COMMISSIONER OF CENTRAL EXCISE, INDORE v.

M/S. GRASIM INDUSTRIES LTD. (Civil Appeal No. 3159 of 2004)

JULY 30, 2009 [D.K. JAIN AND ASOK KUMAR GANGULY, JJ.]

                                            [2009] 12 SCR. 204

The following Order of the Court was delivered

O R D E R

1.  This  batch  of  appeals,  by  the  Revenue,  under  Section  

35L(b)  of  the  Central  Excise  Act,  1944  (for  short  “the  Act”)  is  

directed  against  the  orders  passed  by  the  Customs,  Excise  &  

Service Tax Appellate Tribunal  (for  short  “the Tribunal”).  By the  

impugned orders, the Tribunal has held that despite insertion of  

amended Section 4 of the Act w.e.f. 1st July, 2000 introducing the  

concept of “transaction value” in Section 4 (1)(a) of the Act, the  

ratio of the decision of this Court in the case of Collector of Central   

Excise, Madras Vs. M/s Indian Oxygen Ltd.,  (1988) 4 SCC 139,  

still  holds  the  field.  Therefore,  the  charges  recovered  by  the  

assessees from their customers for providing them the containers  

and/or  canisters  etc.  for  supply  of  gases  or  other  items  etc.,  

manufactured  by them are  not  to  be added to  the  price  of  the  

goods  etc.,  for  the  purpose  of  determination  of  the  assessable  

value under Section 4 of the Act, as substituted by Section 94 of  

Finance Act of 2000.

2. The factual position in regard to the nature and design of the  

containers, canisters etc., in each of the appeals being different,  

for the purpose of this order, we refrain from narrating the facts  

obtaining in each of the cases. However, in order to appreciate the

controversy  involved,  a  brief  reference  to  the  common  and  

admitted factual background may be necessary.

3. The period of assessment involved in all the appeals is post  

1st July, 2000.

4.  The  respondents-assessees  in  these  appeals  are  

manufacturers of dissolved and compressed industrial gases etc.  

post  mix  concentrates  (POM)  and  some other  products.  These  

gases are transported and supplied to the customers in tonners,  

cylinders,  carboys,  paper cones and HDPE bags, BIBs, pipeline  

and canisters. Tonners, cylinders and pipelines etc., are specially  

designed as per the given specifications. Canisters are specially  

designed  containers  to  be  used  in  the  vending  machines.  The  

cylinders  etc.,  are  either  provided  by  the  assessees  or  the  

customers bring their own cylinders etc., at the factory gates of the  

assessees. For providing cylinders, gas lines etc., the assessees  

collect certain amounts from their customers under different heads,  

viz.,  packing  charges,  wear  and  tear  charges,  facility  charges,  

service charges, delivery and collection charges, rental  charges,  

repair and testing charges. These amounts are not shown in the  

sale invoices for the purpose of computing the assessable value.  

However,  the assessees treat  the amounts so received as their  

income from ancillary or allied ventures.  

5.  The  question  for  consideration  in  all  these  appeals  is  

whether  such  charges  recovered  by  the  assessees  from  the  

buyers for being provided with cylinders,  tonners, canisters etc.,  

are  to  be taken into  consideration for  determination of  value of  

excisable goods in terms of Section 4 of the Act as substituted for  

purposes of charging of duty of excise on the excisable goods.

6. Section 3 of the Act inter alia provides that there shall be  

levied and collected in such manner as may be prescribed, a duty  

of excise to be called the Central Value Added Tax (CENVAT) on  

all excisable goods which are produced or manufactured in India  

as, and at the rates, set forth in the First Schedule to the Central  

Excise Tariff Act, 1985. Section 4 of the Act provides for valuation  

of excisable goods for the purposes of charging of duty of excise.

7. Section 4 of the Act was substituted by a new Section w.e.f.  

01.07.2000  by  Section  94  of  the  Finance  Act,  2000.  Prior  to  

substitution, Section 4 (1) (a) inter alia read as under:

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.

Section 4(1)(a),  as it  stands after the substitution with effect  

from 01.07.2000 provides as under:

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;

8.  The  expression  “Transaction  Value”,  for  the  purposes  of  

Section  4,  has  been  defined  in  Clause  (d)  of  sub-Section  (3)  

thereof and the said definition reads as under:

(d)  "transaction  value"  means  the  prices  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.

9. The scope and purport of Section 4 (prior to the substitution)  

was considered by a Three Judges Bench of this Court in Union of  

India & Ors. Vs. Bombay Tyre International Ltd. & Ors., (1984) 1  

SCC 467. In the said Judgment, while considering the relationship  

between Section 3 and Section 4, it was inter alia held as under:

“…Section 3 of the Central Excises and Salt Act provides for  

the  levy  of  the  duty  of  excise.  It  creates  the  charge,  and  

defines the nature of the charge. That it is a levy on excisable  

goods,  produced  or  manufactured  in  India,  is  mentioned  in

terms in the Section itself.  Section 4 of the Act provides the  

measure by reference to which the charge is to be levied. The  

duty of excise is chargeable with reference to the value of the  

excisable goods, and the value is defined in express terms by  

that  Section.  It  has long been recognized that  the  measure  

employed for assessing a tax must not be confused with the  

nature of the tax.

… … …

It  is  apparent,  therefore,  that  when  enacting  a  measure  to  

serve  as  a  standard  for  assessing  the  levy  the  Legislature  

need not contour it along lines which spell out the character of  

the levy itself. Viewed from this standpoint, it is not possible to  

accept the contention that because the levy of excise is a levy  

on goods manufactured or produced the value of an excisable  

article  must  be  limited  to  the  manufacturing  cost  plus  the  

manufacturing profit. We are of opinion that a broader based  

standard  of  reference  may  be  adopted  for  the  purpose  of  

determining  the  measure  of  the  levy.  Any  standard  which  

maintains a nexus with the essential character of the levy can  

be regarded as a valid basis for assessing the measure of the  

levy. In our opinion, the original Section 4 and the new Section  

4 of the Central Excises and Salt Act satisfy this test.

… … …

As we have said, it was open to the Legislature to specify the  

measure for assessing the levy. The Legislature has done so.  

In  both the old Section 4 and the new Section 4,  the price  

charged by the manufacturer on a sale by him represents the  

measure. Price and sale are related concepts, and price has a

definite connotation. 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  

the terms of Section 4.

A contention was raised for some of the assessees, that the  

measure was to be found by reading Section 3 with Section 4,   

thus drawing the ingredients of Section 3 into the exercise. We  

are unable to agree. We are concerned with Section 3(1), and  

we find nothing there which clothes the provision with a dual   

character, a charging provision as well as a provision defining  

the measure of the charge.”

(Emphasis supplied by us)

10.  The  principles  enunciated  in  the  case  of  Bombay  Tyre  

(supra) were reaffirmed in Government of India & Ors. Vs. Madras  

Rubber Factory Ltd. & Ors., (1995) 4 SCC 349.

11. The new Section 4 substituted with effect from 01.07.2000  

came  up  for  consideration  before  a  three-Judge  Bench  of  this  

Court in  Commissioner of Central Excise Vs. Acer Ltd.,  (2004) 8  

SCC 173. While considering the relationship between Sections 3  

and  4  of  the  Act  and  particularly  the  effect  of  definition  of  

“Transaction Value” in Section 4(3)(d), it has been held as under:

“It may be true that the definition of "Transaction Value" which  

is incorporated in Clause (d) of Sub-section (3) of Section 4 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  

“goods” which is not excisable would become an excisable one  

only because one is fitted into the other,  unless the context  

otherwise requires.

… … …

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 de hors the same.”

(Emphasis by us)

12. Thus, in Acer (supra), it has been held that Section 4 is a  

machinery provision and that the said machinery provision as well  

as the definition of “Transaction Value” contained therein would be  

subject to the charging provision of Section 3.  

13. With utmost respect to the learned Judges constituting the  

Bench in Acer (supra), we feel that the interpretation of Sections 3  

and  4  of  the  Act  after  the  substitution  of  Section  4  is  not  in  

conformity with the scheme of the Act prima facie, for the reasons  

that (i) Section 3 is a charging Section providing for levy of excise  

duty  on  excisable  goods,  whereas  Section  4  provides  for  the  

measure for valuation of excisable goods with reference to which  

the charge of excise duty is to be levied, (ii) both operate in their  

independent fields even though there may be a link between the  

two and (iii) in the case of  Bombay Tyre  (supra), (a three-Judge  

Bench), the contention of the assessees that “the measure was to  

be found by reading Section 3 with Section 4, thus drawing the

ingredients of Section 3 into the exercise” was specifically rejected.  

Besides, we also have reservation with the observation in  Acer’s  

case (supra) that the definition of “transaction value” must be read  

in the text and context of Section 3 of the Act. In our prima facie  

view, this would amount to diluting the width of “transaction value”  

as defined in the substituted provision.

14. Since the issues arising in these appeals are of seminal  

importance  and  are  likely  to  have  serious  ramifications  on  the  

question  of  determination  of  assessable  value  of  the  excisable  

goods for the purpose of levy of duty of excise, we are of the view  

that the following issues require consideration by a larger Bench:

1. Whether Section 4 of the Central Excise Act, 1944 (as  

substituted  with  effect  from  01.07.2000)  and  the  

definition  of  “Transaction  Value”  in  Clause  (d)  of  sub-

Section (3) of Section 4 are subject to Section 3 of the  

Act?

2. Whether  Sections  3  and  4  of  the  Central  Excise  Act,  

despite being interlinked, operate in different fields and  

what is their real scope and ambit?

3. Whether the concept of “Transaction Value” makes any  

material  departure  from  the  deemed  normal  price  

concept of the erstwhile Section 4(1)(a) of the Act?

15. Accordingly, we direct the Registry to place this order before  

Hon’ble the Chief Justice of India for appropriate directions.