1. Dispute regarding the assessable value of galvanised black pipes and whether the cost of galvanisation must be included in the valuation for duty purposes. (Para 2 )
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1999 Supreme(SC) 1318
SUPREME COURT OF INDIA
A.P.Misra : S.P.Bharucha
Sidhartha Tubes Limited
Versus
Collector Of Central Excise
Case No. : 7282 of 1996
Date of Decision : 11/3/99
Important Points
The cost of a process that increases the intrinsic and commercial value of a product must be included in its assessable value for excise duty, regardless of whether the process constitutes "manufacture" or is performed in a separate facility.
Subject
Tax Law - Central Excise
Act Referred
CENTRAL EXCISE ACT: S.4
Headnote
(A) Central Excise - Assessable value of product - Process of galvanisation - Whether cost of galvanisation should be included in the assessable value of black pipes - Even if a process does not amount to manufacture, if it adds to the intrinsic value of the product to make up the full commercial value which is realised by charging a higher price, such cost must be included in the assessable value. (Para 2)
Facts of the case:
The appellants manufacture mild steel pipes. A portion of the production is cleared as black pipe, while the remainder is galvanised in a separate shed within the factory premises. The dispute arose regarding whether the cost of galvanisation should be added to the assessable value of the black pipes, given the appellants' contention that galvanisation is not a process of manufacture.
Findings of Court:
The cost of galvanisation adds to the intrinsic value of the product to make up the full commercial value. The fact that the process of galvanisation is carried out in a separate shed does not change the requirement that the cost of such process must form part of the assessable value of the galvanised black pipe. (Paras 2 and 3)
Issues: Whether the cost of galvanisation should be included in the assessable value of black pipes when the process of galvanisation is not considered a process of manufacture.
Ratio Decidendi: The court ruled that any process which adds to the intrinsic value of a product, thereby increasing its commercial value and the price charged for it, must be included in the assessable value, regardless of whether the process constitutes "manufacture" or the specific location within the premises where the process is performed.
Result: Appeal dismissed with costs, quantified at Rs.25,000.00.
Facts of the case:
The appellants manufacture mild steel pipes. A portion of the production is cleared as black pipe, while the remainder is galvanised in a separate shed within the factory premises. The dispute arose regarding whether the cost of galvanisation should be added to the assessable value of the black pipes, given the appellants' contention that galvanisation is not a process of manufacture.
Findings of Court:
The cost of galvanisation adds to the intrinsic value of the product to make up the full commercial value. The fact that the process of galvanisation is carried out in a separate shed does not change the requirement that the cost of such process must form part of the assessable value of the galvanised black pipe. (Paras 2 and 3)
Issues: Whether the cost of galvanisation should be included in the assessable value of black pipes when the process of galvanisation is not considered a process of manufacture.
Ratio Decidendi: The court ruled that any process which adds to the intrinsic value of a product, thereby increasing its commercial value and the price charged for it, must be included in the assessable value, regardless of whether the process constitutes "manufacture" or the specific location within the premises where the process is performed.
Result: Appeal dismissed with costs, quantified at Rs.25,000.00.
Legal Category Hierarchy
Table of Contents
2. Whether the process of galvanisation constitutes manufacture and whether its cost should be added to the assessable value of black pipes. (Para 2 )
3. Galvanisation adds intrinsic value to the product, increasing its commercial value and the price charged, regardless of whether the process constitutes manufacture. (Para 2 , 3 , 4 )
4. The cost of a process that adds intrinsic value to a product must be included in its assessable value to reflect its full commercial value. (Para 2 , 3 )
5. Appeal dismissed with costs. (Para 5 )
6. Does a process that does not amount to manufacture still affect the assessable value of a product?
Yes. Even if a process does not constitute manufacture, it may add to the intrinsic value of the product, thereby increasing its full commercial value, which must be included in the assessable value. (Para 2 , 3 )
7. Does the physical location of a process affect the calculation of the assessable value?
No. The fact that a process, such as galvanisation, is carried out in a separate shed does not change the requirement that its cost be included in the assessable value. (Para 3 )
(1) THE order under appeal was passed by the Customs, Excise and Gold (Control) Appellate Tribunal.
(2) THE appellants manufacture mild steel pipes and tubes. About 30% of the production is cleared at that stage and the product is then known as black pipe. The balance production is taken to a separate shed in the appellants factory premises and galvanised. The dispute is in relation to the galvanised black pipe. According to the appellants, what they clear is black pipe, the process of galvanisation is not a process of manufacture and no addition can be made to the assessable value of the black pipe on account of the galvanisation that subsequently occurred. The Tribunal rejected the contention. It said that the appellants themselves had, in their classification list, declared M.S. black pipes and galvanised pipes as their products. In such a situation, the mere fact that galvanisation was done subsequent to paying duty on the M.S. black pipes could not, by itself, be a ground for not including the cost of galvanisation in the assessable value of the black pipes subjected to the process of galvanisation. While that process did not amount to manufacture, it added to the intrinsic value of the product to make up the full commercial value which was realised by the appellants by charging a higher price for such pipes covering the cost of galvanisation.
(3) WE are in agreement with the view taken by the Tribunal. The mere fact that the process of galvanisation is carried on in another shed can make no difference. When the assessable value is to be calculated of the galvanised black pipe made by the appellants, the element of the cost of galvanisation must form a part thereof.
(4) OUR attention was invited to the judgments of this Court which deal with cases where duty was to be levied at an intermediate stage and again at the final stage. They have no relevance to the point at issue.
(5) THE appeal is dismissed with costs, quantified at Rs.25,000.00.
