Dugar Electronics v. Collector Of Central Excise, Calcutta ., Supreme Court Of India, Judgment, Law, casemine.com

Citation Codes

Neutral Citations

2002 INSC 488

Equivalent Citations

citation codes

Case Number

Civil Appeal No. 9918 of 1995, decided on November 21, 2002

Disposition

Advocates

Vikram Nankani, Ms Vanita Bhargava, Ms Bina Gupta and Ms Divya Roy, Advocates, for the Appellant;
A.K Ganguli, Senior Advocate (Rajiv Nanda and B. Krishna Prasad, Advocates, with him) for the Respondent.

Judges

Justice S.S.M. Quadri
Dr. Justice Arijit Pasayat

Acts

Section 4 of the Central Excises and Salt Act, 1944
Section 4 of the Act and the Rules
Section 4(1)(b) of the Act read with the Rules in the light of what is stated above

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Smart Summary

Factual and Procedural Background

The assessee manufactures tape recorders under the brand name “Philips.” Pieco (Philips) arranged for the development of moulds and other components at its own expense and supplied them free of cost to the assessee. The assessee declared a particular price for the tape recorders as the assessable value under the Central Excises and Salt Act, 1944. The Excise Authorities and the Customs, Excise and Gold (Control) Appellate Tribunal (CEGAT) rejected this declared price, holding that the free supply of moulds constituted an additional element of consideration and therefore the declared price did not reflect the “full commercial value.”

While recognising that certain deductions claimed by the assessee had not been allowed, the Tribunal nevertheless fixed the assessable value at the price at which Pieco sold the finished goods to its dealers. The Tribunal simultaneously remanded the matter to the adjudicating authority for allowing permissible deductions. Aggrieved by (i) rejection of its declared price and (ii) fixation of the assessable value at Pieco’s dealer-price, the assessee filed the present appeal.

Legal Issues Presented

Whether the assessee’s declared price could be rejected as not representing the “full commercial value” when Pieco had borne the cost of developing and supplying moulds free of charge.
Whether the Tribunal was legally justified in fixing the assessable value at the price at which Pieco sold the goods to its dealers, without determining value under Section 4 of the Central Excises and Salt Act, 1944 and the Central Excise (Valuation) Rules, 1975.

Arguments of the Parties

Appellant’s Arguments (Assessee)

The declared price was the correct assessable value; its rejection by the authorities and the Tribunal was illegal and unsustainable.
The Tribunal had no authority to adopt Pieco’s dealer-price as the assessable value because such a basis is not contemplated by Section 4 of the Act or the Rules.

Respondent’s Arguments (Department)

Because Pieco incurred the cost of developing moulds that were supplied free to the assessee, the declared price could not reflect the full commercial value, justifying its rejection.
The assessee itself admitted that Section 4(1)(a) (normal price) was inapplicable; thus valuation should proceed under Section 4(1)(b) in conjunction with the Valuation Rules.

Table of Precedents Cited

No precedents were cited in the provided opinion.

Court’s Reasoning and Analysis

Rejection of declared price: The Court upheld the Tribunal’s finding that the declared price did not represent the full commercial value because Pieco had borne the cost of mould development. The free supply of moulds constituted an element of consideration passing from Pieco to the assessee, thereby inflating the true value beyond the declared figure.

Fixation of value at Pieco’s dealer-price: The Court accepted the appellant’s objection to the Tribunal’s method of valuation. It noted that no provision in Section 4 or the Rules permits the automatic adoption of a buyer-to-dealer price as the assessable value. Since Section 4(1)(a) was admittedly inapplicable, valuation had to be carried out under Section 4(1)(b) read with the Central Excise (Valuation) Rules, 1975. The Tribunal had not undertaken this statutory exercise; therefore, its fixation of value lacked legal foundation.

Given that the matter had already been remanded for allowing permissible deductions and that the Tribunal’s valuation methodology was legally flawed, the Court found it appropriate to set aside that part of the order and direct the proper authority to re-determine the assessable value in accordance with law.

Holding and Implications

ORDER PARTIALLY SET ASIDE AND APPEAL DISPOSED OF

The Court set aside the Tribunal’s determination of the assessable value and directed the Collector, Central Excise, to re-determine the value under Section 4(1)(b) of the Act read with the Valuation Rules, after considering permissible deductions as already ordered by the Tribunal. No costs were awarded.

Implications are confined to the parties: the assessee gains another opportunity to have its assessable value determined under the proper statutory framework, while the Excise Department must undertake a fresh valuation exercise. The order clarifies that a buyer-to-dealer price cannot be substituted for the statutory valuation mechanism, but it establishes no broader precedent beyond that clarification.

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Dugar Electronics v. Collector Of Central Excise, Calcutta .

Order

1. The assessee is in appeal against the order of the Customs, Excise and Gold (Control) Appellate Tribunal, No. 38 of 1994-A, dated 31-1-1994.

2. The assessee is the manufacturer of tape recorders in the brand name of “Philips”. Moulds and some other parts of the tape recorders were got prepared by Pieco (Philips) at its costs from third parties and supplied free of cost to the assessee. The assessee declared the price of tape recorders which was not accepted as correct assessable value of goods by the Excise Authorities as well as the Tribunal. The Tribunal found that the price declared by the assessee was not full commercial value because the moulds etc. which were got produced by Pieco and were supplied free to the assessee resulted in an element of consideration passing from Pieco to the assessee. The Tribunal noticed that the assessee was entitled to certain deductions which were not allowed to it, and, for that purpose, it remanded the case to the adjudicating authority. Having so done, the Tribunal fixed the price of the goods at the rate at which Pieco (Philips) sold it to its dealers. Aggrieved by these two findings of the Tribunal, the assessee has come up in appeal to this Court.

3. Mr Vikram Nankani, the learned counsel appearing for the appellant contends that the rejection of the price declared by the appellant is illegal and unsustainable. We are afraid we cannot accept the contention of the learned counsel for the simple reason that it is not disputed that for the development of moulds, Pieco played a dominant role. The assessee did not invest for the development of the moulds. The cost was incurred by Pieco. The assessee got them free from Pieco. These facts do support the finding of the Tribunal that the transaction does not represent “full commercial value”.

4. Learned counsel further contends that fixation of assessable value by the Tribunal at the rate at which Pieco sold the goods to its dealers, is not justified. Having heard Mr Ganguli, learned Senior Counsel for the respondent, we are of the view that the complaint made by the appellant is justified. No provision is brought to our notice under which the price charged by the buyer to its dealer can be taken, ipso facto, as assessable value under Section 4 of the Central Excises and Salt Act, 1944 and/or the Rules made thereunder. The assessable value has to be fixed under Section 4 of the Act and the Rules, which may be more or less or the same as fixed by the Tribunal. Section 4, insofar as it is relevant for the purposes, reads as follows:

“4. Valuation of excisable goods for purposes of charging of duty of excise.—(1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value shall, subject to the other provisions of this section, be deemed to be—

(a) the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale:

Provided that—

(i) where, in accordance with the normal practice of the wholesale trade in such goods, such goods are sold by the assessee at different prices to different classes of buyers (not being related persons) each such price shall, subject to the existence of the other circumstances specified in clause (a), be deemed to be the normal price of such goods in relation to each such class of buyers;

(ii) where such goods are sold by the assessee in the course of wholesale trade for delivery at the time and place of removal at a price fixed under any law for the time being in force or at a price, being the maximum, fixed under any such law, then, notwithstanding anything contained in clause (iii) of this proviso, the price or the maximum price, as the case may be, so fixed, shall, in relation to the goods so sold, be deemed to be the normal price thereof;

(iii) where the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or through a related person, the normal price of the goods sold by the assessee to or through such related person shall be deemed to be the price at which they are ordinarily sold by the related person in the course of wholesale trade at the time of removal, to dealers (not being related persons) or where such goods are not sold to such dealers, to dealers (being related persons) who sell such goods in retail;

(b) where the normal price of such goods is not ascertainable for the reason that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof determined in such manner as may be prescribed.

(2)-(4)***”

5. In view of the submission of the learned counsel for the respondent that the appellant itself has stated that clause (a) of sub-section (1) of Section 4 does not apply, the only provision under which the price can be fixed is clause (b) of sub-section (1) of Section 4 of the Act. That could be done in accordance with the Central Excise (Valuation) Rules, 1975. From a perusal of the order under challenge, it does not appear that the Tribunal proceeded to fix the price under any of the Rules. In the circumstances, we are of the view that the price of goods fixed by the Tribunal cannot be sustained. As the case was remanded taking note of the complaint that permissible deductions were not allowed to the assessee and the determination of the price by the Tribunal is found by us to be without any legal basis, we leave it to the Assessing Authority to determine the price in accordance with the aforementioned provisions of law.

6. We, therefore, set aside the order under challenge insofar as it relates to fixation of the price for the purposes of assessable value. The Collector, Central Excise, shall now determine the assessable value duly considering the question of permissible deduction as per the direction of the Tribunal and in accordance with the law, namely, under Section 4(1)(b) of the Act read with the Rules in the light of what is stated above.

7. The appeal is accordingly disposed of.

8. There shall be no order as to costs.

Dugar Electronics v. Collector Of Central Excise, Calcutta .

Factual and Procedural Background

Legal Issues Presented

Arguments of the Parties

Appellant’s Arguments (Assessee)

Respondent’s Arguments (Department)

Table of Precedents Cited

Court’s Reasoning and Analysis

Holding and Implications

Dugar Electronics v. Collector Of Central Excise, Calcutta .

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