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PETITIONER: MODI RUBBER LIMITED S ANOTHER

       Vs.

RESPONDENT: UNION OF INDIA & OTHERS

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) 573        JT 1996 (5)   307  1996 SCALE  (4)516

ACT:

HEADNOTE:

JUDGMENT: [With Civil  Appeals Nos.1965/86, 1966/86, 1967/86, 2328/86, 1059/81, 2393-2409/80,  1052/81 285/88, 2155/87, 1415-16/86, 8178/95, 8263/95 and Civil Appeals Nos. 7848. AND ,7852  . . of 1996 (Arising out of S.L.Ps.(C) Nos.5881/86, 5882/86)].                       J U D G M E N T      This appeal  raises the  question as  to the  scope and effect of  the Explanation  to Section  4 (4)(d)(ii)  of the Central Excises  and Salt Act, 1944 (hereinafter referred to as ’the  Act’). The  Explanation was  added to  clarify what would be  the amount  of duty  which had to be deducted from the wholesale  price for arriving at the assessable value of goods. The  Delhi High Court in the case of I.T.C. Limited & Anr v. Union of India,(30) E.L.T. 321, took the view that by virtue of the Explanation only that amount of duty which was actually paid by the assessee after giving effect to various exemption notifications would qualify for deduction.      The contention  of the  appellant is  that  during  the period in dispute, duty of excise was leviable under the Act at the  rates specified  in the  First Schedule  to the Act. Under Rule  8 of the Central Excise Rules, 1944 (hereinafter referred to as ’the Rules’) the Central Government had power to issue  notifications for  exempting the amount of duty of excise leviable  on goods  to the  extent mentioned  in such notifications. The Central Government had issued a series of notifications under which exemption was granted from levy of duty of  excise. The  language of the notifications provided that the  goods  specified  in  the  notification  shall  be exempted ’from so much of duty of excise leviable thereon as is in  excess of . . .’ the specified amount. The contention of the  assessees is  that on  a true  interpretation of the notifications, the  assessable value  has to  be  determined first and the notification has to be applied thereafter.      This controversy  has been dealt with in a large number of cases  before the  amendment of Section 4 of the Act. The

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Delhi High  Court in  the case  of Modi  Rubber  Limited  v. Central Board  of Excise and Customs, ILR 1978 (2) Delhi 352 held that  from the language of the notification it appeared that the duty of excise leviable and the assessable value of the goods  had to  be determined first, the relief under the notification had  to be  given thereafter.  According to the appellant, the notifications exempted goods from ’so much of duty of  excise leviable thereon’ as was specified. In order to determine  the extent  of the exemption, it was necessary to  determine  ’the  excise  duty  leviable’  in  the  first instance. In  a case  where the price is inclusive of Excise Duty (cum-duty  price) the  amount of  excise duty  leviable under the Act has to be deducted from the cum duty  price in order to  determine  the  assessable  value.  This  is  done without applying  the notification. Therefore, before giving effect to the notification and before determining the extent of  exemption  available  thereunder,  it  is  necessary  to finally determine  the ’assessable value’ as well as ’excise duty leviable’.   This  method of determining the assessable value has  been accepted  by this  Court in the case of Bata (India) Limited v. Union of India, (1985) 3 SCC 97.      After these cases were decided, major changes have been brought about  in the  Central Excise  Act. The  controversy about the  quantum of deduction of duty from wholesale price for the  purpose of computation of value  under Section 4 of the Act has been set at rest specifically by the Explanation added to  Section 4(4) (d)(ii) by the Finance Act, 1982 with retrospective effect  from  1.10.1975.  Section  4(4)(d)(ii) with the  added Explanation now stands as under:-      (d)  "value   in  relation  to  any      excisable goods,           (i) x     x      x      x           (ii)  does   not  include  the           amount of  the duty of excise,           sales tax  and other taxes, if           any,  payable  on  such  goods           and, subject  to such rules as           may   be   made,   the   trade           discount  (such  discount  not           being   refundable    on   any           account   whatsoever)  allowed           in accordance  with the normal           practice  of   the   wholesale           trade at  the time  of removal           in respect  of such goods sold           or contracted for sale;      "Explanation: For  the  purpose  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  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 sub-clause (b)      shall be -      (i) in  a case where a notification           or  order  providing  for  any

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         exemption   (not    being   an           exemption  for  giving  credit           with respect  to or  reduction           of excise  on such goods equal           to any    duty    of    excise           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 cases the duty of           excise computed with reference           to the  rate specified in such           Act, in respect of such goods.      The legislative  intent is quite clear. The Explanation has been  brought into  effect from  1.10.1975. By virtue of sub-section (2)  of Section 47 of the Finance Act, 1982, all actions taken  during the  period 1st  Octobers 1975 to 27th February, 1982  have been  deemed to have been taken for all purposes as  validly and effectively taken or done as if the Explanation  was   in  force.  This  will  have  the  effect notwithstanding anything  contained in  any judgment, decree or order of any court, tribunal or other authority. There is no reason  to assume  that the  law laid down in the earlier judgments which had been rendered before the amendments were made to Section 4 will continue to be in force and operative notwithstanding  the  amendments  made  in  Section  4  with retrospective effect.      The Explanation  makes it  clear that  the amount which will have  to be  taken out  from the wholesale price of the good for  purpose of  ascertaining value  of  any  excisable goods shall be the sum total of the effective duty of excise payable on  such goods  under the Central Excise Act Act the aggregate of  the effective  duties of  excise payable under other Central Acts. Therefore, when Section 4(4)(d)(ii) lays down that  ’value’ does  not include  the amount  of duty of excise, if  any, payable on such goods, an enquiry will have to be made as to the amount of the effective duty of excise, which is  actually payable  on  the  goods  and  not  merely leviable in  accordance with  the rates  prescribed  in  the schedule. The  newly added  Explanation makes  it clear that for the   purpose of Section 4(4)(d)(ii), the calculation of "the amount  of duty  of excise,  if any,  payable  on  such goods" will  not be  on the  basis of  the rate given in the schedule  only  but  also  after  taking  into  account  any notification or  order providing for exemption from the duty of excise  under the Act The ad valorem duty leviable by the Central Excise  Act will  have to be calculated according to the rate  prescribed in the schedule for the specified goods But the amount so calculated is not payable as duty but will have to  be reduced in terms of the notification in order to give full and complete effect to the notification. By virtue of  Rule   8  of  the  Central  Excise  Rules,  the  Central Government has  been empowered to exempt any excisable goods from the whole or any part of duty leviable on such goods.      The contention  of Mr,  Salve is that this notification granted relief  from ’so much of the duty of excise leviable

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thereon as  is in  excess of  seventy five  per cent of such duty’. The notification  envisaged ascertainment of the base year of  clearance. What  was produced in excess of the base year qualified  for exemption  The language  used  in  these notifications makes it clear that the amount of duty payable according to the first Schedule to the Central Excise Act on the excisable  goods  will  have  to  be  calculated  first. Thereafter, if other conditions laid down in the notifications were  fulfilled. then  for the  quantum of the excess production  only, seventy  five per cent of such duty had to  he paid. In effect. Mr. Salve has contended that the amendments have  not  really  brought  about  any  effective change in the manner of calculation of the "amount of excise duty payable under Section 4(4)(d)(ii).      This contention is not borne out by the language of the Section and  also the  notification. It  is of  significance that the  notification seeks  to exempt  the excisable goods ’from so much of the duty of excise leviable thereon......as is in excess of seventy five per cent of such duty’. Section 4(4)(d)(ii) speaks  of the  amount of  excise duty  payable. What is  to be  excluded from  ’value’ is only the amount of duty which is payable. The entire amount which is otherwise leviable under  the Central  Excise Act  will not be payable because  of   the  exemption   from  duty   granted  in  the notification. No  question can  arise of  deduction  in  the first instance  of the  amount which is not payable from the wholesale price  for determination  of the assessable value. Having regard to the language of Section 4(4)(d)(ii) and, in particular, the  Explanation  notification, we are unable to uphold the  contention of  Mr. Salve  that the assessment of excise duty  must be  in two stages. In the first stage, the excise duty  calculated in accordance with the rate given in the schedule  must be deducted from the wholesale price even though this  amount is  not payable at all. The relief under the notification will have to be calculated only thereafter. Although  this  was  the  interpretation  given  in  various judgments before  the amendment  of Section the position has radically changed after the amendment. It is only the amount of excise  duty which  is  payable,  that  is  to  say,  the effective duty of excise which can be deducted under Section 4(4)(d)(ii)      The language  of notification No.198 76-C.E. dated 16th June, 1976 was:-      "In   exercise    of   the   powers      conferred by sub rule (1) of rule 8      of the  Central Excise Rules, 1944,      the   Central   Government   hereby      exempts the  excisable goods of the      description specified in column (3)      of   the   Table   hereto   annexed      (hereinafter  referred  to  as  the      specified goods)  and falling under      such  Item   Number  of  the  First      Schedule to  the Central  Excises &      Salt Act, 1944 (1) of 1944), as are      specified  in   the   corresponding      entry in  column (2)  of  the  said      Table and  cleared from one or more      factories in  excess  of  the  base      clearances by  or on  behalf  of  a      manufacturer, from  so much  of the      duty  of  excise  leviable  thereon      under the said Item as is in excess      of seventy  five per  cent of  such      duty,"

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    Section 4(4)(d)(ii)  provides that  ’value’ in relation to any  excisable goods  will not include the amount of duty of excise,  if any,  payable on such goods. The duty payable on such goods must be the actual Amount of duty the assessee has to  pay and not any hypothetical figure. The Explanation has put  this beyond doubt by specifically providing that if there is a notification providing for any exemption from the duty of excise under the Central Excise Act, then the amount of the  duty of  excise payable  under  sub-clause  (ii)  of clause (d) will be the amount computed with reference to the rates specified  in the  Act as  reduced  by  the  exemption notification.      In  the   instant  case,   the  exemption  notification provides that  if the  other conditions  laid  down  on  the notification are  fulfilled, then the goods cleared from the factory of  the  assessee  which  are  in  excess  of  ’base clearances’ by  the assessee will be exempt from ’so much of the duty  of excise leviable thereon,.... as is in excess of seventy five  per cent  of such duty’, Therefore, the excess production will  bear excise  duty only  to  the  extent  of seventy five  per cent  of what  would have  been  otherwise payable by  the assessee, under the Act calculated according to the rate prescribed in the Schedule.      The contention  of Mr.  Salve that the calculation will have to  be made  in two  stages is  not  supported  by  the wording of  the Explanation.  A clear  distinction has  been drawn in the section between the amount of duty leviable and the amount  of duty  payable. ’Value’  will not  include the amount of  duty of  excise which is payable. This amount has to be  calculated on  the basis of the duty levied under the Act and  also after taking into account any relief from duty given by any order or notification issued by the Government. The resultant  figure is  the amount of duty of excise which is payable and deductible from the wholesale price. There is nothing in  the Act  to suggest  that the  ’value’ has to be calculated by  deducting in the first place the tax leviable under the  Act, from  the  wholesale  price.  Thereafter,  a second valuation  on the basis of the notification will have to be  made. The Explanation clearly states that the duty of excise computed with reference to the prescribed rate in the schedule will  have to  be reduced  "so as  to give full and complete effect  to such  exemption". If  the amount of duty calculated according  to  the  schedule  became  smaller  by virtue of  the notifications  then the only way to give full and complete  effect to the notification is to take only the smaller amount in reckoning for the purpose of determination of value  in Section 4(4)(d)(ii). Whatever may have been the position before the amendment of the Act, the in view of the Explanation  to   clause  (d)   ,  the  ’value’  in  Section 4(4)(d)(ii) can  no longer  be computed by reference only to the Act  and the  Schedule without taking into consideration the exemption notification.      In the  case of  I.T.C. Limited  & Another  v, Union of India & Others 1987 (30) E.L.T. 321 (Delhi) at P. 339 it was observed, and in our opinion rightly:-      "At  the   time  of   the   earlier      decisions,   the    Act   and   the      notification were in two watertight      compartments;  the  Act  was  first      applied   and,    from   the   duty      computed, an exemption was granted.      This involved  three  stages:  One,      the determination of the assessable      value: two  the computation  of the      amount of  duty payable  under  the

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    Act; and  three, the calculation of      the amount  of exemption.  Once the      exemption operated the duty payable      in effect  became smaller  and this      may   have   an   impact   on   the      assessable value  if  it  could  be      redetermined  but   there  was   no      statutory language which authorised      the authorities to go back again to      redetermine  the  assessable  value      and  that   had   been   determined      already.    The     statute     and      notification operated  successfully      in  three   different   stages   of      calculation  and   the  High  Court      could find  no reason to intertwine      them into one another so as to make      such  a   redetermination  of   the      assessable   value    possible   or      necessary.   The    amendment   has      altered the  position by  expressly      integrating and  incorporating  the      effect of  the notification  in the      statute. The  assessable value  can      no longer  be computed by reference      only  to   the  Act   and  schedule      without taking  into  consideration      the effect  of a notification under      rule 8,  where it  exists. This  is      made doubly  clear by  amending the      definition of  the word  assessable      ’value’ and  clarifying  that.  for      this purpose  duty payable would be      the effective  duty  payable  after      taking   the    notification   into      account.  This  definition  vitally      alters   the    first   stage    of      computation which  was easily  done      under the  Act earlier  without any      reference  to   the   notification.      Though    the    terms    of    the      notifications under  rule 8  remain      unaltered,  the   inclusion  of   a      reference to  the  notification  in      Section  4   itself  has  made  the      notification  a  material  part  of      that section which can no longer be      interpreted  without  reference  to      the notification." ’      In view of the above and also in view of our decision in  the case  of The,  Asstt. Collector  of Central Excise &  Ors. v.  Bata India  Ltd., Civil Appeal No.8762 of 1994 (judgment  delivered earlier on this date), this appeal is dismissed.  the judgment  under appeal is affirmed. There will be no order as to costs.      Civil Appeals Nos.1965/86, 1966/86,      1967/86,  2328/86,  1059/81,  2393-      2409/80, 1052/81,  285/88,  285/88,      2155/87,  1415-16/86   84  8178/95,      8263/95  and   Civil  Appeals  Nos.      ........ .  . .  . of 1996 (Arising      out  of   S.L.Ps.(C)  Nos  5881/86,      5882/86).      Special leave granted in S.L.P.(C) Nos.5881 and 5882 of 1986.

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    For the  reasons given in these two cases (Civil Appeal Nos.8762 of  1994 and  1121 of  1992), the above appeals are dismissed. There will be no order as to costs.