2004 (5) TMI 71 - SC - Central Excise

Supreme Court ruling on valuation principles under Central Excise Act for Ministry of Defence supplies

The Supreme Court clarified the principles of valuation under the Central Excise Act in a case involving the assessment of excise duty on batteries ... What is the assessable value of silver which is used in the manufacture of silver oxide zinc batteries supplied to MOD? Held that:- The supply of silver by MOD being one of the stipulation in the contract between MOD and the appellant, would constitute a 'normal practice' of the wholesale trade in such goods. As per the first proviso to Section 4(1)(b), where in accordance with the normal practice of the wholesale trade, goods are sold at different prices to different classes of buyers, each such price shall be deemed to be the normal price of such goods in relation to each such class of buyers. Therefore, the normal price of battery sold to MOD by the appellants is Rs. 33,393/- and the assessable value of silver used in the manufacture of such battery is at Rs. 2,500/- per kg. and cannot take the market value of silver. The contract between the MOD and the assessee provided for supply of silver from the mint at a particular rate and had to be supplied by the MOD and in lieu thereof the appellants were allowed to retrieve silver from old used batteries, and their special feature cannot be ignored. Batteries of the nature in question are largely used only by MOD. Hence the view taken by the Tribunal down to adjudicating authority cannot be sustained. .Appeal allowed accordingly Issues:1. Assessment of excise duty on batteries supplied to Ministry of Defence (MOD) at different prices compared to Hindustan Aeronautics Limited (HAL).2. Determination of assessable value of silver used in the manufacture of batteries supplied to MOD.3. Interpretation of Section 4 of the Central Excise Act, 1944 regarding valuation of excisable goods.4. Application of Central Excise (Valuation) Rules, 1975 in determining the assessable value of silver.Analysis:1. The case involved a dispute regarding the excise duty on batteries supplied to MOD at a higher price compared to HAL. The appellants argued that the price difference was due to a contractual arrangement with MOD regarding the supply of silver for battery manufacturing.2. The Appellate Tribunal held that the price determined by the appellants for batteries supplied to MOD, based on a lower silver price, was not reflective of the true value of silver. It was deemed a notional price, and the sale to MOD was considered a special arrangement, not in the ordinary course of business.3. The key question was the assessable value of silver used in manufacturing batteries for MOD. The appellants argued that the contract price with MOD should determine the assessable value, relying on Section 4 of the Central Excise Act and Rule 5 of the Valuation Rules.4. The respondents contended that the market value of silver should be considered, as the transaction with MOD was a special arrangement. They argued that the contract price should not be taken into account for determining the assessable value of silver.5. The Supreme Court analyzed Section 4 of the Central Excise Act, emphasizing that valuation of excisable goods is based on the price at which goods are sold in the ordinary course of business. The Court also referred to previous decisions supporting the valuation principles.6. Ultimately, the Court held that the assessable value of silver used in batteries supplied to MOD should be taken at Rs. 2,500/- per kg, the rate at which MOD obtained silver from the mint. The contract terms between MOD and the appellants, including the supply of silver, constituted a normal practice of wholesale trade.7. The Court concluded that the special arrangement between MOD and the appellants, regarding the supply of silver, was a significant factor in determining the assessable value of silver used in manufacturing batteries. The appeal was allowed, setting aside the Tribunal's order for a differential demand.In summary, the judgment clarified the principles of valuation under the Central Excise Act and upheld the assessable value of silver based on the contractual arrangements between the parties involved in the battery supply.