Cape Brandy Syndicate Vs. Inland Revenue
Commissioners, [(1921) 1 KB 64 ], it is stated that :
"In a taxing Act one has to look merely at what is
clearly said. There is no room for any intendment.
There is no equity about a tax. There is no
presumption as to tax. Nothing is to be read in, nothing
is to be implied. One can only look fairly at the
language used."

In W.M. Cory & Sons Ltd. Vs. Inland Revenue

Commissioners, (1965) 1 All ER 917, it was held that:
“Imposition of tax is a constitutional function. A
taxing or a fiscal statute demands strict construction. It
must never be stretched against a tax payer. So long
natural meaning for the charging section is adhered to
and when the law is certain, then a strange meaning
thereto should not be given.”

In Union of India Vs. Play Win Electronics Pvt. Ltd ,

(1989) 3 SCC 181] it was held that:
It is also well-settled rule of construction of a charging
section that before taxing a person it must be shown
that he falls within the ambit thereof by clear words
used as no one can be taxed by implication.
It is further well-settled that a transaction in a fiscal
legislation cannot be taxed only on any doctrine of "the
substance of the matter" as distinguished from its legal
signification, for a subject is not liable to tax on
supposed "spirit of the law" or "by inference or by
analogy". The taxing authorities cannot ignore the legal
character of the transaction and tax it on the basis of
what may be called 'substance of the matter'. One must
find the true nature of the transaction.”
In Mathuram Agrawal Vs. State of Madhya Pradesh
[(1999) 8 SCC 667. the law regarding interpretation of
taxing statute is stated in the following terms:
"The intention of the legislature in a taxation statute is
to be gathered from the language of the provisions
particularly where the language is plain and
unambiguous. In a taxing Act it is not possible to
assume any intention or governing purpose of the
statute more than what is stated in the plain language. It
is not the economic results sought to be obtained by
making the provision which is relevant in interpreting a
fiscal statute. Equally impermissible is an
interpretation which does not follow from the plain,
unambiguous language of the statute.
Words cannot be added to or substituted so as to give a
meaning to the statute which will serve the spirit and
intention of the legislature. The statute should clearly
and unambiguously convey the three components of
the tax law i.e. the subject of the tax, the person who is
liable to pay the tax and the rate at which the tax is to
be paid. If there is any ambiguity regarding any of
these ingredients in a taxation statute then there is no
tax in law. Then it is for the legislature to do the
needful in the matter."
Interpretation Of The Relevant Provisions:
Section 2(d) of Central Excise Act, 1944 defines the
"excisable goods" to mean the goods specified in the
First Schedule and the Second Schedule to the Central
Excise Tariff Act as being subject to a duty of excise.
It must, therefore, be 'goods' which would be subject
to a duty of excise and not the 'goods' which would
not be.
Section 3 is the charging provision.
It not only lays down the mode and manner for levy
and collection of central excise duty but in no uncertain
terms states that a duty of excise shall be levied on all
excisable goods which are produced or manufactured
in India, as, and at the rates, set forth in the Tariff Act.
Section 4 provides for the manner in which an enquiry
is required to be made for valuation of goods for the
purpose of levy of excise duty on "goods".
In terms of Section 4(1)(a) , when the duty of excise is
chargeable on the concerned excisable goods with
reference to their value, the same shall be calculated in
the manner laid down therein.
It may be true that the definition of "Transaction Value"
which is incorporated in Section 4(3) (d) for the
purpose of said Section states that the price actually
paid or payable for the goods, when sold, would
include in addition to the amount charged as price, any
amount that the buyer is liable to pay to, or on behalf
of, the assessee, by reason of, or in connection with the
sale.
Only because the expressions "by reason of, or in
connection with the sale" have been used in the
definition of "Transaction Value", the same by itself
would not take away the rigours of Sub-section (1) of
Section 4 as also the requirement of charging section as
contained in Section 3.
It must be borne in mind that central excise duty cannot
be equated with sales tax. They have different
connotations and apply in different situations.
Central excise duty is chargeable on the excisable goods
and not on the goods which are not excisable. Thus, a
'goods' which is not excisable if transplanted into a
goods which is excisable would not together make the
same excisable goods so as to make the assessee liable
to pay excise duty on the combined value of both.
Excise duty, in other words, would be leviable only on
the goods which answer the definition of "excisable
goods" and satisfy the requirement of Section 3.
A machinery provision contained in Section 4 and that
too the explanation contained therein by way of
definition of 'transaction value' can neither override the
charging provision nor by reason thereof a 'good' which
is not excisable would become an excisable one only
because one is fitted into the other, unless the context
otherwise requires.
It is not a case where the software is being supplied to
the customer along with the computer by way of
incentive or gift.The Company is charging the price
therefor.
Software along with a computer is being sold both in
the form of the information loaded in the computer as
also in the form of a CD-ROM.

In the invoice, the composite price of the computer and

software is being shown, and therefrom, the price of
the software is only being deducted.
The invoice price, thus, also shows the actual price of
the computer as also the price of the software together
with the licence to use the same.
But invoice value is not always excisable value in
respect of the goods. In the instant case, the excisable
value of the computer has been disclosed. The cost of
loading the softwares which would enhance the value
of the goods had also been added.
There cannot, thus, be any doubt whatsoever that while
computing such costs of manufacturing expenses
which would add to the value of the excisable goods
must be taken into consideration but not the value of
any other goods which is not excisable.

Classification of Goods under Central Excise Tariff

Act :
Computers are classified under 84 with 16% duty .
Softwares, however, are classified under Chapter 85;
and the duty payable is 'Nil' .
Once a particular subject matter falls within the
specified classification, the determination of valuation
for the purpose imposition of duty must be done
according to the terms of the heading.
The softwares, thus, whether they are cleared with the
apparatus for which they are intended, viz., with the
computer or not they remain classified under the same
heading.
Since 'no duty' is payable on softwares according to
classification, a duty would not be payable only
because the informations contained therein are loaded
in the hardware.
A software retains its character irrespective of the fact
as to whether it is sold with the apparatus, viz., the
computer. Once it is held that the essential
characteristic of a software is not lost by reason of its
being loaded in the hardware; having regard to the
different sub-headings contained in different chapters
of the Tariff Act, the intent and purport of the
legislature, in our opinion, cannot be permitted to be
withered away only because the informations contained
in a software are loaded in a hardware.
In other words, as the central excise duty is not leviable
on a software in terms of the Act, only because it is
implanted in a hardware which can be subjected to the
assessment of central excise under different head, the
same would not attract central excise duty.
While calculating the value of the computer the value of
the hard disc, value of the firmware, the cost of the
motherboard as also the costs for loading operating
softwares is included.
What is excluded from the total value of the computer
is the value of the operating softwares like Windows
2000, Windows XP which are secondary softwares.
Indisputably, when an operating software is loaded in
the computer, its utility increases.
But does it mean that it is so essential for running the
computer that exclusion thereof would make a
computer dead box?
The answer to the said question must be in the
negative
It is not disputed that even without operational
softwares a computer can be put to use although by
loading the same its utility is enhanced.
Computers loaded with different operational softwares
cater to the specific needs of the buyer where he is
required to place definite orders on the manufacturer.
It is also accepted that the operating software despite
being loaded on to the hard disc is usually supplied
separately to the customers.
It is also beyond any controversy that operating
software can be updated keeping in view the
development in the technology and availability thereof
in the market without effecting the data contained in
the hard disc.
Even in the case of hard disc crash the software
contained in the CDs is capable of being reloaded on to
the hard disc and its utility by the users remain the
same.
An operational software, therefore, does not form an
essential part of the hardware.
In PSI Data Systems Ltd. the Supreme Court drew a
distinction between a computer system and a computer
and held that :
“A computer and its software are distinct and separate .
A computer may not be capable of effective
functioning unless loaded with software such as discs,
floppies and CD ROMs, but that is not to say that these
are part of the computer or to hold that, if they are sold
along with the computer, their value must form part of
the assessable value of the computer for the purposes
of excise duty.”
In O.R.G. Systems Vs. CCE [1998 (102) ELT 3 (SC)].
the principal issue in controversy was :
Whether the value of peripheral devices and/ or
computer systems along with computers are
includible in the assessable value of the Computer;
Referring to P.S.I. Data Systems Ltd. the supreme Court
held that :
"The PSI judgment completely answers the principal
issue in controversy in favour of the appellant
company. In the case on hand, it cannot be disputed
that the computers manufactured and supplied by the
appellant were complete computers, which had a
Central Processing Unit, with "etched-in" or "burnt-in"
software, a Key Board (input device) the monitor
(output device) and Disc drives.
The computers, as above, were cleared after complying
with all requirements under the Excise Law and proper
duty as computed was paid.
The peripheral devices and other systems software
were merely additional devices meant to increase the
memory or storage capacity of the computers and other
facilities."
Once it is held that the computer is complete without
the operating softwares, the question of adding the cost
of software therewith would not arise since what is
under assessment is only the computer.
Computer and operative softwares are different
marketable commodities. They are available in the
market separately. They are classified differently.
The rate of excise duty for computer is 16% whereas
that of a software is nil.
Accessories of a machine promote the convenience and
better utilization of the machine but nevertheless they
are not machine itself. The computer and software are
distinct and separate, both as a matter of commercial
parlance as also under the statute.
Although a computer may not be capable of effective
functioning unless loaded with softwares, the same
would not tantamount to bringing them within the
purview of the part of the computer so as to hold that if
they are sold along with the computer their value must
form part of the assessable value thereof for the purpose
of excise duty.
Both computer and software having being classified
under different heading , must be subject to
corresponding rates of duties separately.
The informations contained in a software although are
loaded in the hard disc, the operational software does
not lose its value and is still marketable as a separate
commodity.
It does not lose its character as a tangible goods being
of the nature of CD-ROM.
A licence to use the information contained in a
software can be given irrespective of the fact as to
whether they are loaded in the computer or not.
The fact that the manufacturers put different prices for
the computers loaded with different types of
operational softwares whether separately or not would
not make any difference as regard nature and character
of the 'computer'.
Even if the company , in terms of the provisions of a
licence were obliged to preload a software on the
computer before clearing the same from the factory, the
characteristic of the software cannot be said to have
transformed into a hardware so as to make it subject to
levy of excise duty along with computer while it is not
under the Tariff Act.
In other words, computers and softwares are different
and distinct goods under the said Act having been
classified differently and in that view of the matter, no
central excise duty would be leviable upon
determination of the value thereof by taking the total
value of the computer and software.
So far as, the valuation of goods in terms of 'transaction
value' thereof, as defined in Section 4(3)(d) of the Act
is concerned, suffice it to say that the said provision
would be subject to the charging provisions contained
in Section 3 of the Act as also Sub-Section (1) of
Section 4.
The expressions "by reason of sale" or "in connection
with the sale" contained in the definition of 'transaction
value' refer to such goods which is excisable to excise
duty and not the one which is not so excisable.
Section 3 of the Act being the charging section, the
definition of 'transaction value' must be read in the text
and context thereof and not without the same.
When an exemption has been granted from levy of any
excise duty on software whether it is operating
software or application software, no excise duty can be
levied thereupon indirectly as it was impermissible to
levy a tax indirectly.
For these reasons aforementioned, appeal of the
company are allowed accordingly.

4. Commissioner of Central Excise Vs.Fiat India

Ltd. (2012)9SCC332

Ratio Decidendi.
 "Existence of extra commercial consideration while
fixing price will not be normal price."

Facts.
The Respondents-Assessees are the manufacturer of
motor cars, i.e. Fiat Uno model cars. The said goods
are excisable under Central Excise Tariff Act, 1985.
The Assessees have filed several price declarations in
terms of Rule 173C of the Central Excise Rules, 1944
declaring wholesale price of their cars for sale through
whole sale depots during the period commencing from
1996 to 2001.
 
The authorities under the Central Excise Act had
made enquiries and had prima facie found that the
wholesale price declared by the Assessees is much
less than the cost of production and, therefore, the
price so declared by them could not be treated as a
normal price for the purpose of quantification of
Assessable value Under Section 4(1)(a) of the Act and
for levy of excise duty as it would amount to short
payment of duty.

Since further enquiry was required to be conducted

regarding the Assessable value of the cars, the
Assistant Commissioner, Central Excise, directed for
the provisional Assessment of the cars at a price
which would include cost of production, selling
expenses (including transportation and landing
charges, wherever necessary from 1996 and profit
margin, on the ground that the cars were not ordinarily
sold in the course of wholesale trade as the cost of
production is much more than their wholesale price,
but were sold at loss for a consideration, that is, to
penetrate the market which has been confirmed by the
Assessee .

The Revenue issued show cause notices to

Assessees , making a demand of differential duty on
the Assessable value calculated on the basis of
manufacturing cost plus manufacturing profit minus
VAT availed per car, and the duty which the
Respondents were actually paying on the Assessable
value.
It is alleged in the show cause notices that the
Respondents have failed to determine and pay the
correct duty on Fiat UNO cars while clearing them. It
is further stated that the Assessees have not taken into
account the cost of raw material, direct wages,
overheads and profits for calculating the Assessable
value of the cars which were declared in the invoices
and declarations for the purpose of Section 4 of the
Act.
In this regard, the Assessees were required to show
cause as to why the correct duty due on the said goods
along with interest should not be recovered from them
under Sections 11A and 11AB of the Act.
Assessees had replied in detail to the show cause-
cum-demand notices. The Assessees had submitted
that they have declared Assessable value or normal
price in terms of Section 4(1)(a) of the Act. The
Assessees apart from others had also stated that the
proper interpretation of Section 4(1) (a) of the Act
would mean that the Assessable value should be the
normal price at which such goods are ordinarily sold
in wholesale trade where price is the sole
consideration; that they are not getting any additional
consideration over and above the Assessable value
declared by them; that there is no flow back of money
from the buyers and dealings between the Assessees
and their buyers are at arms length and since the price
declared by them is proper as per Section 4(1) (a) of
the Act, the question of determining the Assessable
value as per Section 4(1)(b) read with Central Excise
(Valuation) Rules, 1975 would not arise.
In other words, the Assessees submitted that when
normal price is available then recourse to any other
method of valuation is incorrect and improper. They
had also submitted that Section 4 of the Act nowhere
mandates that price should always reflect the
manufacturing cost and profits and, therefore, the
price declared by them requires to be accepted. The
Assessees had further submitted that since they have
launched new models of the cars which require import
of the cars in kit-form (CKD and SKD), thereafter
they were assembled and sold. This cost of imports,
assembly and overheads lead to increase in overall
cost of production of their cars. Further, they were
facing intense competition from Maruti car
manufacturers which required them to keep the price
of their cars at a lower price. Therefore, they were
forced to sell their cars at a loss in order to compete
and attract buyers in the market.

 After receipt of the reply so filed, the adjudicating

authority proceeded to conclude that the Assessees'
main consideration was to penetrate the market,
therefore, the price at which they were selling the Cars
in the market could not be considered to be a normal
price as per Section 4 of the Act.
He has also observed that the cost of production of
the Fiat UNO Cars is much higher than the price at
which the Assessees are selling them to the general
public; that the price is artificial and arrived at without
any basis just to capture the market and drive out the
opponents from business; that the Fiat UNO Cars in
issue are equipped with powerful Fire Engine and
superior quality gadgets and that when normal price
cannot be ascertained as per Section 4(1) (a) of the
Act, the alternate procedure under the Valuation
Rules, i.e. cost of production and profit has to be
applied.
He also observed, by referring to the decisions in
Bombay Tyre's and MRF Tyre's cases, that all costs
incurred to make goods saleable/marketable should be
taken into account for determining the Assessable
value and that the loss incurred by the Assessees to
penetrate the market should be borne by them and in
the process Government should not lose revenue and
directed the assessee to pay the difference in duty.
On appeal ,the Tribunal held that since there is no
allegation that the wholesale price charged by the
assessee was for extra commercial consideration and
that dealing of the assessees and their buyers was not
at arms length or that there is a flow back of money
from the buyers to the assessees and, therefore, the
price declared by the assessees is the ascertainable
normal price.
Against this the revenue has come in appeal to the
Supreme Court.

Submissions of Revenue.

(a)that the Assessees are not fulfilling the conditions

enumerated in Section 4(1)(a) of the Act and
therefore, the valuation has to be done in accordance
with Section 4(1)(b) of the Act read with the
Valuation Rules.
(b) that the price fixed by the Assessees does not
reflect the true value of the goods as manufacturing
cost and the profit is much higher than the sale price.
Since the price of the cars sold by the Assessees does
not reflect the true value of goods and that sole reason
for lowering the price by the Assessees below the
manufacturing cost is just to penetrate the market and
compete with other manufacturers and, therefore, such
price cannot be treated as "normal price" in terms of
Section 4(1)(a) of the Act.
(c)Since the price of the cars sold by the Assessees
was not ascertainable, the Revenue is justified in
computing the Assessable value of the goods for the
levy of excise duty Under Section 4(1)(b) of the Act
and the relevant rules.Under Section 4(1)(a) of the
Act, value shall be deemed to be the normal price. A
normal price, as per Section 4(1)(a), is the price at
which the goods are ordinarily sold. A loss making
price cannot be the price at which goods are ordinarily
sold and the loss making price cannot be the normal
price. For arriving at the Assessable value, the
department is entitled to take into account the
manufacturing cost plus manufacturing profit.
Submissions of the Assessee.
(a)The charging Section and the computation Section
are independent to each other and should not be mixed
up. The normal price as found in Section 4(1)(a) of the
Act is nothing but the price at which the particular
Assessee sold his goods to his buyers in the ordinary
course of business.
(b) the cost of manufacture is irrelevant for the
purpose of valuation Under Section 4 of the Act.
(c) that 'normal price' is the selling price at which that
particular Assessee has sold the goods to all the
buyers in the ordinary course of business.
(d)Here the price is the sole consideration for sale.
As the word 'consideration' is used in the Section 4 in
the same sense as used in the Section 2 (d) of the
Indian Contract Act, and it is only the monetary
consideration from the buyer to the Assessee that
requires to be taken note of for the purpose of
valuation under the Act.
(e) That the intention and consideration cannot be
treated as same; it is only the intention of the Assessee
to penetrate the market and the only consideration for
the Assessee from the buyer was the sale price. The
Assessable value has to be gathered from the normal
price and not from cost of manufacture which is
irrelevant when normal price is ascertainable.
Therefore only when the normal price is not
ascertainable in terms of Section 4(1)(a), then
Section 4(1)(b) read with the Valuation Rules would
come into play to determine nearest equivalent
Assessable value of the goods.
It is only Rule 6(b)(ii) of the 1975 Valuation Rules
which contemplates determination of Assessable value
on the basis of cost of manufacture only when the
goods are captively consumed by the manufacturer
and value of comparable goods manufactured by the
Assessee or any other Assessee is not available.
(f) Section 2(d) of the Indian Contract Act requires
that the consideration should flow from buyer to the
seller. The meaning of the expression 'consideration'
in Section 4 should be determined by
comprehensively reading Section 4 along with the
Valuation Rules. In case the price is not the sole
consideration then the value of the goods can be
determined by taking into account the monetary value
of the additional consideration flowing directly or
indirectly from the buyer to the seller. Intention of the
Assessee to penetrate the market cannot be treated as a
consideration as no money consideration flows from
the buyer to the seller. Therefore, there is no
additional consideration flowing from buyer to seller
and whole transaction is bonafide. Once the normal
price at which the goods are sold is available, the
Revenue cannot reject the normal price merely
because it is less than the cost of production, specially
when the genuineness of the sale price is not in doubt.

Issues for determination.

(1). Whether the Price declared by Assessees for their

cars which is admittedly below the Cost of
manufacture can be regarded as "normal price" for the
purpose of excise duty in terms of Section4(1) (a) of
the Act.
(2). Whether the sale of Cars by Assessees at a price,
lower than the cost of manufacture in order to compete
and penetrate the market, can be regarded as the "extra
commercial consideration" for the sale to their buyers
which could be considered as one of the vitiating
factors to doubt the normal price of the wholesale trade
of the Assessees.
Reasoning of the Court.
The decision in the present case turns upon the
interpretation of Section 4(1)(a) and Section 4(1)
(b) of the Act read with relevant Rules .

Statutory Provisions

Section 3 of the Act is the charging provision. The

taxable event for attracting excise duty is the
manufacture of excisable goods. The charge of
incidence of duty stands attracted as soon as taxable
event takes place and the facility of postponement of
collection of duty under the Act or Rules framed
thereunder can in no way effect the incidence of duty.
Further, the sale or ownership of the end products is
also not relevant for the purposes of taxable event
under the central excise. Since excise is a duty on
manufacture, duty is payable whether or not goods are
sold. Duty is payable even when goods are used
within the factory or goods are captively consumed
within factory for further manufacture. Excise duty is
payable even in case of free supply or given as
replacement. Therefore, sale is not a necessary
condition for charging excise duty.
 Section 3 of the Act provides for levy of duty of
excise and Section 3(i) thereof states that there shall
be levied and collected in the prescribed manner, a
duty of excise on excisable goods manufactured in
India at the rates set forth in the first Schedule.
Neither Section 3 nor the first Schedule lays down the
manner in which ad valorem price of the goods has to
be calculated. This is found in Section 4 of the Act.
Section 4 of the Act lays down the measure by
reference to which the duty of excise is to be
Assessed. The duty of excise is linked and chargeable
with reference to the value of the exercisable goods
and the value is further defined in express terms by
the said Section. In every case, the fundamental
criterion for computing the value of an excisable
article is the normal price at which the excisable
article is sold by the manufacturer, where the buyer is
not a related person and the price is the sole
consideration. If these conditions are satisfied and
proved to the satisfaction of the adjudicating
authority, then, the burden which lies on the Assessee
Under Section 4(1)(a) would have been discharged
and the price would not be ignored and the transaction
would fall under the protective umbrella contained in
the Section itself.
 Section 4 of the Act is the core provision containing
statutory formula for Assessment and collection at ad
valorem basis of duty under Central Excise laws.
Therefore, the Section requires to be noticed and some
of the expressions contained therein, which are
necessary for the purpose of the case, require to be
analysed to appreciate the stand of the parties.

Section 4. Valuation of excisable goods for

purposes of charging of duty of excise –
(1) Where under this Act, the duty of excise is
chargeable on any excisable goods with reference
to value, such value shall, subject to the other
provisions of this section be deemed to be
(a) the normal price thereof, that is to say,
the price at which such goods are ordinarily
sold by the Assessee to a buyer in the course
of wholesale trade for delivery at the time
and place of removal, where the buyer is not
a related person and the price is the sole
consideration for the sale:
(b) where the normal price of such goods is
not ascertainable for the reason that such
goods are not sold or for any other reason,
the nearest ascertainable equivalent thereof
determined in such manner as may be
prescribed.
Section 4 of the Act lays down the valuation of
excisable goods chargeable to duty of excise. The duty
of excise is with reference to value and such value
shall be subject to other provisions of Section 4, that is
the normal price at which such goods are ordinarily
sold by the Assessee to a buyer in the course of
wholesale trade for delivery at the time and place of
removal where the buyer is not a related person and
the price is the sole consideration for the sale.
To determine the value, the legislature has created a
legal fiction to equate the value of the goods to the
price which is actually obtained by the Assessee,
when such goods are sold in the market, or the nearest
equivalent thereof. In other words, the legal fiction so
created by Section 4 makes excise duty leviable on the
actual market value of the goods or the nearest
equivalent thereof.

In Bangaru Laxman v. State (2012) 1 SCC 500, it

was observed that a deeming provision creates a legal
fiction and something that is in fact not true or in
existence, shall be considered to be true or in
existence. Therefore, though the price at which the
Assessee sells the excisable goods to a buyer or the
nearest ascertainable price may not reflect the actual
value of the goods, for the purpose of valuation of
excise duty, by the deeming fiction created in
Section 4(1), such selling price or nearest
ascertainable price in the market, as the case may be,
is considered to be the value of goods.
It is well settled that whenever the legislature uses
certain terms or expressions of well-known legal
significance or connotations, the courts must interpret
them as used or understood in the popular sense if
they are not defined under the Act or the Rules framed
thereunder. Popular sense means "that sense which
people conversant with the subject matter, with which
the statute is dealing, would attribute to it."
 The normal rule of interpretation is that the words
used by the legislature are generally a safe guide to its
intention. Lord Reid in Westminster Bank Ltd. v.
Zang [(1966) A.C. 182] observed that 'no principle of
interpretation of statutes is more firmly settled than
the rule that the court must deduce the intention of
Parliament from the words used in the Act."
Applying such a rule in S. Narayanaswami v. G.
Pannerselvam it was observed that 'Where the
statute's meaning is clear and explicit, words cannot
be interpolated.'
Section 4 of the Act, speaks of valuation of excisable
goods, with reference to their value. The 'value'
subject to other stipulation in Section 4 is deemed to
be the 'normal price' at which the goods are 'ordinarily'
sold to the buyer in the course of 'wholesale trade'
where the buyer is not 'related person' and the 'price' is
the 'sole consideration' for the sale. Against this
background, for the purpose of this case, we have now
to consider the meaning of the words 'value', 'normal
price', 'ordinarily sold' and 'sole consideration', as used
in Section 4(1) (a) of the Act.

The 'value' in relation to excisable commodity means

normal price or the price at which the goods are
ordinarily sold by the Assessee to a buyer in the
course of wholesale trade at the time and place of
removal where the buyer is not a related person and
price is the sole consideration for sale. Stated another
way, the Central Excise duty is payable on the basis of
the value. The Assessable value is arrived on the basis
of Section 4 of the Act and the Central Excise
Valuation Rules.
 Section 4(1) (a) deems the 'normal price' of the
Assessee for selling the excisable goods to buyers to
be the value of the goods for purpose of levy of excise
duty. The expression 'normal price' is not defined
under the Act. In "Advanced Law Lexicon" , it is
defined as the price which would have been payable
by an ordinary customer of the goods. While
construing the meaning of the aforesaid expression
in Ashok Leyland Ltd. v. Collector of Central Excise :
(2002) 10 SCC 344 it was stated that "Generally
speaking the expression 'normal price' occurring in
Section 4(1)(a) and (b) means the price at which
goods are sold to the public. Where the sale to public
is through dealers, the 'normal price' would be the 'sale
price' to the dealer.
In Commissioner of Central Excise v.
Xerographic Ltd. (2006) 9 SCC 556, the Court has
explained the concept of normal price. That was in the
context of transaction between the related persons. It
was observed "that the existence of any extra
commercial consideration while fixing a price would
not amount to normal price."
 In Burn Standard Company Ltd. and Anr. v. Union of
India : (1991) 3 SCC 467, it is stated, "Section 3 of
the Act provides for levy of the duty of excise. It is a
levy on goods produced or manufactured in India.
Section 4 of the Act lays down the measure by
reference to which the duty of excise is to be Assessed.
The duty of excise is linked and chargeable with
reference to the value of the excisable goods and the
value is further defined in express terms by the said
section. In every case the fundamental criterion for
computing the value of an excisable article is the
normal price at which the excisable article or an
article of the like kind and quality is sold or is
capable of being sold by the manufacturer."
In Tata Iron and Steel Company Ltd. v. Collector of
Central Excise, (2002) 8 SCC 338, it is held that "it is
true to be seen that under the said Act excise duty is
chargeable on the value of the goods. The value is the
normal price i.e. the price at which such goods are
ordinarily sold by the Assessee to a buyer, where the
buyer is not a related person and the price is the sole
consideration for sale."
 In Union of India and Ors. v. Bombay Tyre
International Ltd  : (1984) 1 SCC 467, it is held that
"it is true, we think, that the new
Section 4(1) contains inherently within it the power to
determine the true value of the excisable article, after
taking into account any concession shown to a special
or favoured buyer because of extra-commercial
considerations, in order that the price be ascertained
only on the basis that it is a transaction at arm's
length. That requirement is emphasised by the
provision in the new Section 4(l)(a) that the price
should be the sole consideration for the sale. In every
such case, it will be for the Revenue to determine on
the evidence before it whether the transaction is one
where extra-commercial considerations have entered
and, if so, what should be the price to be taken as the
value of the excisable article for the purpose of excise
duty."
In Metal Box India Ltd. v. CCE  : (1995) 2 SCC 90,
the Court held that :“ It has been laid down by
Section 4(1) (a) that normal price would be price
which must be the sole consideration for the sale of
goods and there could not be other consideration
except the price for the sale of the goods and only
under such a situation Sub-section (l)(a) would come
into play.
In Calcutta Chromotype Ltd. v. CCE : (1998) 3 SCC
681, it was held that :“ Law is specific that when duty
of excise is chargeable on the goods with reference to
its value then the normal price on which the goods are
sold shall be deemed to be the value provided (1) the
buyer is not a related person and (2) the price is the
sole consideration. It is a deeming provision and the
two conditions have to be satisfied for the case to fall
under Clause (a) of Section 4(1) keeping in view as to
who is the related person within the meaning of
Clause (c) of Section 4(4) of the Act. Again if the
price is not the sole consideration, then again Clause
(a) of Section 4(1) will not be applicable to arrive at
the value of the excisable goods for the purpose of
levy of duty of excise.
In Commissioner of Central Excise v. Ballarpur
Industries Ltd. : (2007) 8 SCC 89, it is observed:
Under Section 4(1)(a) normal price was the basis of
the Assessable value. It was the price at which goods
were ordinarily sold by the Assessee to the buyer in the
course of wholesale trade. Under Section 4(1)(b) it was
provided that if the price was not ascertainable for the
reason that such goods were not sold or for any other
reason, the nearest equivalent thereof had to be
determined in terms of the Valuation Rules, 1975.
Therefore, Rules need to be read in the context of
Section 4(1)of the 1944 Act, as it stood at the relevant
time. Section 4(1) (a) equated "value" to the "normal
price" which in turn referred to goods being ordinarily
sold in the course of wholesale trade. In other words,
normal price, which in turn referred to goods being
ordinarily sold in the course of wholesale trade at the
time of removal, constituted the basis of the Assessable
value.
In Siddhartha Tubes Ltd. v. CCE  : (2005) 13 SCC
564, it is held:
The essential basis of valuation Under Section 4 of the
Act is the wholesale cash price charged by the
Appellant. Normal price Under Section 4(1)
(a) constituted a measure for levy of excise duty. In the
present case, we are concerned with Assessment and
not with classification. Duty Under Section 4 was not
leviable on the "conceptual value" but on the normal
price charged or chargeable by the Assessee.
 In CCE v. Bisleri International (P) Ltd.  (2005) 6
SCC 58, it is held: At the outset, it may be mentioned
that Under Section 4(1)(a), "value" in relation to any
excisable goods is a function of the price. In other
words, "value" is derived from the normal price at the
factory gate charged to an unrelated person on
wholesale basis and at the time and place of removal.
It is for the Department to examine the entire
evidence on record in order to determine whether the
transaction is one prompted by extra-commercial
considerations. It is well settled that Under
Section 4 of the said Act, as it stood at the material
time, price is adopted as a measure or a yardstick for
Assessing the tax. The said measure or yardstick is
not conclusive of the nature of the tax. Under
Section 4, price and sale are related concepts. The
"value" of the excisable article has to be computed
with reference to the price charged by the
manufacturer, the computation being made in
accordance with Section 4. In every case, it will be
for the Revenue to determine on evidence whether the
transaction is one where extra-commercial
considerations have entered and, if so, what should be
the price to be taken into account as the value of the
excisable article for the purpose of excise duty. These
principles have been laid down in the judgment of this
Court in the case of Union of India v. Bombay Tyre
International Ltd.
In Ashok Leyland Ltd. v. Collector of Central Excise, :
(2002) 10 SCC it is held:
The provisions of the Act are very clear. Excise duty is
payable on removal of goods. As there may be no sale
at the time of removal, Section 4 of the Act lays down
how the value has to be determined for the purposes of
charging of excise duty. The main provision is
Section 4(l)(a) which provides that the value would be
the normal price thereof, that is, the price at which the
goods are ordinarily sold by the Assessee to a buyer in
the course of a wholesale trade. Section 4(4)
(e) clarifies that a sale to a dealer would be deemed to
be wholesale trade. Therefore, the normal price would
be the price at which the goods are sold in the market
in the wholesale trade. Generally speaking, the normal
price is the one at which goods are sold to the public.
Here the sale to the public is through the dealers. So
the normal price is the sale price to the dealer. The
proviso, which has been relied upon by Learned
Counsel, does not make any exception to this normal
rule. All that the proviso provides is that if an Assessee
sells goods at different prices to different classes of
buyers, then in respect of each such class of buyers, the
normal price would be the price at which the goods are
sold to that class. The proviso does not mean or
provide that merely because the Assessee sells at
different prices to different classes of buyers, the price
of that commodity becomes an unascertainable price.
The price of that commodity will remain the normal
price at which those goods are ordinarily sold by the
Assessee to the public, in other words, the price at
which they are sold in the market.
 In Procter and Gamble Hygiene and Health Care Ltd.
v. Commissioner of Central Excise, : (2006) 1 SCC 267,
it is held:
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 Union of
India v. Bombay Tyre International Ltd., 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 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 in the trade.
Therefore, the expenses incurred on such factors inter
alia have to be included in the Assessable value of the
article up to the date of the sale, which was the date of
delivery.
What can be construed from the plain reading of
Section 4 of the Act and the interpretation that is given
by this Court on the expression 'normal value' is, where
excise duty is chargeable on any excisable goods with
reference to value, such value shall be deemed to be the
price at which such goods are ordinarily sold by the
Assessee to a buyer in the course of wholesale trade for
delivery at the time and place of removal and where the
Assessee and the buyer have no interest directly or
indirectly in the business of each other and the price is
the sole consideration for the sale. Normal price,
therefore, is the amount paid by the buyer for the
purchase of goods.
In the present case, it is the stand of the revenue that
'loss making price' cannot be the 'normal price' and
that too when it is spread over for nearly five years
and the consideration being only to penetrate the
market and compete with other manufacturers who are
manufacturing more or less similar cars and selling at
a lower price. The existence of extra commercial
consideration while fixing the price would not be the
'normal price' as observed by this Court
in Xerographic Ltd.'s case . If price is the sole
consideration for the sale of goods and if there is no
other consideration except the price for the sale of
goods, then only provisions of Section 4 (1)(a) of the
Act can be applied. In fact, in Metal Box's case this
Court has stated that under Sub-section (1) (a) of
Section 4 of the Act, the 'normal price' would be the
price which must be the sole consideration for the sale
of goods and there cannot be any other consideration
except the price for the sale of goods and it is only
under such situation Sub-section (1) (a) of
Section 4 would come into play.
In the show cause notices issued, the Revenue doubts
the normal price of the wholesale trade of the
Assessees. They specifically allege, which is not
disputed by the Assessees, that the 'loss making price'
continuously for a period of more than five years
while selling more than 29000 cars, cannot be the
normal price. It is true that in notices issued, the
Revenue does not allege that the buyer is a related
person, nor do they allege element of flow back
directly from the buyer to the seller, but certainly, they
allege that the price was not the sole consideration and
the circumstance that no prudent businessman would
continuously suffer huge loss only to penetrate the
market and compete with other manufacturer of more
or less similar cars. A prudent businessman or woman
and in the present case, a company is expected to act
with discretion to seek reasonable income, preserve
capital and, in general, avoid speculative investments.
IN Union of India v. Hindalco Industries: 2003 (153)
ELT 481, it was observed that, 'if there is anything to
suggest to doubt the normal price of the wholesale
trade, then recourse to Clause (b) of Sub-section (1) of
Section 4 of the Act could be made'.
That the price is not the normal price, is established
from the following three circumstances which the
Assessees themselves have admitted; that the price of
the cars was not based on the manufacturing cost and
manufacturing profit, but have fixed at a lower price
to penetrate the market; though the normal price for
their cars is higher, they are selling the cars at a lower
price to compete with the other manufacturers of
similar cars. This is certainly a factor in depressing the
sale price to an artificial level; and, lastly, the full
commercial cost of manufacturing and selling the cars
was not reflected in the lower price. Therefore, merely
because the Assessee has not sold the cars to the
related person and the element of flow back directly
from the buyer to the seller is not the allegation in the
show cause notices issued, the price at which the
Assessees had sold its goods to the whole sale trader
cannot be accepted as 'normal price' for the sale of
cars.

The expression 'ordinarily sold' is again not defined

under the Act, but came up for consideration in
context of Customs Act ,in Eicher Tractors Ltd.,
Haryana v. Commissioner of Customs (2001) 1 SCC
315. It was held that  :
Under the Act customs duty is chargeable on goods.
According to Section 14(1) of the Act, the Assessment
of duty is to be made on the value of the goods. The
value may be fixed by the Central Government Under
Section 14(2). Where the value is not so fixed, the value
has to be determined Under Section 14(1). The value,
according to Section 14(1), shall be deemed to be the
price at which such or like goods are ordinarily sold,
or offered for sale, for delivery at the time and place of
importation -in the course of international trade. The
word "ordinarily" necessarily implies the exclusion of
"extraordinary" or "special" circumstances. This is
clarified by the last phrase in Section 14 which
describes an "ordinary" sale as one "where the seller
and the buyer have no interest in the business of each
other and the price is the sole consideration for the
sale....". Subject to these three conditions laid down in
Section 14(1) of time, place and absence of special
circumstances, the price of imported goods is to be
determined Under Section 14(1-A) in accordance with
the Rules framed in this behalf.
In Ispat Industries Ltd. v. Commissioner of
Customs (2006) 12 SCC 583, it is held:
The most important provision for the purpose of
valuation of the goods for the purpose of Assessment is
Section 14 of the Customs Act, 1962. Section 14(1),
has already been quoted above, and a perusal of the
same shows that the value to be determined is a deemed
value and not necessarily the actual value of the goods.
Thus, Section 14(1) creates a legal fiction.
Section 14(1) states that the value of the imported
goods shall be the deemed price at which such or like
goods are ordinarily sold, or offered for sale, for
delivery at the time and place of importation in the
course of international trade. The word "ordinarily" in
Section 14(1) is of great importance. In
Section 14(1) we are not to see the actual value of the
goods, but the value at which such goods or like goods
are ordinarily sold or offered for sale for delivery at the
time of import. Similarly, the words "in the course of
international trade" are also of great importance. We
have to see the value of the goods not for each specific
transaction, but the ordinary value which it would have
in the course of international trade at the time of its
import.
In Varsha Plastics Private Limited and Anr. v. Union
of India : (2009) 3 SCC 365, it is observed:
Section 14(1) of the Act prescribes a method for
determination of the value of the goods. It is a
deeming provision. By legal fiction incorporated in
this section, the value of the imported goods is the
deemed price at which such or like goods are
ordinarily sold or offered for sale for delivery at the
time and place of importation in the course of
international trade.The word "ordinarily" in
Section 14(1) is a word of significance. The ordinary
meaning of the word "ordinarily" in Section 14(1) is
"non-exceptional" or "usual". It does not mean
"universally". In the context of Section 14(1) for the
purpose of "valuation" of goods, however, by use of
the word "ordinarily" the indication is that the
ordinary value of the goods is what it would have
been in the course of international trade at the time of
import. Section 14(1), thus, provides that the value
has to be Assessed on the basis of price attached to
such or like goods ordinarily sold or offered for sale
in the ordinary course of events in international trade
at the time and place of transportation.
 In Rajkumar Knitting Mills (P) Ltd. v. Collector of
Customs (1998) 3 SCC 163, it is held:
The words "ordinarily sold or offered for sale" do not
refer to the contract between the supplier and the
importer, but to the prevailing price in the market on
the date of importation or exportation.
 In Ashok Leyland Ltd. v. Collector of Central
Excise, : (2002) 10 SCC 344, it is held:
The price of that commodity will remain the normal
price at which those goods are ordinarily sold by the
Assessee to the public, in other words, the price at
which they are sold in the market.
In the context of Section 4(1)(a) of the Act, the word
'ordinarily' does not mean majority of the sales; what
it means is that price should not be exceptional. In our
considered opinion, the word 'ordinarily', by no stretch
of imagination, can include extra-ordinary or unusual.
In the instant cases, as we have already noticed, the
Assessees sell their cars in the market continuously
for a period of five years at a loss price and claims
that it had to do only to compete with the other
manufacturers of cars and also to penetrate the market.
If such sales are taken as sales made in the ordinary
course, it would be anathema for the expression
'ordinarily sold'. There could be instances where a
manufacturer may sell his goods at a price less than
the cost of manufacturing and manufacturing profit,
when the company wants to switch over its business
for any other manufacturing activity, it could also be
where the manufacturer has goods which could not be
sold within a reasonable time. These instances are not
exhaustive but only illustrative.
 In the instant cases, since the price charged for the
sale of cars is exceptional, we cannot accept it to give
a meaning which does not fit into the meaning of the
expression 'ordinarily sold'. In other words, in the
transaction under consideration, the goods are sold
below the manufacturing cost and manufacturing
profit.

Therefore, such sales may be disregarded as not being

done in the ordinary course of sale or trade. For the
purpose of Section 4(1) (a) all that has to be seen is:
does the sale price at the factory gate represent the
wholesale cash price. If the price charged to the
purchaser at the factory gate is fair and reasonable and
has been arrived at only on purely commercial basis,
then that should represent the wholesale cash price
Under Section 4(1)(a) of the Act. This is the price
which has been charged by the manufacturer from the
wholesale purchaser or sole distributor. What has to
be seen is that the sale made at arms length and in the
usual course of business, if it is not made at arms
length or in the usual course of business, then that will
not be real value of the goods. The value to be
adopted for the purpose of Assessment to duty is not
the price at which the manufacturer actually sells the
goods at his sale depots or the price at which goods
are sold by the dealers to the customers, but a fictional
price contemplated by the section.
In Ram Kumar Knitting Mills case , while construing
the said expression, the Supreme Court held that the
word 'ordinarily sold' do not refer to contract between
the supplier and the importer, but, the prevailing price
in the market on the date of importation and
exportation. Excise duty is leviable on the value of
goods as manufactured. That takes into account
manufacturing cost and manufacturing profit.
 Excise is a tax on the production and manufacture of
goods and Section 4 of the Act provides for arriving at
the real value of such goods. When there is fair and
reasonable price stipulated between the manufacturer
and the wholesale dealer in respect of the goods
purely on commercial basis that should necessarily
reflect a dealing in the usual course of business, and it
is not possible to characterise it as not arising out of
agreement made at arms length. In contrast, if there is
an extra-ordinary or unusual price, specially low price,
charged because of extra-commercial considerations,
the price charged could not be taken to be fair and
reasonable, arrived at on purely commercial basis, as
to be counted as the wholesale cash price for levying
excise duty Under Section 4(1)(a) of the Act.

Now what requires to be considered is what is the

meaning of the expression 'sole consideration'.
Consideration means something which is of value in
the eyes of law, moving from the Plaintiff, either of
benefit to the Plaintiff or of detriment to the
Defendant. In other words, it may consist either in
some right, interest, profit or benefit accruing to the
one party, or some forbearance, detriment, loss or
responsibility, given, suffered or undertaken by the
other, as observed in the case of Currie v. Misa (1875)
LR 10 Ex. 153.

Webster's Third New International Dictionary

defines, consideration thus:
Something that is legally regarded as the equivalent or
return given or suffered by one for the act or promise of
another.
In Corpus Juris Secundum , the import of
'consideration' has been described thus:
Various definitions of the meaning of
consideration are to be found in the text-books
and judicial opinions. A sufficient one, as stated
in Corpus Juris and which has been quoted and
cited with approval is "a benefit to the party
promising or a lossor detriment to the party to
whom the promise is made.....
At common law every contract not underseal
requires a consideration to support it, that is, as
shown in the definition above, some benefit to the
promisor, or some detriment to the promisee.
In Salmond on Jurisprudence, the word
'consideration' has been explained in the
following words.
A consideration in its widest sense is the reason, motive
or inducement, by which a man is moved to bind
himself by an agreement. It is for nothing that he
consents to impose an obligation upon himself, or to
abandon or transfer a right. It is in consideration of such
and such a fact that he agrees to bear new burdens or to
forego the benefits which the law already allows him.
The gist of the term 'consideration' and its legal
significance has been clearly summed up in
Section 2(d) of the Indian Contract Act which defines
'consideration' thus:
When, at the desire of the promisor, the promisee or any
other person has done or abstained from doing, or does
or abstains from doing, or promises to do or to abstain
from doing, something, such act or abstinence or
promise is called a consideration to the promise.
From a conspectus of decisions and dictionary
meaning, the inescapable conclusion that follows is
that 'consideration' means a reasonable equivalent or
other valuable benefit passed on by the promisor to
the promisee or by the transferor to the transferee.
Similarly, when the word 'consideration' is qualified
by the word 'sole', it makes consideration stronger so
as to make it sufficient and valuable having regard to
the facts, circumstances and necessities of the case.
To attract Section 4(1)(a) of the Act what is required
is to determine the 'normal price' of an excisable
article which price will be the price at which it is
ordinarily sold to a buyer in the course of wholesale
trade. It is for the Excise authorities to show that the
price charged to such selling agent or distributor is a
concessional or specially low price or a price charged
to show favour or gain in return extra-commercial
advantage. If it is shown that the price charged to such
a sole selling agent or distributor is lower than the real
value of the goods which will mean the manufacturing
cost plus manufacturing profit, the Excise authorities
can refuse to accept that price.
 Since under new Section 4(1)(a) the price should be
the sole consideration for the sale, it will be open for
the Revenue to determine on the basis of evidence
whether a particular transaction is one where extra-
commercial consideration has entered and, if so, what
should be the price to be taken as the value of the
excisable article for the purpose of excise duty and
that is what exactly has been done in the instant cases
and after analysing the evidence on record it is found
that extra-commercial consideration had entered into
while fixing the price of the sale of the cars to the
customers. When the price is not the sole
consideration and there are some additional
considerations either in the form of cash, kind,
services or in any other way, then according to Rule 5
of the 1975 Valuation Rules, the equivalent value of
that additional consideration should be added to the
price shown by the Assessee. The important
requirement Under Section 4(1)(a) is that the price
must be the sole and only consideration for the sale. If
the sale is influenced by considerations other than the
price, then, Section 4(1)(a) will not apply.
In the instant case, the main reason for the Assessees
to sell their cars at a lower price than the
manufacturing cost and profit is to penetrate the
market and this will constitute extra commercial
consideration and not the sole consideration. As we
have already noticed, the duty of excise is chargeable
on the goods with reference to its value then the
normal price on which the goods are sold shall be
deemed to be the value, provided: (1) the buyer is not
a related person and (2) the price is the sole
consideration. These twin conditions have to be
satisfied for the case to fall Under Section 4(1)(a) of
the Act. We have demonstrated in the instant cases,
the price is not the sole consideration when the
Assessees sold their cars in the wholesale trade.
Therefore, the Assessing authority was justified in
invoking clause (b) of Section 4(1) to arrive at the
value of the exercisable goods for the purpose of levy
of duty of excise, since the proper price could not be
ascertained. Since, Section 4(1)(b) of the Act applies,
the valuation requires to be done on the basis of the
1975 Valuation Rules.
After amendment of Section 4: Section 4 lays down
that the valuation of excisable goods chargeable to
duty of excises on ad-valorem would be based upon
the concept of transaction value for levy of duty.
'Transaction value' means the price actually paid or
payable for the goods, when sold, and includes any
amount that the buyer is liable to pay to the Assessee
in connection with the sale, whether payable at the
time of sale or at any other time, including any
amount charged for, or to make provisions for
advertising or publicity, marketing and selling, and
storage etc., but does not include duty of excise, sales
tax, or any other taxes, if any, actually paid or payable
on such goods. Therefore, each removal is a different
transaction and duty is charged on the value of each
transaction. The new Section 4, therefore, accepts
different transaction values which may be charged by
the Assessee to different customers for Assessment
purposes where one of the three requirements,
namely; (a) where the goods are sold for delivery at
the time and place of delivery; (b) the Assessee and
buyers are not related; and (c) price is the sole
consideration for sale, is not satisfied, then the
transaction value shall not be the Assessable value and
value in such case has to be arrived at, under the
Central Excise Valuation (Determination of Price of
Excisable Goods) Rules, 2000 ('the Rules 2000' for
short) which is also made effective from 1st July,
2000. Since the price is not the sole consideration for
the period even after 1st July, 2000, the Assessing
authority was justified in invoking provisions of the
Rules 2000.

Reference to Valuation Rules:

Contentions of the Revenue.

the Assessees are not fulfilling the conditions
enumerated in Section 4(1)(a) of the Act and therefore,
the valuation has to be done in accordance with
Section 4(1)(b) read with theValuation Rules.
Since the price of the cars sold by the Assessee was not
ascertainable, the Revenue is justified in computing the
Assessable value of the goods for the levy of excise
duty Under Section 4(1)(b) of the Act and the relevant
rules.
The Valuation Rules need not be applied sequentially.
All the Rules 3, 4, 5, 6 and 7 of the Valuation Rules
specifically use the expression "shall...be determined",
"shall be based" or "shall determine the value" and
nowhere word "sequentially" occurs in these Rules,
unlike the Customs Valuation Rules. Mere presence of
word "shall" does not imply that all the Rules has to be
applied sequentially.
Contentions of the Assessee.

The Valuation Rules have to be applied sequentially,

i.e. first, Rules 4 and 5 should be invoked in order to
determine the Assessable value and if Rules 4 and 5
are not applicable or Assessable, value cannot be
ascertained by applying the said Rules, and then only
Rule 6 can be invoked.

Reasoning of the Court.

 Under Section 4(1)(b) of the Act, any goods which do
not fall within the ambit of Section 4(1)(a) i.e. if the
'normal price' cannot be ascertained because the goods
are not sold or for any other reason, the 'normal price'
would have to be determined in accordance with The
Valuation Rules.
Rule 3 of the above Rules, provides that the value of
any excisable goods, for the purposes of Clause (b) of
Sub-section (1) of Section 4 of the Act be determined
in accordance with these Rules. Rule 4 provides that
the value of the excisable goods shall be based on the
value of such goods by the Assessee for delivery at
any other time nearest to the time of removal of goods
under Assessment.
Rule 5 provides that when the goods are sold in the
circumstances specified in Clause (a) of Sub-section
(1) of Section (4) of the Act except that the price is
not the sole consideration, the value of such goods
shall be based on the aggregate price and the amount
of the money value of any additional consideration
flowing directly or indirectly from the buyer to the
Assessee.
Rule 6 provides, that, if the value of the excisable
goods under Assessment cannot be made, then to
invoke provisions of Rule 6 of the Rules, wherein
certain adjustments requires to be made as provided
therein.
Rule 7 is in the nature of residuary clause. It provides
that if the value of excisable goods cannot be
determined under Rule 4, 5 and 6 of the Rules, the
adjudging authority shall determine the value of such
goods according to the best of his judgment and while
doing so, he may have regard to any one or more
methods provided under the aforesaid Rules.
A bare reading of these rules does not give any
indication that the adjudging authority while
computing the Assessable value of the excisable
goods, he had to follow the rules sequentially. The
rules only provides for arriving at the Assessable
value under different contingencies.
Again, Rule 7 of the Valuation Rules which provides
for the best judgment Assessment gives an indication
that the Assessing authority while quantifying the
Assessable value under the said Rules, may take the
assistance of the methods provided under Rules 4, 5 or
6 of the Valuation Rules. Therefore, the contention of
the assessee that the Assessing authority before
invoking Rule 7 of the Valuation Rules, ought to have
invoked Rules 4, 5 and 6 of the said Rules cannot be
accepted.
Since the Assessing authority could not do the
valuation with the help of the other rules, has resorted
to best judgment method and while doing so, has
taken the assistance of the report of the 'Cost
Accountant' who was asked to conduct special audit to
ascertain the correct price that requires to be adopted
during the relevant period.  In the result, the appeals
require to be allowed .