1991 (7) TMI 102 - SC - Central Excise

Excise Duty Based on Manufacturing Cost, Including Free Items: Supreme Court Decision

BURN STANDARD CO. LTD. Versus UNION OF INDIA

The Supreme Court affirmed the Division Bench's decision that excise duty should be charged on the value of complete wagons, including the cost of free ... Whether the excise duty under Sections 3 and 4 of the Central Excises and Salt Act, 1944 is to be charged on the invoice-value of the wagon or on the value of completed wagon including that of the 'free supply items'? Held that:- It is not disputed that the appellants are manufacturers of wagons. What comes down from the assembly-line of the appellant's factory is a complete wagon and as such the appellant being manufacturer of wagons, is liable to pay duty of excise on the value of a complete wagon. The 'free supply items' like wheel-sets, etc., in the process of manufacturing become part of the complete wagon and lose their identify. It hardly matters how and in what manner the components of the wagon are procured by the manufacturer, so long as the appellant is manufacturing and producing the goods called 'wagons' it is liable to pay duty of excise on the normal value of the wagon. The contention of the learned counsel for the appellant cannot be accepted that the value of the 'free supply items' should not be included in the assessable value of the wagons manufactured by the appellant. No infirmity in the reasoning and the findings reached by the Division Bench of the High Court. Appeal dismissed Issues:Determining excise duty on the value of completed wagons including 'free supply items.'Analysis:The case involves the question of whether excise duty should be charged on the invoice value of wagons or on the value of completed wagons, including the 'free supply items.' The appellant, a wagon manufacturer, argued that excise duty should only be charged on the invoice value under the contract, excluding the value of the 'free supply items.' The High Court's Single Judge initially ruled in favor of the appellant, stating that the excise duty should be based on the invoice value, not including the cost of components supplied free of cost. However, the Division Bench of the High Court disagreed, holding that the cost of the 'free supply items' should be included in the manufacturing cost of wagons for excise duty calculation.The Division Bench emphasized that the valuation of excisable goods should include the cost of construction, and the cost of a complete wagon should encompass the value of the 'free supply items.' Referring to Section 4(1)(a) of the Central Excises and Salt Act, the Bench concluded that the manufacturing cost of a complete wagon must consider the cost of the 'free supply items.' The Bench highlighted that the duty liability arises when the manufacturing process is complete, which includes fitting the free supply items in the wagons. Therefore, the Division Bench upheld the central excise authorities' decision to include the cost of free supply items in the valuation of wagons for excise duty purposes.The Supreme Court, in line with previous judgments, reiterated that excise duty is levied on the production or manufacture of goods, regardless of ownership. The Court rejected the appellant's argument that the value of the free supply items should not be included in the assessable value of the wagons. The Court upheld the Division Bench's decision, dismissing the appeal and affirming that the excise duty should be charged on the value of the complete wagons, including the cost of the free supply items.