http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 5  

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,                                                        961      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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 5  

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                                                        962 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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 5  

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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 5  

        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

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 5  

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