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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.