JUDGMENT

KULDIP SINGH, J.:—M/s. Burn Standard Company Limited, the appellant before us, is one of the leading manufacturers of wagons. The wagons manufactured and produced by the appellant are primarily supplied to the Railway Board. The wagons, are manufactured in 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. These 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."

2. On the above facts, the short question for our determination is whether the excise duty u/ Ss. 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".

3. The central excise authorities issued various show 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 on the 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 Art. 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 .(1988 (17) ECR 737, para 13 (Cal)):

"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 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."

4. 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 u/ S. 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 i