1996 (5) TMI 85 - SC - Central Excise

Manufacturer's Exemption Limit Dispute: Wholesale Price vs. Excise Duty

The appeal was allowed, setting aside the judgment of the Punjab and Haryana High Court. The court held that the manufacturer could not claim exemption if ... Rule of valuation under Section 4 - Value deemed to be the normal wholesale price - Exclusion of amount of duty of excise from value - Deduction of duty only when duty is actually payable - Effective duty of excise payable (Explanation to Section 4(4)(d)(ii)) - Exemption notification reducing ad valorem duty to nilRule of valuation under Section 4 - Value deemed to be the normal wholesale price - Exclusion of amount of duty of excise from value - Effective duty of excise payable (Explanation to Section 4(4)(d)(ii)) - Deduction of duty only when duty is actually payable - Whether a manufacturer can claim excise exemption by deducting an alleged duty element from a wholesale price that exceeds the notification limit when no excise duty is in fact payable - HELD THAT: - The Court held that for valuation under the Act the 'value' of excisable goods is to be deemed the normal wholesale price charged by the manufacturer at the time and place of removal, and that the statutory rule of valuation in Section 4 treats the normal wholesale (cum-duty) price as the starting point. Sub-clause (ii) of clause (d) of Section 4(4) permits exclusion of 'the amount of duty of excise... if any payable' only where such duty is actually payable; the phrase 'if any' contemplates the real existence of a duty burden. The Explanation inserted by Act 14 of 1982 further clarifies that the amount of duty payable means the effective duty after giving full effect to any exemption or relief provided by notification or order. Consequently, where an exemption notification reduces the ad valorem duty to nil for goods up to the notified value, no excise duty is payable on those values and nothing can be deducted from the wholesale price as duty. A manufacturer cannot, with knowledge that no duty is payable at the ex duty value, inflate the wholesale price above the exemption threshold by including a fictitious or non payable 'duty' element and then claim deduction of that element; such inclusion is merely an additional profit element in disguise and does not attract Section 4(4)(d)(ii). Applying these principles, prices shown as exceeding the exemption limit but not demonstrably inclusive of an actually payable duty cannot be reduced by deducting a non existent duty to bring them within the exemption. [Paras 8, 10, 15, 16, 20]The manufacturer's contention was rejected: deduction of an excise element from the wholesale price is permissible only where duty is actually payable (computed after giving full effect to any exemption); accordingly the assessee cannot claim the exemption by deducting a non payable duty element.Final Conclusion: The appeal is allowed; the judgment of the High Court is set aside and the manufacturer's contention to deduct a non payable duty element to secure notification exemption is rejected. There will be no order as to costs. Issues Involved:1. Whether the benefit of exemption given to footwear can be claimed by the manufacturer if the wholesale price exceeds the exemption limit specified in the notification.Issue-wise Detailed Analysis:1. Exemption Eligibility Based on Assessable Value:The primary issue in this appeal is whether the benefit of exemption for footwear can be claimed by the manufacturer when the wholesale price exceeds the specified exemption limit. The court emphasized that if the assessable value calculated according to Section 4 of the Central Excises and Salt Act falls within or below the limit set by the notification, the assessee is entitled to the exemption.2. Notification and Exemption Limit:The notification under Rule 8 of the Central Excise Rules, 1944, originally exempted footwear valued at Rs. 5/- per pair from excise duty. This limit was increased over time, and at the material time, the exemption was for footwear valued up to Rs. 60/- per pair.3. Contention on Deduction of Excise Duty:The respondent argued that if excise duty was payable, it should be deducted from the wholesale price to determine the assessable value. This would ensure that shoes qualifying for exemption due to lower value would not be unfairly taxed. The respondent illustrated this with a chart showing how deducting a 10% duty from prices slightly above Rs. 60/- would bring the value within the exemption limit.4. Controversy on Price Categories:The court noted that there was no dispute for footwear priced at Rs. 56.00, Rs. 58.00, or Rs. 60.00, which were clearly exempt. Similarly, there was no dispute for footwear priced at Rs. 68.00, Rs. 70.00, or Rs. 72.00, which were not exempt. The controversy was for prices in the range of Rs. 62.00, Rs. 64.00, or Rs. 66.00, where the respondent argued that deducting the duty would bring the value within the exemption limit.5. Rejection of Contention on Deduction:The court rejected the respondent's contention, stating that the normal price charged by the manufacturer at the time and place of removal to the wholesaler is treated as the value of the goods. The normal wholesale price, which includes the cost of production, estimated profit, and taxes, is the value on which excise duty is levied. The court emphasized that if the wholesale price does not include any duty, no deduction can be made.6. Interpretation of Section 4(4)(d):The court explained that Section 4(4)(d) of the Act excludes the amount of duty of excise from the value of goods only if such duty is actually payable. If no duty is payable, nothing is deducted from the wholesale price. The court cited the Hindustan Polymers case to support this interpretation.7. Manufacturer's Pricing Mechanism:The court noted that the manufacturer must submit a price list to the excise authority before removing goods from the factory. The price includes costs, planned profit, and taxes. If the value of the footwear was Rs. 60.00 or less, no excise duty was payable, and the price should not have been set above Rs. 60.00.8. Explanation to Section 4(4)(d)(ii):The court referred to the Explanation added by Act 14 of 1982, which clarifies that the amount of duty of excise payable includes the effective duty under the Act and any other Central Acts. This means that any notification granting exemption must be fully considered in determining the duty payable.9. Anomalous Situation and Consumer Impact:The court highlighted that accepting the respondent's argument would create an anomaly where the manufacturer could sell footwear above Rs. 60.00 per pair and still claim exemption, leading to consumers paying more while the manufacturer enjoys undue profit.10. Rejection of Reliance on Bata Shoe Co. Case:The court dismissed the reliance on the Bata Shoe Co. case, noting that Section 4 had undergone significant changes since that decision, and the concept of effective duty of excise was not present at that time.Conclusion:The appeal was allowed, and the judgment dated 5th March 1993 by the Punjab and Haryana High Court was set aside. The court concluded that the manufacturer could not claim the benefit of the exemption notification if the wholesale price exceeded Rs. 60.00 per pair, as no duty was payable on footwear valued at Rs. 60.00 or less.