Important Point
The concepts of ‘manufacture’ and ‘valuation’ are two different and distinct concepts and value is the function of price under section 4(1)(a) of the Central Excise Act.

Headnote:Central Excise & Salt Act, 1944—Sections 4(11)(a) & 4(4)(d)(i)—Scope—Valuation of Assessable value—Manufacture of detergent powder, Arial Micro System—Cost of repacking of detergent powder into 20 gms. and 30 gms sachets—Whether includible in assessable value of ‘ariel micro-system’ cleared by assessee in bulk packs of 25 kgs at its factory gate—Taxable event took place when detergent powder was manufactured by appellants—Tribunal has not decided the question whether activity of repacking amounted to manufacture at the relevant time and whether the Commissioner was justified in computing the assessable value of bulk packs based on retail price of 20 gms and 30 gms sachets sold through depots of appellants—Tribunal also has not considered the argument of appellants that they were not guilty of suppression—Matter remitted to the tribunal for its fresh decision in the light of provisions of Section 4(4)(d)(i) of the Act.
       Held : This case relates to valuation. At the outset, we would like to clarify certain concepts under the Excise Law. The levy of excise duty is on the “manufacture” of goods. The excisable event is the manufacture. The levy is on the manufacture. The measure or the yardstick for computing the levy is the “normal price” under section 4(1)(a) of the Act. The concept of “excisability” is different from the concept of “valuation”. In the present case, as stated above, we are concerned with valuation and not with excisability. In the present case, there is no dispute that AMS came under sub-heading 3402.90 of the Tariff. There is no dispute in the present case that AMS was dutiable under section 3 of the Act. (Para 9)
       The concepts of “manufacture” and “valuation” are two different and distinct concepts. In the present case, we are concerned with valuation. Value is the function of price under section 4(1)(a) of the said Act. In the present case, the taxable event took place when detergent powder was manufactured by the appellants. The said powder was packed into bulk packs of 25 kgs. They were cleared from the factory of the appellants at Mandideep, Bhopal on payment of excise duty. The appellants followed self-removal procedure. These bulk packs were sent to IED, Kanpur. The appellants contended that IED, Kanpur was their job-worker. The commissioner found on facts that IED, Kanpur was the extended arm of the appellants. The commissioner found price manipulation. According to the commissioner, the appellants had removed AMS in bulk packs from its factory gate at Mandideep, Bhopal with the sole intention of getting AMS packed in the sachets of 20 gms. and 30 gms. by IED, Kanpur from where the sachets were taken to the depots of the appellants and cleared at the price list indicated in the show-cause notice. According to the commissioner, the appellants had suppressed the true price of AMS in the condition in which it was removed after packing in 20 gms. and 30 gms. sachets. Therefore, the commissioner took the price of the sachets at the depots of the appellants as the basis for computing the assessable value of AMS cleared by the appellants in 25 kgs. bulk packs at Mandideep, Bhopal. Unfortunately, when the matter came before the tribunal in the appeal preferred by the assessees, the tribunal has not adverted to the valuation of the bulk packs cleared by the appellants at Mandideep, Bhopal. Before the tribunal, the appellants contended that the department had cleared the bulk packs on payment of duty by the appellants. According to the appellants, the activity of “repacking” did not amount to “manufacture” at the relevant time and if the said activity did not amount to manufacture, the department was not entitled to compute the assessable value of the bulk packs based on the retail price of 20 gms. and 30 gms. sachets. (Paras 11 & 12)
       The key question which was required to be decided by the tribunal in the present case was concerning determination of the “assessable value” of 25 kgs. bulk packs of AMS from the appellants’ factory at Mandideep, Bhopal. If the activity of repacking did not amount to manufacture at the relevant time, was the commissioner justified in computing the assessable value of the bulk packs based on the retail price of 20 gms. and 30 gms. sachets sold through the depots of the appellants? This question has not been decided by the tribunal. Similarly, in the context of suppression and in the context of invocation of the extended period of limitation, the tribunal has not considered the argument of the appellants that they were not guilty of suppression as the law was amended vide Finance Bill, 1994, when the activity of “repacking” was treated as “manufacture” for the first time. In our view, these questions were required to be decided by the tribunal in the present case, particularly, in the light of the provisions of section 4(4)(d)(i) of the said Act. They have not been decided by the tribunal. (Para 13)

JUDGMENT

Kapadia, J.—This is a statutory appeal under section 35-L (b) of the Central Excise Act, 1944 (hereinafter referred to as “the said Act” against the judgment and order dated 19.6.2000 passed by the Customs, Excise & Gold (Control) Appellate Tribunal, New Delhi (“tribunal” for short).

2. A short question which arises for determination in this civil appeal is - whether, on the facts and circumstances of this case, cost of repacking of detergent powder into 20 gms. and 30 gms. sachets, which did not amount to manufacture at the relevant time, was includible in the assessable value of “ariel micro-system” (AMS) cleared by Procter & Gamble (“assessees” for short”) in bulk packs of 25 kgs. at its factory gate at Mandideep, Bhopal.

3. Assessees - appellants are engaged in the manufacture of detergent powder (AMS) falling under chapter 34 of the schedule to the Central Excise Tariff Act, 1985 (for short “the 1985 Act”) at their factory at Mandideep, Bhopal within the jurisdiction of the Commissioner of Central Excise, Indore. On 8/10.6.1994, a show-cause notice was issued by the collector in which it was alleged that during the period December, 1992 to December, 1993, the appellants had removed AMS in bulk packs of 25 kgs. for further repacking in 20 gms. and 30 gms. sachets by M/s Industrial Enterprises (Detergent), Kanpur (“IED” for short); that, the said IED was an extended arm of appellants; that, the appellants had cleared 25 kgs. bulk packs of AMS on pricing, based on the cost method, and thereby did not play the appropriate amount of duty on AMS in the condition in which it emerged after repacking by IED, Kanpur; that, the appellants did not pay duty on the prices of the sachets; that the appellants had failed to disclose to the department the particulars of the agreement with IED for the repacking of the detergent powder (AMS); that, the appellants had removed the AMS in 25 kgs. packs with the sole intention of getting it packed in 20 gms. and 30 gms. sachets by IED Kanpur; that, the entire modus operandi on the part of the appellants was to deliberately declare only the cost of 25 kgs. bulk packs for payment of excise duty; and, consequently, there was suppression of the true price of AMS in the condition in which it was removed after packing in the sachets of the above dimensions. In the show-cause notice, it was further alleged that the appellants had wilfully suppressed the facts; that the 20 gms. sachets in blue and green colours were sold through the depots of the appellants at a price of Rs. 2.50 and Rs. 2.00 per piece. That the said sachets were supplied by IED to the appellants, who in turn sold the same through their depots. Consequently, the department issued the above show-cause notice as to why differential duty of Rs. 1,10,40,613/- should not be levied on the appellants. By the said show-cause notice, the department invoked the extended period of limitation in terms of the proviso to section 11 A(1) of the said Act.

4. In its reply to the show-cause notice, the appellants denied that the IED, Kanpur was the extended arm of the appellants. According to the appellants, effective from January 1993, they had started clearing AMS in 25 kgs. bulk packs, on payment of duty to IED, Kanpur for repacking into 20 gms. and 30 gms. sachets; that, the repacking in sachets was undertaken by IED on job work basis; that, such repacking was not a manufacturing activity under the said Act and consequently, no duty was payable by IED on the repacking of AMS 25 kgs. packs into 20 gms. and 30 gms. sachets till 1.3.1994, when chapter note 6 was introduced in chapter 34 making such repacking activity a “manufacture” in terms of section 2(f) of the said Act. After 1.3.1994, IED had applied and obtained registration under the Act. They are since then paying duty on 20 gms. and 30 gms. sachets repacked by them. In their reply, the appellants further pointed out that prior to the period in question, IED used to manufacture AMS; and th

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2005 Supreme(SC) 1536

Important PointThe concepts of ‘manufacture’ and ‘valuation’ are two different and distinct concepts and value is the function of price under section 4(1)(a) of the Central Excise Act.

Cases Referred (2)

Important Point
The concepts of ‘manufacture’ and ‘valuation’ are two different and distinct concepts and value is the function of price under section 4(1)(a) of the Central Excise Act.