CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3041 of 1988.
From the Judgment and Order dated 2..1988 of the Calcutta High Court in Original Order Tender No. (F.M.A.T.) No. 181 of 1987.
Dr. Shankar Ghosh, Mrs. Naresh Bakshi and K.D. Prasad for the Appellants.
Ashok H. Desai, P. Parmeshwaran and A. Subba Rao for the Respondents.
The Judgment of the Court was delivered by
KULDIP SINGH, J. M/s Burn Standard Company Limited, the appellant before us, is one of the leading manufacturer of wagons. The wagons manufactured and produced by the appellant are primarily supplied to the Railway Board. The wagons are manufactured in accordance with the specifications, terms and conditions contained in the agreements entered between the appellant and the Railway Board from time to time. It is the admitted case of the parties that the Railway Board supplies wheelsets, 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".
On the above facts, the short question for our determination is whether the excise duty under Section 3 and 4 of the Central Excises and Salt Act, 1944 (hereinafter called ‘the 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".
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 onthe value of the completed wagon including that of the "Free supply items". The appellant challenged the show cause notices by way of writ petition under Article 226 of the Constitution of India before the Calcutta High Court which was heard by a learned Single Judge who allowed the writ petition and quashed the demand raised by the central excise authorities. The Learned Judge came to the conclusion that the excise duty could only be charged on the basis of the invoice-value under the contract. The learned Judge based his conclusions 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."
The Union of India filed appeal against the judgment of the learned Single Judge which was heard by a Division Bench of the Calcutta High Court. The Bench did not agree with the reasoning and conclusions of the learned Single Judge, set aside his judgment and dismissed the writ petition of the appellant-petitioner. The division Bench 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 and
we feel that the cost of normal price should
include cost of construction and furthermore, when
sale is the charge and the same under charging
section of the said Act would mean 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 said 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 ......We hold that the valuation
cost of the free supply items should be included in
the manufacturing cost of wagons. We think that
section 4(1)(a) of the said Act applies in this
case and as such, the valuation of excisable goods
will be charged or will take place when manufacture
takes place. Thus, we also find and hold that
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 said Act as indicated above, 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 th 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 said 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 appeal, against the judgment of the High Court, via special leave petition is by M/s. Burn Standard Company Limited.
The relevant parts of Sections 3 and 4 of the Act are reproduced hereinafter:
"3. 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)
.....
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 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. 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. In Empire Industries Limited and Others v. Union of India and Others, [1985] 3 S.C.C. 314 this Court while interpreting Sections 3 and 4 of the Act held as under:
"The fact that the petitioners are not the owners
of the end product is irrelevant. Taxable event is
manufacture-not ownership.
In M/s. Ujagar Prints and Others v. Union of India and Others, [1989] 3 S.C.C. 488, M.N. Venkatachalaih, J. speaking for the Court observed as under:
"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."
We, therefore, cannot accept the contention of the learned counsel for the appellant that the value of the "free supply items" should not be included in the assessable value of the wagons manufactured by the appellant. We see no infirmity in the reasoning and the findings reached by the Division Bench of the High Court. The appeal is, therefore, dismissed with no order as to costs. V.P.R. Appeal dismissed.