Per Shri V.P. Gulati :

The issue in the appeal relates to the demand of duty in respect of Silver Oxide Zinc Batteries supplied by the appellants to the Defence. The appellants also supplied as per the facts on record, similar batteries to M/s. HAL, a Government of India Undertaking, but at a higher price. The price charged from the Defence was Rs. 33,393/- as against Rs. 53,993/- from M/s. HAL. The prices charged were in terms of the contract which were entered into by the appellants with the respective buyers. In case of supplies to the Defence, there was a stipulation that the appellants would be supplied life expired batteries and they were to retrieve silver contained in these batteries and after refining, use the same for the manufacture of the batteries and they were to give a rebate to the Defence in the price to be charged per battery. The appellants while invoicing the goods to the Defence, took the value of the silver used in those batteries as was recovered from the life expired batteries at the rate of Rs. 2,500/- per kg as against Rs. 6,666/- which was adopted for the batteries which were supplied to M/s. HAL. The reason given was that the Defence were allowed to purchase the silver from the Government of India Mint at the rate of Rs. 2,500/- per kg and for that reason, in terms of the contract, the stipulation was that the price of the silver to be adopted for arriving at the price to be charged was to be Rs. 2,500/- per kg. It was on account of this difference in the price charged from Defence and HAL as was later found out by the authorities from the contracts, that the demand was raised.

2. The learned Advocate for the appellant pleaded that in terms of Section 4, it is the transaction value which is to be taken into reckoning and notwithstanding the fact that different prices were charged for the very same goods from M/s. HAL, the price as was paid by the Defence should form the basis of the assessable value. He has pleaded that the sale was at arms length and all the parameters of Section 4 (1) (a) were satisfied and, therefore, the duty based on the price charged to the Defence was the correct duty paid. He pleaded that at the time when Section 4 was introduced, as per the object and reasons, it was stated that 'in order to overcome the various defects experienced in the working of the Section, it is proposed to suitably revise the valuation provision contained in Section 4 of the Act, providing, as far as practicable, for assessment of the excisable goods at the transaction value, except in areas where there may be scope for manipulation (such as sales to or through related persons) and making specific stipulation with respect to situations frequently encountered in the sphere of valuation'. He has pleaded, in this background there was no warrant to demand the duty from the appellant. He has pleaded there was no additional consideration for sale of the batteries to the Defence. He, in this connection, referred to the Government of India order reported in 1982 ELT 653 wherein, it had been set out that notional value was not acceptable when actual value was available. He also cited the decision reported in 1989 (43) ELT 165 to highlight that the sale transaction was completed by the recovery of the amount as stipulated in the contract. He has pleaded that Section 4 does not provide for computation of the cost when the actual price was available and which has to be considered as a relevant consideration.

3. For the purpose of adopting the price of silver at the rate of Rs. 2,500/- per kg, he referred us to the decision of the Hon'ble Supreme Court reported in 1989 (1) SCC 335, whereunder, in para 11, the following is set out :

11. Therefore, from the above decisions it follows that in order to be sale taxable to duty, not only the property in the goods should pass from the contractor to the government, or the appellant in this case but there should be an independent contract - separate and distinct - apart