2012 (8) TMI 791 - SC - Central Excise

Sales Below Cost for Market Penetration Not 'Ordinarily Sold' Under Section 4(1)(a); Valuation Follows Section 4(1)(b) Rules

COMMISSIONER OF CENTRAL EXCISE, MUMBAI Versus M/s FIAT INDIA PVT LTD & ANR

The SC held that where goods are sold below cost and manufacturing profit over a continuous period to penetrate the market, such sales cannot be regarded ... Valuation - wholesale price declared by the assessees is much less than the cost of production - interpretation of Section 4(1)(a) and Section 4(1)(b) of the Central Excise Act, 1944 - what will be the 'normal price' for the purpose of excise duty in terms of Section 4(1)(a) of the Act ? - Whether the sale of Cars by assessees at a price, lower than the cost of manufacture in order to compete and penetrate the market, can be regarded as the 'extra commercial consideration' for the sale to their buyers which could be considered as one of the vitiating factors to doubt the normal price of the wholesale trade of the assessees. Held that:- To attract Section 4(1)(a) what is required is to determine the 'normal price' of an excisable article which price will be the price at which it is ordinarily sold to a buyer in the course of wholesale trade and in the context of Section 4(1)(a) the word 'ordinarily' does not mean majority of the sales but that price should not be exceptional and by no stretch of imagination, can include extra-ordinary or unusual. In the instant cases as the assessees sell their cars in the market continuously for a period of five years at a loss price and claims that it had to do only to compete with the other manufacturers of cars and also to penetrate the market and if such sales are taken as sales made in the ordinary course, it would be anathema for the expression 'ordinarily sold'. Thus since the price charged for the sale of cars is exceptional,it cannot be accepted to give a meaning which fit into the meaning of the expression 'ordinarily sold'. In other words, in the transaction under consideration, the goods are sold below the manufacturing cost and manufacturing profit. Therefore, such sales may be disregarded as not being done in the ordinary course of sale or trade. Thus as the assessees are not fulfilling the conditions enumerated in Section 4(1)(a) of the Act and therefore, the valuation has to be done in accordance with Section 4(1)(b). Under Section 4(1)(b) of the Act, 1944, any goods which do not fall within the ambit of Section 4(1)(a) i.e. if the 'normal price' cannot be ascertained because the goods are not sold or for any other reason, the 'normal price' would have to be determined in the prescribed manner i.e. prior to 1st day of July, 2000, in accordance with Rules, 1975 and after 1st day of July 2000, in accordance with Rules, 2000. In our considered view, either the decision of Guru Nanak's case [2003 (3) TMI 100 - SUPREME COURT] or the decision in Bisleri's case [2005 (7) TMI 102 - SUPREME COURT] would assist the assessee in any manner whatsoever. We say so for the reason, that, in Guru Nanak's case, the department had accepted the price declared by the assessee and the narration of the facts both by the Tribunal and this Court would reveal that it was one time transaction and lastly, this Court itself has specifically observed that the view that they have taken, is primarily based on the facts and circumstances of the case. In the instant cases, the department never accepted the declared value. It is for this reason, provisional assessments were completed instead of accepting declared price by the assessee under Rule 9B of the Rules inter alia holding that during the enquiry, the assessees had admitted that they did not have any basis to arrive at the assessable value but they are selling their goods at 'loss price' only to penetrate the market. Secondly, as we have already noticed that for nearly five years the assessee was selling its cars in the wholesale trade for a 'loss price' and therefore, the conditions envisaged under Section 4(1)(a) of the Act, namely; the normal price, ordinarily sold and sole consideration are not satisfied. We further hold that the decision in Bisleri's case (supra) will also not assist the assessees for the reason that the issue that came up for consideration is entirely different from the legal issue raised in these civil appeals. Before we conclude on this issue, we intend to refer to the often quoted truism of Lord Halsbury that a case is only an authority for what it actually decides and not for what may seem to follow logically from it. We may also note the view expressed by this Court in the case of Sushil Suri vs. Central Bureau of Investigation & Anr. [2011 (5) TMI 908 - SUPREME COURT], wherein this Court has observed, 'Each case depends on its own facts and a close similarity between one case and another is not enough because either a single significant detail may alter the entire aspect. In deciding such cases, one should avoid the temptation to decide cases (as said by Cardozo) by matching the colour of one case against the colour of another. To decide, therefore, on which side of the line a case falls, the broad resemblance to another case is not at all decisive.' We do not intend to overload this judgment by referring to other decisions on this well settled legal principle. A bare reading of the rules does not give any indication that the adjudging authority while computing the assessable value of the excisable goods, he had to follow the rules sequentially. The rules only provides for arriving at the assessable value under different contingencies. Again, Rule 7 of the Valuation Rules which provides for the best judgment assessment gives an indication that the assessing authority while quantifying the assessable value under the said Rules, may take the assistance of the methods provided under Rules 4, 5 or 6 of the Valuation Rules. Therefore, contention of the Assessee that the assessing authority before invoking Rule 7 of the 1975 Valuation Rules, ought to have invoked Rules 4, 5 and 6 of the said Rules cannot be accepted - thus since the assessing authority could not do the valuation with the help of the other rules, has resorted to best judgment method and while doing so, has taken the assistance of the report of the 'Cost Accountant' who was asked to conduct special audit to ascertain the correct price that requires to be adopted during the relevant period. Therefore, exception of the assessable value cannot be taken of the excisable goods quantified by the assessing authority - against assessee. Issues Involved:1. Whether the price declared by assessees for their cars, which is admittedly below the cost of manufacture, can be regarded as 'normal price' for the purpose of excise duty in terms of Section 4(1)(a) of the Act.2. Whether the sale of cars by assessees at a price lower than the cost of manufacture in order to compete and penetrate the market can be regarded as 'extra commercial consideration' for the sale to their buyers, which could be considered as one of the vitiating factors to doubt the normal price of the wholesale trade of the assessees.Detailed Analysis:1. Normal Price Below Cost of Manufacture:The judgment revolves around the interpretation of Section 4(1)(a) and Section 4(1)(b) of the Central Excise Act, 1944, read with relevant rules. The Supreme Court noted that the taxable event for excise duty is the manufacture of goods, and duty is payable whether or not goods are sold. The fundamental criterion for computing the value of an excisable article is the normal price at which the excisable article is sold by the manufacturer, where the buyer is not a related person and the price is the sole consideration.The Court emphasized that 'normal price' is not defined under the Act but generally means the price at which goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade. The Court referenced multiple precedents to establish that the 'normal price' must reflect a transaction at arm's length and should not be influenced by extra-commercial considerations. The Court concluded that the 'loss making price' continuously for a period of more than five years to penetrate the market cannot be considered the normal price under Section 4(1)(a) of the Act.2. Extra Commercial Consideration:The Court examined whether selling cars at a price lower than the cost of manufacture to penetrate the market constitutes 'extra commercial consideration.' The Court noted that consideration means something of value moving from the plaintiff, either as a benefit to the plaintiff or a detriment to the defendant. The Court held that the intention to penetrate the market constitutes extra-commercial consideration and not the sole consideration. Therefore, the price at which the assessees sold their cars cannot be accepted as the normal price for the sale of cars.Application of Valuation Rules:The Court addressed the application of the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 1975. It noted that under Section 4(1)(b) of the Act, if the 'normal price' cannot be ascertained, the value must be determined in the prescribed manner. The Court rejected the contention that the Valuation Rules must be applied sequentially and upheld the assessing authority's resort to the best judgment method under Rule 7, which involved taking assistance from the report of the Cost Accountant.Conclusion:The Supreme Court allowed the appeals, set aside the impugned order of the Tribunal, and restored the order passed by the adjudicating authority. The Court held that the price declared by the assessees, which was below the cost of manufacture, could not be regarded as the normal price for excise duty purposes under Section 4(1)(a) of the Act, and the sale at a loss to penetrate the market constituted extra-commercial consideration.