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PETITIONER:

THE ASSTT. COLLECTOR OF CENTRALEXCISE & ORS.

Vs.

RESPONDENT:

DATA INDIA LTD.

DATE OF JUDGMENT: 07/05/1996

BENCH:

SEN, S.C. (J)

BENCH:

SEN, S.C. (J)

AHMADI A.M. (CJ)

HANSARIA B.L. (J)

CITATION:

1996 SCC (4) 563 JT 1996 (5) 230

1996 SCALE (4)508

ACT:

HEADNOTE:

JUDGMENT:

J U D G M E N T

The only point that falls for determination in this

appeal is whether the benefit of exemption given to footwear

can be claimed by the manufacturer even where the wholesale

price of the footwear exceeds the limit of the exemption

specified in the notification. There can be no dispute that

if the assessable Vague calculated according to Section 4 of

the Central Excise and Salt Act, comes upto or below the

limit set by the notification, the assessee will be entitled

to the benefit of the notification.

The notification which was originally issued under

sub-rule (1) of Rule 8 of Central Excise Rules, 1944

exempted footwear the value of which did not exceed Rs.5/-

per pair from the whole of the duty of excise leviable

thereon The exemption limit of Rs.5/- per pair - has been

enhanced from time to time and at the material time, for

the purpose of this case, the exemption was limited to

footwear the value of which was upto Rs.60/ per pair.

Mr. Shanti Bhushan on behalf of the respondent has

contended that if excise duty was payable on these shoes,

the amount of excise duty had to be deducted from the

wholesale price in order to determine the assessable value

of the shoes which was less than the limit set by the

exemption notification. If this is not allowed, the

Department will claim excise duty even on shoes which would

otherwise qualify for benefit of exemption notification

because of the lower value. To illustrate this point, Mr.

Shanti Bhushan has argued that when the exemption

notification was limited to Rs.60/- per hair of shoes,

there would be no difficulty in cases where the wholesale

price was upto Rs.60/- or less. There can be no dispute that

in respect of these types of shoes, no excise duty will be

leviable. If the shoes were priced at Rs.60/- and above,

the excise duty will be levied. But, if the whole sale

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price was at Rs.62/- or Rs.66/-, in such a case, after

deduction of excise duty at the rate of 10%, the value of

the goods will be in the range of Rs.56.36 to Rs.60.00. Mr.

Shanti Bhushan has contended that even in such cases when by

deducting excise duty payable on goods, the value has been

arrived at the price of Rs.60/-.or less, the question of

levying excise duty will not arise. To demonstrate his

argument, he has given a chart:

Wholesale Price Rate Deduction Value

after discounts of on account as per

etc. Duty of duty Section 4

--------------- ------ -------- ---------

Rs.56.00 10% Rs.5.09 Rs.50.91

Rs.58.00 10% Rs.5.27 Rs.52.73

Rs.60.00 10% Rs.5.45 Rs.54.55

Rs.62.00 10% Rs.5.64 Rs.56.36

Rs.64.00 10% Rs.5.82 Rs.58.18

Rs.66.00 10% Rs.6.00 Rs.60.00

Rs.68.00 10% Rs.6.18 Rs.61.82

Rs.70.00 10% Rs.6.36 Rs.63.64

Rs.72.00 10% Rs.6.55 Rs.65.45

It was argued that in respect of the first three items

of which wholesale price (after trade discount etc.) was

Rs.56.00, Rs.58.00 or Rs.60.00, there was no controversy

that these were exempted. There was also no controversy in

respect of the last three items of which the wholesale price

(after trade discount etc.) was Rs.68.00, Rs.70.00 or

Rs.72.00. The controversy is restricted to the items in the

second category, where the wholesale price after trade

discount etc. was in the range of Rs. 62.00, Rs.64.00 or

Rs.66.00. In these cases, if the excise duty element was

taken away, the value will become Rs.60.00 or less Applying

rules of valuation laid down in Section 4 of the Act, no

duty was payable even on shoes under this category

Mr. Shanti Bhushan has contended that if excise duty is

payable on these shoes, then the duty element has to be

deducted from the wholesale price in order to ascertain the

assessable value under Section 4. Once excise duty at the

rate of 10% is taken out from the wholesale price of the

shoes falling under the disputed category, the assessable

value would come to less than Ps.60.00 and the benefit of

exemption notification cannot be denied to the manufacturer

in these cases

We are unable to uphold this contention because the

normal price charged by the manufacturer at the time and

place of removal of goods to the wholesaler is treated by

the Act to be the value of the goods. Subsection (l)(a) of

Section 4 makes it clear that "such value shall . . . be

deemed to be 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 ".

Therefore, the normal wholesale price of the goods must be

deemed to be the value of the goods. It is not necessary to

refer to the various types of prices that may be charged

from the buyer set out in the proviso to Section 4(1)(a).

But there cannot be any dispute that excise duty will be

levied on the value of the excisable goods and the basic

rule is that the normal wholesale price is the value of the

goods. The normal wholesale price is the cum-duty price

which the wholesaler has to pay to the manufacturer. The

cost of production, estimated profit and the taxes on

manufacture and sale of the goods are usually included in

the wholesale price of the goods. It is only because the

wholesale price is usually the cum-duty price that sub-

section (4)(d) lays down that 'value' will not include duty

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of excise, sales tax and other taxes, if any, payable on the

goods. But if a manufacturer includes in the wholesale price

any amount by way of tax, even when no such tax is payable,

then he is really including something in the price which is

not payable as duty at all. He is really increasing the

profit element included in the wholesale price in another

guise. In such a situation, there cannot be any question of

deduction of duty payable on the goods from the wholesale

price because as a matter of fact, no duty has actually been

included in the wholesale price.

In the chart given by Or. Shanti Bhushan the

controversy relates to the second category of price-list

after discounts etc. But, these prices - Rs.62.00, Rs.64.00

or Rs.66.00 are not inclusive of any duty. If that be so,

these are the values of goods on which excise duty would be

leviable in usual course without any further deduction.

Clause (d) of sub-section (4) of Section 4 lays down that

'value' will include the cost of packing of the goods when

the goods are sold pin packed condition in certain cases.

Sub-clause (ii) of clause (d) provides that the value will

not include "the amount of duty of excise,....... if any,

payable on such goods." Otherwise, there will be tax upon

the amount of tax which forms-part of the price of the

goods. But in a case where the wholesale price is not

inclusive of any duty payable on the goods, then no question

of deduction of any duty for determination of value will

arise. Subclause (ii) of clause (d) specifically states that

what will not be included in the value "is the amount of

duty of excise, . . .if any payable on -such goods". The

phrase "if any" signifies that if no duty is payable,

nothing will be deducted from the wholesale price. It is

only when excise duty is actually payable that the duty

element can be excluded from the wholesale price. Sabyasachi

Mukharjee, J. (as his Lordship then was) pointed out in the

case of Hindustan Polymers v. Collector of Central Excise

(1989) 4 SCC 323 that the two sub-clauses of Section 4(4)(d)

dealt-with abatements or deductions in respect of actual

burdens, either by way of an expenditure or discount, borne

by the assessee. If the assessee has not allowed any trade

discount, he cannot ask for deduction of the same from his

price. If he does not have to pay any tax as a matter of

fact, he cannot ask for it to be deducted from the Wholesale

price for Calculating the value of the goods. In such a

case, the normal price, that is the wholesale price will be

deemed to be the value of the goods.

To revert back to the chart, if value of the goods

exclusive of any duty is Rs.56.36 or Rs.58.18 or Rs. 60.00,

no duty is payable on such goods at all. The wholesale price

need not be higher than the value of the goods in such

cases. These values are inclusive of profit intended to be

made by the manufacturer. The manufacturer can sell these

goods at the aforesaid prices and enjoy the tax exemption.

But if the manufacturer with full knowledge that no duty is

payable when the value of the goods are below Rs.60.00,

raises the prices to above Rs.60.00, then he has included in

the wholesale price something which is not the anticipated

duty of excise payable on such goods but an extra amount of

profit in another guise.

For the purpose of excise duty, the manufacturer has to

submit a price-list to the excise authority before removal

of the goods from the factory. He has to indicate in the

forms and documents relating to assessment, the value of the

goods and the amount of duty which will form part of the

prices at which such goods are to be sold. Costs and

estimated profits are included in the price of the goods.

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Inclusion of the anticipated amount of the excise duty in

the wholesale price is the last part of the pricing

mechanism. The manufacturer has to calculate the value on

which duty would be payable, estimate the amount of duty

payable and add that amount to the value of the goods to

arrive at the wholesale price. It is on the value of the

goods and not the cum-duty-price that the duty is paid to

the excise authority before the clearance of the goods. If,

as in this case, before adding any amount by way of excise

duty, the manufacturer found that the value of the footwear

was Rs.60.00 per pair or less, no question of payment of

excise duty could arise. There was no necessity to add

anything on account of tax to raise the price of the goods

to above Rs.60.00 per pair. The wholesale price of Rs.62.00,

Rs.64.00 and Rs.66 given in the chart included costs,

estimated profits,etc, but could not have included any

amount by way of excise duty because footwear valued upto

Rs.60.00 per pair was exempt from duty.

It has not been explained in the chart how the

wholesale price has been fixed at Rs.62.00 or Rs.64.00 or

Rs.66 00 as inclusive of dully. Did these prices contain any

amount on account of estimated excise duty payable? If so,

what were the values on which the manufacturer estimated the

amounts at the duties payable? For example, if Rs.62.00 is

the price, the manufacturer will have to explain by giving

the breakup, how was this price fixed. If 10% was the rate

of duty and footwear valued upto Rs.60.00 per pair was

exempt from duty, Rs.6 could not be added to the value for

fixation of the price. If Rs.66.00 is an ex-duty price, then

duty has not been included in the price. In such a

situation, no question of any deduction of duty from the

wholesale price under Section 4(4)(d)(ii) could arise.

The construction suggested by Mr.Shanti Bhushan will

also defeat the purpose of the exemption notification.

Exemption from duty has been given to footwear valued at

Rs.60.00 or less per pair. Excise duty is usually passed on

to the consumer by including the duty in the price of the

goods. The obvious intention behind the notification was to

give relief to the consumers who could not afford to buy

higher priced footwear. If the argument on behalf of the

manufacturer is upheld, he will be entitled to sell footwear

at a price of more than Rs.60.00 per pair and yet will be

able to claim the benefit of the exemption notification and

not pay any duty. An anomalous situation will arise. The

consumer will pay ex-duty price of more than Rs.60/- per

pair and bear the brunt of a tax burden which is not payable

by the manufacturer in law. The manufacturer will enjoy the

benefit of the exemption notification by deducting an amount

on account of nonpayable exciss duty from the price and

thereby make profit in the guise of payment of tax. At the

same time, the revenue will be deprived of the duty which is

payable on footwear valued at above Rs.60.00.

If the ex-duty value of the footwear given in the chart

was Rs.60.00 or less, then that should have been the excise

value. There could be no reason for fixing the price at

above Rs.60.00 except for the purpose of making a larger

profit. A manufacturer at the time of clearance of the goods

has to indicate in all the documents relating to assessment,

the amount of duty which will form part of the price at

which such goods are to be sold. In the instant case, the

manufacturer could not have included any amount by way of

excise duty as part of the price of the goods, if the ex-

duty value of the goods was Rs.60.00 or less per pair. A

manufacturer has to fix the wholesale price of the goods

before removal of the goods from factory. The price will

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include costs, planned profit and taxes, if any. If, as in

the chart given by Mr. Shanti Bhushan, the ex-duty price of

the footwear manufactured by the Company, after all other

permissible adjustments, fell short of Rs.60.00, there could

be no reason for the manufacturer to price the goods at a

rate above Rs.60.00 by including an amount as duty even when

no such duty was payable. Sub-section (1) of Section 4 lays

down that 'value' shall be deemed to be the normal price

which is the wholesale price of the goods. But, if any

amount payable as excise duty or sales tax formed part of

the normal price that will have to be excluded from the

'value' of the goods under the provision of sub-clause (ii)

of clause (d) of sub-section (J) of Section 4. If the

values of the goods as given in the chart were Rs.60.00 or

less, then these values should have been the normal prices

of the goods, that is to say, the prices at which such

goods were sold to the wholesale - market. but, if even in

such cases, the wholesale prices were fixed at Rs.62.00,

Rs.64.00 or Rs.66.00, per pair, then these prices were not

inclusive of any tax. In such a situation, provisions of

Section 4(4)(d)(ii) are not attracted at all. The value of

the goods shall be deemed to be the normal price of the

goods under Section 4(1) of the Act (Rs.62.00 or Rs.64.00

or Rs.66.00 as the case may be).

Unless it is shown by the manufacturer that the price

of the goods includes an amount of excise duty payable by

him, no question of exclusion of the duty element from the

price for determination Of value under Section 4(4)(d)(ii)

will arise. What the manufacturer has really done in the

instant case is to increase the profit element in the

wholesale price. In the chart given by Mr. Shanti Bhushan,

in the second category the wholesale price of goods after

discounts etc. has been shown to be Rs.62.00, Rs.64.00 and

Rs.66.00 inclusive of duty at 10%. These are self-

contradictory figures. If the Corresponding ex-duty figures

come to Rs.60.00 or less, then no excise duty was payable

on the goods. If the ex-duty price of the footwear

manufactured by the Company fell short of Rs.60.00 per

pair, then by virtue of the exemption notification no duty

was payable on the goods. In such a situation, a

manufacturer could not include in the price of the goods

any amount by way of excise duty.

Any doubt about this position in law has been

dispelled by the Explanation added by Act 14 of 1982 to

sub-clause (ii) of clause (d) which is as under:

"Explanation-For the purposes of

this sub-clause, the amount of the

duty of excise payable on any

excisable goods shall be the sum

total of -

(a) the effective duty of excise

payable on such goods under this

Act; and

(b) the aggregate of the effective

duties of excise payable under

other Central Acts, if any.

providing for the levy of duties of

excise on such goods,

and the effective duty of excise on

such goods under each Act referred

to in clause (a) or clause (b)

shell be,

(i) in a case where a notification

or order providing for any

exemption (not being an exemption

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for giving credit with respect to,

or reduction of duty of excise

under such Act on such goods equal

to, any duty of excise under such

Act, or the additional duty under

Section 3 of the Customs Tariff

Act, 1975 (51 of 1975), already

paid on the raw material or

component parts used in the

production or manufacture of

such goods from the duty of excise

under such Act is for the time

being in force, the duty of excise

computed with reference to the rate

specified in such Act in respect of

such goods as reduced so as to

give full and complete effect to

such exemption; and

(ii) in any other case, the duty of

excise computed with reference to

the rate specified in such Act in

respect of such goods "

The Explanation makes it clear that the amount of

duty of excise on any excisable goods shall only be the

effective duty of excise payable as defined under the Act.

Therefore, before deducting any amount claimed to - be

payable on account of excise duty, it has to be seen what

is the duty of excise in force at the material point of

time. Any notification granting exemption will have to be

taken into account; full and complete effect to such

notification will have to be given. In the instant case at

the material point of time, there was a notification

granting exemption from duty to a pair of footwear upto the

value of Rs.60.00. This means that if the value of a pair

of shoes came to Rs.60.00 or less no excise duty was

leviable; it was not open to the manufacturer to claim any

deduction on account of any duty which was not payable.

We are unable to uphold the contention of Mr.Shanti

Bhushan that the Explanation to Section 4(4)(d)(ii) comes

into operation only when there is a variation in the rate

of duty and not otherwise. The duty of excise under Schedule

I of the Act was imposable on- various bases. It could but

imposed unitwise as in T.I.33AA (Parts of Wireless

Receiving Sets) or lengthwise as in T.I.37 (Cinematograph

Films) or on the basis of weight as in the case of T.I.25

(Iron in any Crude Form). The duty has to be calculated at

the rates prescribed in the Schedule on the basis of number

of units, length or weight or some other basis, as laid

down in the Schedule. When the duty is imposed ad valorem,

calculation of duty at the prescribed rate will have to be

made on the basis of the value of the goods. Section 4

deals with value of excisable goods where the duty of

excise is chargeable with reference to value. It has

nothing to do with the rate of duty. Sub-clause (ii) of

sub-section (d) of Section 4 lays down the 'value' will

not include the amount of duty of excise, if any, payable

on such goods. This is a rule of valuation, What is the

amount of duty excise payable will depend on this

valuation. The Explanation has been inserted "for the

purpose of this sub-clause" i.e. sub clause(ii). The amount

of excise duty payable has been explained to be the

effective duty of excise Payable on such goods, in other

words, not the duty of excise calculated in the manner laid

down in Schedule I only. Regard must be had to any relief

or abatement of duty given by any statutory notification or

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order. It has been made clear by the Explanation that if a

notification or order providing for any exemption from duty

of excise under the Act is in force, full and complete

effect to such exemption will have to be granted for the

purpose of Computation of the value. "The duty of excise

computed with reference to the rate specified" has to be

calculated first. Thereafter the duty of excise so computed

will have to be reduced in accordance with the exemption

notification. For example, if duty on 'Footwear' is 10 per

cent ad valorem per pair then the duty payable on Footwear

valued at Rs 60 will be Rs 6. Since there is a notification

exempting Footwear valued upto Rs 60 per pair from duty,

under the Explanation or even otherwise the dutiable amount

of Rs 6 will have to be reduced in terms of the exemption

notification. To give full and complete effect to exemption,

the taxable amount will have to be reduced to nil. The

argument of Mr. Shanti Bhushan that the Explanation is

attracted only when the rate of duty is reduced is not

supported either by clear words of the Explanation or by

necessary implication. The amount of duty payable has to be

computed by reference to the rate of duty in force on the

value of the Footwear. The duty payable may be reduced by

any notification or order by lowering the rate of duty or by

exempting any excisable goods from duty wholly or in part.

The Explanation will apply to every case "where a

notification or order providing for exemption from the duty

of excise under such Act is for the time being in force" and

not only to a case where the rate of duty is lowered. The

effective duty of excise on the notified goods shall be the

duty of excise computed with reference to the specified rate

in the First Schedule "as reduced" so as to give full and

complete effect to such exemption. "As reduced" in this

context means the duty of excise as reduced by a

notification granting exemption.

There is yet another way of looking at the problem. The

notification by exempting footwear upto the value of Rs 60

from duty of excise has not removed "footwear" from the list

of excisable goods in the first schedule. It has in effect

reduced the ad veloram duty of 10 per cent payable on such

footwear upto the value of Rs 60 to nil.

The construction suggested by Mr. Shanti Bhushan will

lead to anomaly and should be avoided. It will have to be

held that "the amount of duty payable, if any" in sub-clause

(ii) of clause (d) will mean the amount of duty payable as

computed in accordance with the provisions of the First

Schedule which will stand reduced only when relief is

granted by reduction in the rate of duty and not otherwise.

"A notification or order providing for exemption" in the

Explanation will have to be read as a notification or order

granting exemption by reduction in the rate of ad valorem

duty only. The object of the statute is clearly to exclude

the actual burden of excise duty from the wholesale price

for determining the value of any excisable good. The

construction suggested by Mr.Shanti Bhushan will defeat the

object of the statute altogether.

The assessee has adopted a scheme which can easily be

seen through. After valuing the footwear at less than

Rs.60.00, he has fixed the price et above Rs.60.00. He is

entitled to make asmuch profit as he can. But he has tried

to claim deduction of a part of the profit as excise duty

payable for the goods. In order to claim this deduction,

the assessee will have to show that the 'value' of the

goods became more than Rs.60.00 per pair because of

inclusion of excise duty. If that Cannot be done, there

is no question of deducting any duty payable on the goods

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manufactured by the assessee. The conundrum spoken of

by Mr. Shanti Bhushan does not exist. Once the principle

underlying the mechanism of valuation of excisable goods

is borne in mind, this becomes a straight forward case. No

intriguing conundrum perplexes our mind. We can easily

behold what lies behind the assessee's scheme.

Strong reliance was placed on behalf of the assessee

on the decision of this Court in the case of Bata Shoe Co

v. Central Excise, (1985) 3 SCR 960, and particularly, on

the passage below:-

".............. It is, therefore,

plain that before determining the

question of availability of the

exemption under Notification

dated July 24, 1967, the first

essential step is to determine the

'value' of the article in the

manner prescribed in Section 4 of

the Act. The fact that on such a

computation the article may

ultimately be found to be exempted

from excise duty does not have any

bearing on the question of

applicability of Section 4 of the

Act for determining the 'value',

for purpose of duty."

Section 4 has undergone drastic changes since this case

was decided. The concept of receive duty of excise was also

not there at that time.

The appeal is, therefore, allowed. The judgment dated

5th March, 1993 passed by the Punjab and Haryana High Court

is set asides There will be no order as to costs.