1. Fabrication of wagon bodies on customer-supplied wheel sets — Dispute over whether assessable value for excise duty includes free components — Claim for exemption under Notification 120/75. (Para 2 )
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1991 Supreme(SC) 355
SUPREME COURT OF INDIA
M.N.Venkatachaliah : S.C.Agrawal
Texmaco Limited
Versus
Collector Of Central Excise, Calcutta
Case No. : 5969 , 5970 of 1990
Date of Decision : 7/31/91
Assessable value for excise duty includes components supplied free by the customer. However, under Exemption Notification No. 120/75 CE, duty is exempt on the portion of assessable value exceeding the invoice price, and the invoice price need not include the value of such free components.
Headnote:(A) Central Excises and Salt Act, 1944 - Central Excise Rules, 1944 - Rule 8 - Exemption Notification No. 120/75 CE - Assessable value for excise duty - For the purpose of levy of excise duty, the value of the article is the full intrinsic value of the article inclusive of the cost of the materials and components supplied free by the customer, irrespective of the fact that no expenditure was incurred by the manufacturer on such components. (Para 4)
(B) Exemption Notification No. 120/75 CE - Interpretation of "invoice price" and Condition (iv) - The notification seeks to exempt the manufacturer from payment of duty in excess of the duty calculated on the basis of the invoice price to mitigate hardship where the assessable value is higher than the invoice value - Condition (iv), which requires that the invoice price not be influenced by commercial or financial relationships, implies a requirement for an arms-length transaction and does not mandate the inclusion of the value of free components in the invoice price - A construction that requires the invoice price to be identical to the assessable value would render the exemption meaningless. (Para 8)
Facts of the case:
A manufacturer fabricated wagon bodies and mounted them on wheel sets supplied free of cost by the customer. Invoices were raised only for the price of the wagon bodies, excluding the value of the wheel sets. The revenue sought to recover unpaid duty on the value of the wheel sets. The manufacturer claimed exemption under Notification No. 120/75 CE, which exempts duty in excess of that calculated on the invoice price.
Findings of Court:
The manufacturer is entitled to the exemption under Notification No. 120/75 CE. The invoice price is not required to include the value of components supplied free of charge by the customer.
Issues: Whether the assessable value for excise duty includes components supplied free by the customer, and whether the exemption under Notification No. 120/75 CE is available when the invoice price excludes such free components.
Ratio Decidendi: While the assessable value includes the full intrinsic value of the goods (including free components), the purpose of the exemption notification is to relieve the manufacturer from paying duty on the difference between the assessable value and the invoice price. Condition (iv) of the notification ensures the transaction is at arms length and does not require the invoice to include the value of free components.
Result: Appeals allowed.
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2. Whether assessable value includes free components and whether Notification 120/75 exempts duty exceeding invoice price despite components being supplied free of cost. (Para 3 , 6 , 7 )
3. Assessable value includes free components, but Notification 120/75 mitigates hardship by exempting duty exceeding invoice price without requiring the invoice to include free components. (Para 4 , 8 )
4. Exemption under Notification 120/75 applies when assessable value exceeds invoice price; Condition (iv) requires an arm's length transaction, not inclusion of free components. (Para 8 )
5. Appeals allowed — Order set aside — Appellant entitled to exemption under Notification 120/75 for duty exceeding invoice price. (Para 10 )
6. Does the assessable value for excise duty include components supplied free of cost by the customer?
Yes. For the purpose of levy of excise duty, the value of the article is its full intrinsic value, including the cost of materials and components supplied free by the customer, regardless of whether the manufacturer incurred expenditure on them. (Para 4 )
7. What is the purpose of Exemption Notification No. 120/75 CE?
The notification aims to mitigate hardship for manufacturers by exempting the portion of excise duty that exceeds the duty calculated on the basis of the invoice price, acknowledging that assessable value may be higher than invoice value. (Para 8 )
8. Does Condition (iv) of Notification 120/75 CE require the invoice price to include the value of free components?
No. Condition (iv) requires that the invoice price not be influenced by commercial or financial relationships other than the sale, ensuring an arm's length transaction; it does not mandate the inclusion of the value of components supplied free by the customer. (Para 8 )
(1) THESE appeals arise out of and are directed against the common appellate order dated 21/08/1990 of the Customs, Excise and Gold (Control) Appellate tribunal, New Delhi (Tribunal for short) in Appeals Nos. ED/SB/T/945/80A and ED/SB/T/586/81A. By the same order another appeal of the appellant was also disposed of but that mat- ter is not carried up in appeal here.
(2) THE appellant, M/s Texmaco Ltd., pursuant to contracts entered into in this behalf with the Railway Administration fabricated and delivered to the railways wagon bodies mounted on "wheel sets" sup- plied by the railways. The invoices raised by the appellant respecting these wagons reflected only the price of the wagon bodies without including the value of the "wheel sets" on which the wagon bodies were mounted. The goods were cleared for purposes of excise duties on such invoice value. The Revenue raised demand for recovery of short-levy and sought to recover the unpaid duty on the value of the "wheel sets" also. This claim for recovery of the short-levy having been adjudicated against the appellant, an appeal was taken before the tribunal.
(3) BEFORE the tribunal, it would appear, two contentions were raised: First that the goods manufactured by the appellant were only the wagon bodies mounted on the "wheel sets" supplied by the Railway Administration and that, therefore, the assessable value could only be the value of the wagon bodies excluding the "wheel sets" supplied by the railways and, secondly, that at all events the value in excess of the invoice value which represented the price of the wagon bodies was exempt from levy of duty under the Exemption Notification No. 120/75 CE dated 30/04/1975 issued under Rule 8 of the central Excise Rules, 1944. What is implicit in the second contention is that, but for the said Notification No. 120/75-CE dated 30/04/1975, the assessable value would otherwise require the exclusion in it of the value of the "wheel sets" also on the premise that the "wheel sets" became an integral part of the wagons, even though the "wheel sets" had been sup- plied free of cost by the railways themselves. The Notification No. 120/75-CE exempted "so much of the duty of excise ... as is in excess of the duty calculated on the basis of invoice prices".
(4) ON the first contention: that the assessable value of the goods could not include the "wheel sets" which were not fabricated or manufactured by the appellant, the tribunal, rejecting the contention said:
"ON going through the facts and in view of the clear findings given by the lower authorities that no wagon is complete without the wheels; what has been cleared and removed by the appellants is the wagon mounted on wheel sets and not the wagon body alone .... On the issue of determination of assessable value, the Supreme Court has held that for the purpose of levy of excise duty, the value of the article is the full intrinsic value of the article inclusive of the cost of the materials and components supplied free by the customer and irrespective of the fact that no expenditure was incurred by the manufacturer on such components."
No fault can be found with this reasoning of the tribunal, indeed, consid- erations of ownership of the goods are extraneous to levy of duties of excise which are imposts on manufacture.
(5) THE second contention on which Dr Pal laid particular emphasis, indeed, assumes the correctness of the first proposition and claims exemption on the strength of the Notification No. 120/75-CE. That notification says:
"THE central government has exempted goods falling under Item 68 of the First Schedule to the central Excises and Salt Act, 1944 (I of 1944, cleared from the factory of manufacture, on sale, from so much of the duty of excise leviable thereon as is in excess of the duty calculated on the basis of the invoice price (excluding duty and local taxes, if any, included in such price) charged by the manufacturer for the sale of such g
