Important point
The “value” of excisable article has to be computed with reference to the price charged by manufacturer and it will be for revenue to determine on evidence - whether the transaction was one where extra Commercial consideration have entered and, if so, what should be the price to be taken into account as value of excisable article for the purpose of excise duty.

Headnote:Central Excise Act, 1944—Section 4(1)(a)—‘Value’ in relation to excisable goods—Is derived from the normal price at the factory gate charged to an unrelated person on whole-sale basis and at the time and place of removal—It will be for revenue to determine on evidence whether transaction was one where extra commercial considerations had entered and what should be the price to be taken into account as value of excisable article—Question whether respondent-assessee had undervalued the aerated water by excluding amounts received under credit notes as price support incentive and rent on containers from assessable value?—No evidence of flow back of any additional consideration from buyers of aerated water to assessee—Price incentive credit note was given by supplier of concentrate as on account of competition in market prices had to be reduced—No evidence of existence of any favoured buyer and as such Rule 5 of Central Excise (Valuation) Rules, 1975 was not applicable—Rent on containers charged by assessee and not included in assessable value was covered by ratio in CCE vs. Indian Oxygen—No interference was warranted in order dismissing demand.
Held : It is well settled that under section 4 of the said Act, as it stood at the material time, price is adopted as a measure or a yardstick for assessing the tax. The said measure or yardstick is not conclusive of the nature of the tax. Under section 4, price and sale are related concepts. The “value” of the excisable article has to be computed with reference to the price charged by the manufacturer, the computation being made in accordance with section 4. In every case, it will be for the revenue to determine on evidence – whether the transaction is one where extra-commercial considerations have entered and, if so, what should be the price to be taken into account as the value of the excisable article for the purpose of excise duty. These principles have been laid down in the judgment of this Court in the case of Union of India & Others v. Bombay Tyre International Ltd. etc. reported in AIR 1984 SC 420. The short question which arises for determination in the present case is - whether the department has been able to show that the intrinsic price of aerated water was more than the price actually charged to the buyer? According to the department, the actual price was lower on account of incentives given by M/s Britco, the supplier of concentrates to the assessee. As found by the adjudicating authority as well as by the tribunal, the prices had to be reduced by the assessee on account of competition in the market. Further, the prices stood reduced on account of concession given by M/s Britco, supplier of concentrates (raw-material), to the assessee. There is no evidence of flow back of any additional consideration from the buyers of aerated water (beverage) to the assessee. On account of cut throat competition from Pepsi, M/s Britco had to provide incentive to the assessee. But for the incentive from the supplier of concentrates (raw material), the assessee was not in a position to face acute competition from Pepsi. On the other hand, the evidence on record indicates that price uniformity was maintained. No favour for extra commercial reasons was shown to any of the buyers of aerated water. There is no evidence of any concession to any of the buyers. There is no evidence of existence of any favoured buyers. In the circumstances, rule 5 is not applicable. So far as ROC is concerned, the commissioner found that the rent equivalent to interest was collected by the assessee on account of delay in returning of empty crates/bottles. The purpose of charging interest was to get back empty bottles/crates immediately as otherwise the assessee was required to make additional investment towards stock inventory on crates/empty bottles. Further, the said levy did not form the price of the aerated water and, therefore, ROC was not includible in the assessable value. In the circumstances, the commissioner was right in applying the ratio of the judgment of this Court in the case of Collector of Central Excise v. Indian Oxygen, 1988(36) ELT 730. (Paras 12 to 14)

Judgment

Kapadia, J.—A short question which arises for determination in these appeals filed by the department under Section 35-L(b) of the Central Excise Act, 1944 (for short “the said Act”) is - whether the assessee had undervalued the aerated water by excluding two items, namely, the amounts received under credit notes as price support incentive and rent on containers (ROC) from the assessable value?

2. For the sake of convenience, we mention hereinbelow the facts in civil appeal No. 772 of 2001, in the case of Commissioner of Central Excise, Meerut-I v. Bisleri International Private Limited (formerly known as M/s Coolade Beverages Ltd.).

3. M/s. Coolade Beverages Ltd. (hereinafter referred to as “the assessee”) were manufacturers of aerated waters. The manufacturing activity of the assessee basically consisted of bottling. The assessee obtained the concentrate (raw-material) for aerated water from a subsidiary of Coca Cola Corporation. The name of that subsidiary was M/s Britco Food Company Ltd. (hereinafter referred to as “M/s. Britco”). The assessee sold the bottled aerated water to the wholesale dealers.

4. The department found that the assessee used to collect from some wholesale dealers ROC @ Rs. 7.50 per crate. The department further found that the assessee used to receive price support incentives in the form of credit notes from M/s. Britco. Accordingly, the department issued show-cause notice contending that the cost of ROC and the value of price support incentive were liable to be included in the assessable value in terms of rule 5 of the Central Excise (Valuation) Rules, 1975. The assessee contested the show-cause notice. The assessee submitted that the ROC had no relation to the value of the aerated water; that the leasing of the bottles was a separate activity which had no connection with the manufacture of aerated water and, therefore, realizations from such ancillary activity were not includible in the assessable value of the aerated water. In this connection, the assessee placed reliance on the judgment of this Court in the case of Collector of Central Excise v. Indian Oxygen Ltd. reported in 1988 (36) ELT 730.

5. With regard to the amounts received as price support incentive from M/s Britco, the assessee contended that the said payment was immaterial to the wholesale price of the aerated water, that the sale to the wholesale dealers was on principal to principal basis and that the wholesale price was the sole consideration. Therefore, the sale price constituted the ‘normal price’ under section 4(1)(a) of the said Act and that rule 5 of the said Rules, 1975 had no application to the facts of the present case.

6. The Commissioner accepted the submissions of the assessee and dropped the duty demand contained in the show cause notice.

7. So far as the price support incentive was concerned, the Commissioner held that the credit notes were not received from the buyers of aerated water, that they were received from M/s Britco (supplier of concentrate); that the credit notes were received from M/s. Britco on account of reduction in the price of the concentrates and, therefore, the question of including the amount received under such credit notes in the assessable value did not arise. The commissioner further held that no additional consideration had flown directly from the buyers of aerated water and, therefore, rule 5 was not applicable to the facts of the present case. The commissioner further found that the benefit of reduction in prices of concentrates was in fact passed on by the assessee to the buyers in the form of reduced sale price of the aerated waters; that, with effect from 12.9.1994; the sale price of aerated water was reduced by Rs. 27/- per crate i.e. from Rs. 108/- per crate to Rs.81/- per crate whereas the gain to the assessee from the credit notes was only Rs. 1.66 per crate and, therefore, there was no additional consideration flowing back to the assessee from their buyers. The commissioner further found

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2005 Supreme(SC) 947

Cases Referred (2)