http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 6  

PETITIONER: INDIAN OXYGEN LTD.

       Vs.

RESPONDENT: COLLECTOR OF CENTRAL EXCISE.

DATE OF JUDGMENT28/07/1988

BENCH: MUKHARJI, SABYASACHI (J) BENCH: MUKHARJI, SABYASACHI (J) RANGNATHAN, S.

CITATION:  1988 AIR 1809            1988 SCR  Supl. (1) 687  1988 SCC  Supl.  658     JT 1988 (3)   291  1988 SCALE  (2)291  CITATOR INFO :  D          1990 SC 977  (4)

ACT:      Central  Excises   and  Salt  Act,  1944.:  Section  4- Valuation  of   excisable  goods-When  ex-factory  price  is ascertainable, assessment  to be  made on that basis only-If ex-factory price  is not  ascertainable and assessment to be made ex-depots/service  centres, deductions  may be  claimed towards charges for transportation, delivery and collection, and charges for loading within the premises, on the basis of actual evidence.

HEADNOTE:      The appellant  has been manufacturing compressed oxygen and dissolved  acetylene, falling  under tariff item No. 14H of the  First Schedule  to the Act. These items were sold to Government undertakings at the rates determined by DGS&D. In respect of other buyers the appellant charges prices on slab basis which  is  related  to  quantitative  discount.  These prices were  found to be much more than the prices indicated in the  approved price  list. The  appellant did not furnish quantities of  the products  sold  from  its  depots/service centres.  Apart  from  the  declared  price,  the  appellant charged delivery  and collection  charges, cylinder  deposit and rentals.      The appellant  explained that  the difference in prices was due  to special delivery and collection charges incurred for transporting  the goods from the place of manufacture to the depot  from where it was sold. The appellant’s claim for abatements of  account of  freight and  handling charges was not accepted  as no  evidence was  produced for the same. In respect of  the price  lists submitted  by the appellant for approval, show  cause notices  were  issued.  The  appellant replied that  in the  past, under  similar circumstances the claim for  abatement had  been upheld  by the Department and therefore, there  was no reason to deviate from the previous practice. The  Assistant Collector  rejected  the  plea  and approved the  price list  after disallowing the abatement on account of  freight  and  handling  charges.  The  appellant preferred an  appeal before  the Collector of Central Excise (Appeals) which was dismissed. Thereafter both the appellant

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 6  

and the  Assistant Collector  filed separate  appeals before the Customs Excise and Gold (Control) Appellate Tribunal. 688      The Tribunal emphasised that the ex-factory prices were ascertainable and  there was no scope of deduction from that price. However  it directed  that if  ex-factory prices were not ascertainable  and the  goods were  to be  assessed  ex- depot, then  it would  be for  the appellant to claim on the basis of  actual evidence,  and remanded  the  case  to  the Assistant  Collector   to   refix   the   assessable   value accordingly. These  appeals under  section 35L(b) of the Act are against the Tribunal’s decision.      Disposing of these appeals, ^      HELD: 1. The cost of transportation from factory to the depot cannot  normally be  included in  computation  of  the value under  Section 4(1)(a) read with section 4(4)(d)(i) of the Act.  Where the  wholesale price is ascertainable at the factory gate, the question of transportation charges becomes entirely irrelevant.  The cost  of transportation  from  the factory gate  to the  place of delivery and transit expenses were not  to be added to the wholesale price at factory gate for purpose  of duty under the Act. It is clear from section 4 that  the delivery  and collection charges have nothing to do with  the manufacture  as they  are for  delivery of  the filled cylinders  and collection  of  the  empty  cylinders. These charges have to be excluded from the assessable value. Insofar as  the loading  charges incurred  for  loading  the goods within  the factory  are concerned,  they  are  to  be included in  the assessable  value, irrespective  of who has paid for the same, but the loading expenses incurred outside the factory  gate are excludible. Duty of excise is a tax on the manufacture,  not a  tax on the profits made by a dealer on transportation. [690F-H; 691A]      2. In  the instant  case, there is a clear finding that the ex-factory  price was ascertainable. If once that is the position that should be the basis upon which the value is to be determined,  the other expenses, costs or charges must be excluded. [693B]      Union  of  India  &  Ors.  etc.  etc.  v.  Bombay  Tyre International Ltd. etc. etc., [1984] 1 SCR 347 referred to.      [This Court  observed that  the Tribunal’s  order stood modified accordingly and directed the Assistant Collector to re-fix the assessable value as indicated in this judgment. ] [693C]

JUDGMENT:      CIVIL APPELLATE  JURISDICTION: Civil Appeals Nos. 2801- 06 of 1987. 689      From the  Judgment and  Order  dated  8.7.1987  of  the Customs Excise  and Gold  (Control) Appellate  Tribunal, New Delhi in Appeal Nos. E 1533, 1521, 1528-30 & 1531 of 1986and Order No.498 to 503 of 1987.      Soli J.  Sorabji, V.J.  Francis, N.M. Popli, Mrs. Nisha Bagchi and S. Ganesh for the Appellant.      Mrs.  Indu   Malhotra  and   P.  Parmeshwaran  for  the Respondent.      The Judgment of the Court was delivered by      SABYASACHI MUKHARJI, J. These are appeals under Section 35L(b) of  the Central Excises & Salt Act, 1944 (hereinafter called ’the Act’).      The  appellant   manufactures  compressed   Oxygen  and

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 6  

dissolved acetylene falling under tariff item No. 14H of the First Schedule  of the Act as it stood at the relevant time. The appellant  had received  showcause notice  in respect of the period  from 1.1.1984  to 31.1.1984  and also five other show-cause notices  for different periods, in respect of the price lists  submitted by  the appellant seeking approval of the price  list of  gases in  question. It  was found by the Tribunal that  the appellant  manufactures and  sells oxygen and D.A.  Gases. These  are sold  from the  factory  of  the appellant at  Visakhapatanam and  from  their  depot/service centres at  Vijayawada, Rajamundry,  Vadlapudi, Jeypore  and Damanjodi.   They   sell   their   product   to   Government undertakings as  per the  rates determined  by DGS  & D, New Delhi. In  respect of  other buyers the appellant sell their product at  various prices  on slab basis. It is stated that the slab  basis is  related to what the manufacturers call a quantitative  discount.   According  to  the  Tribunal,  the revenue had undertaken verification of the prices charged by the manufacturers at their depots and service centres. These were found  to be much more than the prices indicated in the approved price list. It also observed that the manufacturers did not  furnish  to  the  department  quantities  of  their product which  were sold  from their  depots/service centres and that the appellant charged from their buyers, apart from the declared price list, the following:      (i)  Delivery    and    collection    charges    (where           applicable);      (ii) Cylinder deposit; and      (iii) Rentals. 690      The department’s  case was  that these being additional charges, should form part of the assessable value.      It was  urged on  behalf of  the revenue that the price list submitted by the manufacturers in respect of clearances from their Vijayawada depot the appellant claimed abatements on account  of freight  and handling  charges in  respect of which they  did not produce any evidence. It was, therefore, held  by   the  Department   that  no   such  deduction  was admissible. It,  however, appeared  to the Tribunal that the manufacturers  have   admitted  that  separate  prices  were indicated for  the same  goods in  respect of  Visakhapatnam factory which  is the place of manufacture and Vijayawada, a place about  400 Km.  away which  is only  a depot.  It  was explained  that   the  difference   in  the  prices  was  in consideration of  special delivery  and  collection  charges which were  admittedly incurred  for transporting  the goods from Visakhapatnam to Vijayawada.      The Tribunal  noted that  the appellant  had  not  come forward to offer concrete evidence of actual freight charges etc. It,  however, emphasised  that the price at the factory gate is ascertainable. Assessment should, therefore, be made in terms  of that  price.  Hence,  there  was  no  scope  of deduction from  that price.  It, therefore, directed that if the ex-factory  prices were  not ascertainable and the goods were to  be assessed  ex-depot, then  it would  be  for  the manufacturer to  claim on  the basis  of actual evidence. It remanded the  case to  the Asstt.  Collector  to  refix  the assessable-value as  directed. It  is necessary to reiterate the principle  upon which  the assessable-value will have to be determined  in this case. The cost of transportation from factory at  Visakhapatnam and the depot at Vijayawada cannot be included  normally in computation of the value. The value has to  be computed  under Section 4(1)(a) read with Section 4(4)(d)(i)  of   the  Act,  Where  the  wholesale  price  is ascertainable  at   the  factory   gate,  the   question  of

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 6  

transportation charges becomes entirely irrelevant. The cost of transportation  from the  factory gate  to the  place  of delivery and  transit expenses  were not  to be added to the wholesale price  at factory  gate for purposes of duty under the Act.  In this case the price of the goods at the factory gate Visakhapatnam is known. It is clear from Section 4 that the delivery  and collection charges have nothing to do with the manufacture  as they  are for  delivery  of  the  filled cylinders and  collection  of  the  empty  cylinders.  These charges have  to  be  excluded  from  the  assessable-value. Insofar as  the loading  charges incurred  for  loading  the goods within  the factory  are concerned,  they  are  to  be included in  the assessable-value,  irrespective of  who has paid for the same but 691 the loading  exepnses incurred  outside the factory gate are excludible. Duty  of excise is a tax on the manufacture, not a tax on the profits made by a dealer on transportation.      It is  necessary to reiterate that value for assessable goods must  be determined  in terms of section 4 of the Act. The said section 4(1) provides that where 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  the normal  price therefore, 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 or removal, where the buyer  is not a related person and the price is the sole consideration for the sale. "Place of removal" under section 4(4)(b) has  been defined  to mean  a factory  or any  other place or  premises  of  production  or  manufacture  of  the excisable goods  or  a  warehouse  or  any  other  place  or premises wherein  the excisable goods have been permitted to be deposited  without payment of duty, from which such goods are removed.  The scope  of determination  of value has been explained and reiterated by this Court in Union of India and others etc.  etc. v.  Bombay Tyre  International  Ltd.  etc. etc., [1984]  1 S.C.R.  347. Following  the principle of the said case  the Tribunal  noted in  the judgment under appeal that the  price ex-factory is ascertainable. If once that is the position  as the Tribunal rightly pointed out, the issue of deduction  of rate  from the  prices ex-depots  does  not survive for  the decision. But if the ex-factory prices were not ascertainable  and the  goods were  to be assessable ex- depot, then it would be for the manufacturer to claim on the basis of  actual evidence  the  deductions  that  should  be admissible from  the price list as per the provisions of the Act.      Counsel for  the  respondent,  Ms.  Indu  Malhotra  who argued this  case with  considerable ability  before us drew our attention  to the  following observations  in the Bombay Tyre International  (supra) at  pages 376  and  377  of  the report:           "Accordingly, we  hold that pursuant to the old s.           4(a) the  value of  an excisable  article for  the           purpose of  the excise  levy should be taken to be           the price  at which  the excisable article is sold           by the  assessee to a buyer at arm’s length in the           course of wholesale trade at the time and place of           removal. Where,  however, the excisable article is           not sold  by the  assessee in wholesale trade but,           for example,  is consumed  by the  assessee in his           own industry the case is one 692           where under  the old  s. 4(a)  the value  must  be

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 6  

         determined as,  the price  at which  the excisable           article or an article of the like kind and quality           is capable of being sold in wholesale trade at the           time and place of removal.                Where the  excisable article or an article of           the like kind and quality is not sold in wholesale           trade at  the place  of removal,  that is,  at the           factory gate,  but is  sold in the wholesale trade           at a  place outside  the factory  gate, the  value           should be  determined as  the price  at which  the           excisable article  is sold  in the wholesale trade           at such  place, after deducting therefrom the cost           of transportation  of the  excisable article  from           the factory gate to such place".      She also  drew our attention to the observations of the Court at pages 391 and 392 of the Report:           "Therefore, the  expenses incurred  on account  of           the several  factors which have contributed to its           value upto  the date  of  sale,  which  apparently           would be  the date  of delivery,  are liable to be           included. Consequently  where the sale is effected           at the  factory gate,  expenses  incurred  by  the           assessee up  to the date of delivery on account of           storage   charges,   outward   handling   charges,           interest on  inventories (stocks  carried  by  the           manufacturer after  clearance), charges  for other           services  after  delivery  to  the  buyer,  namely           after-sales  service  and  marketing  and  selling           organisation  expenses   including   advertisement           expenses can  not be  deducted. It  will be  noted           that advertisement expenses, marketing and selling           organisation  expenses   and  after-sales  service           promote the marketability of the article and enter           into its value in the trade. Where the sale in the           course of  wholesale  trade  is  effected  by  the           assessee through its sales organisation at a place           or places  outside the  factory gate, the expenses           incurred by the assessee upto the date of delivery           under the  aforesaid heads  cannot,  on  the  same           grounds, be  deducted. But  the assessee  will  be           entitled to  a deduction on account of the cost of           transportation of  the excisable  article from the           factory gate  to the  place or  places where it is           sold. The  cost of transportation will include the           cost   of    insurance   on    the   freight   for           transportation of  the goods from the factory gate           to the place or places of delivery." 693      She contended  that in the instant case, in view of the conduct of  the dealer,  there was  doubt as to what was the real ex-factory price. If there was a finding that there was no real  ex-factory price,  then the  aforesaid observations would have  required serious  examination. But in this case, the case  has not  proceeded on that basis. On the contrary, there is  a clear  finding that there was a ex-factory price which is  ascertainable. If  once that  is the position that should  be   the  basis  upon  which  the  value  is  to  be determined, the  other expenses,  costs or  charges must  be excluded.      Inasmuch as  that is  the correct  position in  law, we direct  that   the  Assistant   Collector  will  re-fix  the assessable  value   as  indicated   in  this  judgment.  The Tribunal’s judgment  is modified  accordingly. These appeals are disposed of. There will be no order as to costs. G.N.                                    Appeals disposed of.

http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 6  

694