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PETITIONER:

BURN STANDARD COMPANY LTD. AND ANR.

Vs.

RESPONDENT:

UNION OF INDIA AND OTHERS

DATE OF JUDGMENT16/07/1991

BENCH:

KULDIP SINGH (J)

BENCH:

KULDIP SINGH (J)

SINGH, K.N. (J)

CITATION:

1991 AIR 1784 1991 SCR (2) 960

1991 SCC (3) 467 JT 1991 (3) 108

1991 SCALE (2)58

CITATOR INFO :

D 1992 SC1801 (8)

ACT:

Central Excises and Salt Act, 1944-Sections 3 and 4-

Excise duty-Whether chargeable on the invoice-Value of wagon

or on the value of completed wagon including that of the

"free supply items".

HEADNOTE:

The appellant-company manufactured railway wagons in

accordance 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

without charging any price supplied wheel-sets, axle boxes

and various other finished components of wagons, which were

termed as "free supply items," to the appellant, which were

used in the manufacture of wagons and supplied the complete

wagons to the Railway Board. The invoice-value of the wagon

charged by the appellant did not include the value of the

"free supply items."

The central excise authorities issued show cause to the

appellant as to why the excise duty be not computed and

charged on the value of the complete, wagon, including that

the "free supply items".

The appellant challenged the show cause notices by

filing a Writ Petition before the High Court. Holding that

the excise duty could only be charged on the invoice-value

under the contract, the Single Judge allowed the petition.

The appeal filed by the Respondents against the

judgment of the Single Judge was allowed by the Division

Bench of the Court, against which the present appeal was

made by the appellant-company.

On the question, whether the excise duty under sections

3 and 4 of the Central Excise and Salt Act, 1944 was to be

charged on the invoice-value of the wagon or on the value of

completed wagon including that of the "free supply items".

Dismissing the appeal, this Court,

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HELD: 1. 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

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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 good and the value

is further defined in express terms by the said section. In

every case the fundamental criterion for computing the value

of 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.

[940G-965A]

2. 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. [965A-C]

Empire Industries Limited and Others v. Union of India

and Others, [1985] 3 S.C.C. 314 and M/s. Ujagar Prints and

Others v. Union of India and Others, [1989] 3 S.C.C. 488,

followed.

JUDGMENT:

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

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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 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".

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

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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

963

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

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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

964

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 crite-

965

rion 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

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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.

966