TaxTMI 
TaxTMI 
1998 (12) TMI 564
X X X X Extracts X X X X
X X X X Extracts X X X X
....e Duty to the tune of Rs. 13,81,134.88. Show-cause notice was issued invoking larger period of limitation of five years. On adjudication the above duty amount was confirmed. 1.3 On appeal, lower appellate authority namely Collector of Central Excise (Appeals) has also held against the appellants so far as non-availability of the aforesaid notification is concerned to the footwear in question. But he has held that duty liability of the appellants should be confined to the normal limitation of six months preceding the date of S.C.N. and no allegation of wilful misstatement or suppression of facts can be alleged against them so as to call for invoking longer limitation of five years for recovering duty. Hence this appeal. 2.1 Controversy centre around some of the varieties of footwear whose wholesale (cum duty) price has exceeded the aforesaid exemption limit. 2.2 Revenue's contention, in the first instance has been that value in the exemption notification (issued under Rule 8 of Central Excise Rules earlier and under Section 5A, of the C.E. Act, 1944 later) has nothing to do with value to be determined under Section 4 of the said Act. 'Value' is not defined under t....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., or (b) where such price is not ascertainable, the price at which an article of the like kind and quality is sold or is capable of being sold by the manufacturer or producer, or his agent, at the time of the removal of the article chargeable with duty from such factory or other premises for delivery at the place of manufacture or production, or if such article is not sold or is not capable of being sold at such place, at any other place nearest thereto. Explanation. - In determining the price of any article under this section no abatement or deduction shall be allowed except in respect of trade discount and amount of duty payable at the time of removal of the article chargeable with duty from the factory or other premises aforesaid." Explanation in the above section is material for the present controversy. 4.1 Patna High Court, accepting the appellants' contention ruled as follows in paras 18 and 19 of the said Report (T.L.R.) "18. The proposition that there can be no question of making any deduction of the duty element from the wholesale price of any category of footwear unless it is factually included therein may appear to be attractive. But I do not think it....
X X X X Extracts X X X X
X X X X Extracts X X X X
....47 per pair. Evidently, therefore, it is "chargeable with duty" and so a deduction has to be made on that account. At the stage when we are dealing with the question as to whether the article is chargeable with duty or not, it would not be relevant to enquire whether the exemption envisaged in the notification of the 24th July, 1967 will ultimately extend to it or not. That will be a relevant consideration after the assessable value has been determined as laid down in Explanation to Section 4. In other words, the duty element has got to be deducted from the wholesale price regardless of any consideration whether in doing so the assessable value will fall within the exemption limit or not. 19. Mr. K.P. Varma, the learned Government Advocate appearing for the Department, however, relies upon the words "the amount of duty payable at the time of removal of the article" which occur in the Explanation to Section 4 and contends that there can be no deduction of the duty element unless it is found that duty is payable on the article in question. The argument is that in respect of the footwear of the second category, the duty element cannot be deducted from the wholesale price because....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r the purposes of duty" as laid down in Section 4 should be applied. It is not that "value" within the meaning of Section 4 of the Act. It is that "value" within the meaning of Rule 8 of the Central Excise Rules, 1944, which gives the Central Government the power by notification to exempt "any excisable goods from the whole or any part of duty leviable on such goods". This being a Rule, it has the effect of a statute by virtue of Section 38 of the Act which says that all such Rules and notifications upon being made and published in the Official Gazette shall have the effect as it enacted in this Act. 18. The words, therefore, in Rule 8 are material and should in our view be decisive. What is exempted is the "excisable goods". What is exempted is "the whole or any part of duty leviable on such goods". Unless the duly is levied, the exemption cannot be granted. Therefore, I am of the opinion that after the levy of the duty if the value of the goods is below Rs. 5.00 then alone it is exempted. To take the view which the Patna High Court does, "the liability to excise duty is not to be determined upon the wholesale case price" is to apply the same meaning to the word "value" in t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ereof is reproduced below :- "7. After hearing Counsel appearing on both sides and giving our serious consideration to the matter in all its aspects, we are clearly of the opinion that the view taken by the High Court of Patna is the correct one and the contrary view taken by the High Court of Calcutta cannot be sustained......" 4.4 Apex Court's ruling set out in paras 9 & 10 of the said report. These are reproduced below :- "9. The short question for consideration is whether the mode of determination of "value" prescribed by Section 4 is not attracted while computing the "value" of the articles of footwear for the purposes of testing the availability of the exemption granted under the Notification dated July 24, 1967. To our mind the answer to the question is perfectly simple. Section 4 is comprehensive in its coverage and it lays down the procedure to be followed for determination of "value" of any article in every case where the article is chargeable with duty at a rate dependent on the value of the article. On a careful reading of the Notification dated July 24, 1967, it also becomes clear that the effect of the Notification is to render the chargeability or otherw....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on that Section 4 only lays down the formula or the principle for determination of "value for the purpose of duty" and it has not laid down any principle or formula for the determination of value for exemption from duty as already indicated. In our opinion this is not a correct interpretation of the scope and ambit of Section 4 of the Act. 10. In the result, we hold that inasmuch as the value of the articles of footwear in question calculated in accordance with the provisions of Section 4 of the Act did not exceed Rs. 5 per pair, the articles in question were exempt from the charge to duty of excise under the Notification dated July, 24, 1967." 5.1 It is apparent from this case before us as well as another case which went up before the Apex Court that the controversy did not subside. It surfaced again in view of retrospective amendment to Section 4 by insertion of an explanation to sub-clause (ii) of clause (d) of sub-section (4) of the said section by Section 47 of Finance Act, 1982 (Act 14 of 1982), Explanation is in the following terms :- Explanation. - For the purposes of this sub-clause, the amount of the duty of excise payable on any excisable goods shall be the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....assessee to a buyer in the course of wholesale trade ....". Therefore, the normal wholesale price of the goods must be deemed to be the value of the goods. It is not necessary to refer to the various types of prices that may be charged from the buyer set out in the proviso to Section 4(1)(a). But there cannot be any dispute that excise duty will be levied on the value of the excisable goods and the basic rule is that the normal wholesale price is the value of the goods. The normal wholesale price is the cum-duty price which the wholesaler has to pay to the manufacturer. The cost of production, estimated profit and the taxes on manufacture and sale of the goods are usually included in the wholesale price of the goods. It is only because the wholesale price is usually the cum-duty price that sub-section (4)(d) lays down that 'value' will not include duty of excise, sales tax and other taxes, if any, payable on the goods. But if a manufacturer includes in the wholesale price any amount by way of tax, even when no such tax is payable, then he is really including something in the price which is not payable as duty at all. He is really increasing the profit element included in the wholes....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ir case reported in 1985 (21) E.L.T. 9 (supra). The Assistant Collector, while fully conceding the applicability of the aforesaid judgment observes as follows :- Now the question arises whether assessable value once fixed for the application of exemption Notification can be reopened when it comes to notice that after claiming exemption from payment of Central Excise duty an amount equal to Central Excise duty is still being collected from the customers and retained by the party. This extra amount collected by the party becomes part of the assessable value and after adding this amount in 'Value' already fixed under Section 4 of the Act, if the value exceeds the permissible limits as given in the exemption notification, the article no longer remains exempted under the said Notification and the duty is chargeable. In making the aforesaid observation, ld. Assistant Collector has taken support from the Explanation introduced vide Section 47 of Finance Act, 1982 (14 of 1982). He has held that "effective duty or the duty actually chargeable or payable alone should be excluded from the cum duty value ..... In other words, only the duty as reduced or actually paid on the manufactured goo....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... 4, thereby depressing the assessable value determined under S. 4. Applying the concessional rate, given in an exemption notification, to such lower assessable value yeilded lower revenue. Such a construction, Revenue felt, was not in consonance with its intention. Hence the said insertion of Explanation to S. 4 (4)(d)(ii) relating to deduction of "effective duty" by Act 14 of 1982. This is evidently clear, submits the ld. Advocate, from Para 133 of the Budget Speech of 1982 of Hon'ble Finance Minister on the floor of the Lok Sabha. In this connection, we reproduce Para 133 of the said speech :- 133. There have been some disputes in the recent past regarding the determination of assessable values of excisable goods from a given cum-duty price, resulting in considerable litigation. This has resulted in locking up substantial amounts of revenue. It is proposed to suitably amend Section 4 of the Central Excises and Salt Act to make it clear that in computing the amount of duty of excise deductible from the cum-duty price, the effective amount of duty of excise payable on the goods under assessment shall alone be taken into account. This amendment is being given effect to, retrospect....
X X X X Extracts X X X X
X X X X Extracts X X X X
....appellants own case [1996 (84) E.L.T. 164]. He also relies upon Apex Court's judgment in Pravara Pulp & Paper Mills v. C.C.E. [1997 (96) E.L.T. 497 (S.C.) = 1997 (23) RLT 890 (S.C.)]. In that case, the appellants paid 50% of duty on 'paper' in terms of Notification 128/77-C.E., dated 18-6-77 whereas they collected full duty from their customers on sale of such papers. It was, therefore, held that only 50% of duty payable would be deductible from the wholesale price and the remaining 50% would be added to the value of the goods and duty charged accordingly. Apex Court approved of the reasoning of Bombay High Court in Tata Engineering & Locomotive Co. Ltd. v. A.C.C.E. [1990 (48) E.L.T. 182 (Bom.)] and of Karnataka High Court in Union of India v. Alembic Glass Industries [1992 (61) E.L.T. 193 (Kar.)] He has also relied on many judgments of the Tribunal, two of which are in the matters of :- (i) [1998 (101) E.L.T. 495 (T) = 1998 (24) RLT 482 (CEGAT)] Express Rubber Products v. C.C.E. (ii) [2000 (125) E.L.T. 617 (T) = 1998 (24) RLT 687 (CEGAT)] New Star Chemicals v. C.C.E. Ld. Advocate strongly relies on Para 17 of Express Rubber....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in accordance with the decisions of the Supreme Court and High Court of Karnataka referred to above. In these circumstances, we are bound to follow the interpretation given by the Supreme Court and the High Court of Karnataka in the aforesaid decisions and not to follow the decisions of the Tribunal taking a contrary view. Department's case is not that over and above the price collected by the appellant from the buyers element of excise duty has been collected. Excise duty was not collected by the appellant since there was no intention to pay duty. In the present case, duty was paid though under protest before the show cause notice was issued. While, determining the assessable value for the purpose of show cause notice, element of duty should have been deducted in arriving at the assessable value. Even in cases where payment has not actually been made though duty is payable, the same is deductible in terms of the specific language used in Section 4(4)(d)(ii) of the Act. Duty is payable whether actually paid or not. The State should take all steps to collect whenever it is not paid. Duty payable has to be deducted in determining the assessable value though manufacturer had not coll....
X X X X Extracts X X X X
X X X X Extracts X X X X
....efully considered the pleas advanced from both sides. 8.2 We agree with the ld. SDR that Apex Courts judgment in 1996 (84) E.L.T. 164 deals with the question of extension of benefit of Notification 171/67-C.E. to footwear in question whose wholesale price exceeds the limit of exemption specified in the notification. Question decided by the Court has been squarely put in the first para of the report. [Judgment per : Suhas C. Sen, J.]. - The only point that falls for determination in this appeal is whether the benefit of exemption given to footwear can be claimed by the manufacturer even where the wholesale price of the footwear exceeds the limit of the exemption specified in the notification. There can be no dispute that if the assessable value calculated according to Section of the Central Excises and Salt Act, comes up to or below the limit set by the notification, the assessee will be entitled to the benefit of the notification. 8.3.1 We also notice that there is no dispute that the appellants have collected only the wholesale prices (ex-trade discount) from their customers on sale of the footwear in question. They have not collected anything extra, either by way of ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nother v. Union of India, 1987 (30) E.L.T. 321 (Delhi), has been approved by the Apex Court, in para 13 of its judgment in the case of Modi Rubber Ltd. v. Union of India [1996 (84) E.L.T. 173 (S.C.)]. We reproduce Para 13 of Modi Rubber. 13. In the case of I.T.C. Limited & Another v. Union of India & others - 1987 (30) E.L.T. 321 (Delhi) at p. 339, it was observed, and in our opinion rightly :- "At the time of the earlier decisions, the Act and the notification were in two watertight compartments the Act was first applied and, from the duty computed, an exemption was granted. This involved three stages : One, the determination of the assessable value; the computation of the amount of duty payable under the Act; and three, the calculation of the amount of exemption. Once the exemption operated the duty payable in effect became smaller and this may have an impact on the assessable value if it could be redetermined but there was no statutory language which authorised the authorities to go back again to redetermine the assessable value and that had been determined already. The statute and notification operated successfully in three different stages of calculation and the High Co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as approved by the Apex Court in unreserved terms in Appeals of the parties in 1985 (21) E.L.T. 9] when it held as follows : - (under Para 18 of 1972 TLR 1833, already extracted above). We reproduce the relevant portion even at the risk of repetition. "I further think that in proceeding to apply that formula for arriving at the assessable value of a particular category of footwear, it would not be right to start with any presumption that it has qualified for exemption by reason of its assessable value. Rather one must first determine it assessable value and then see whether it falls within the exemption or not. Otherwise.... it would be tantamount to putting the cart before the horse." 10.1 Nevertheless, a fact remains that even though the cum-duty prices exceed the exemption limit of Rs. 60/- yet no duty becomes payable. Entire so-called duty becomes part of the profits of the appellants, apart from the "estimated profits" while fixing the wholesale price. Ld. Advocate submits, it is wrong to assume, as appears to have been done in 1996 (84) E.L.T. 164, that the appellants are pocketing the said amount in the guise of duty. Their documents of sale do not show at all that ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....osts vary at different output levels and with different levels of accumulated production experience. Fourth, the company examines competitors' prices as a basis for positioning its own price. Fifth, the company selects one of the following pricing methods: markup pricing, target return pricing, perceived-value pricing, going-rate pricing, and sealed-bid pricing. Sixth, the company selects its final price, expressing it in the most effective psychological way, coordinating it with the other marketing-mix elements, checking that it conforms to company pricing policies, and making sure it will prevail with distributors and dealers, company sales force, competitors, suppliers, and Government. Companies adapt the price to varying conditions in the market place. One is geographical pricing, where the company decides on how to price to distant customers. A second is price discounts and allowances, where the company establishes cash discounts, quantity discounts, functional discounts, seasonal discounts, and allowances. A third is promotional pricing, where the company decides on loss-leader pricing, special-event pricing, cash rebates, low-interest financing, and psychological discountin....