TaxTMI 
TaxTMI 
1999 (8) TMI 920
X X X X Extracts X X X X
X X X X Extracts X X X X
....oel, S.S. Shamshery, Ms. Sheela Goel, K.K. Mohan, G. Umapathy, R.K. Sharma, Sanjay Grover, Rajesh Kumar, Dinesh Kumar Garg, Sanjay R. Hegde, M.P. Vinod, A.S. Pundir, Mrs. Sarla Chandra, Ms. Priya Hingorani, Aman Hingorani, Advocates with them. JUDGMENT It is convenient to set out, at the outset, the question involved in these appeals. 2. The manufacturer purchases raw material. He uses the raw material in the manufacture of an intermediate product. He then uses the intermediate product in the manufacture of a final product. The raw material and the intermediate product are liable to excise duty and they are specified goods for the purposes of the Modvat scheme. The assessable value of the intermediate product for the purposes of excise duty has, it is agreed in the instant case, to be determined on the basis of its cost. In determining the assessable value of the intermediate product the cost of the raw material has to be taken into account. The question is : is part of the cost of the raw material the price paid by the manufacturer to its seller, as contended by the Revenue, or is it the price of the raw material less the excise duty thereon, which has been paid by the se....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... this section, be deemed to be - (a) the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale : Provided that - (i) where, in accordance with the normal practice of the wholesale trade in such goods, such goods are sold by the assessee at different prices to different classes of buyers (not being related persons) each such price shall, subject to the existence of the other circumstances specified in clause (a) be deemed to be the normal price of such goods in relation to each such class of buyers; (ii) where such goods are sold by the assessee in the course of wholesale trade for delivery at the time and place of removal at the price fixed under any law for the time being in force or at a price, being the maximum, fixed under any such law, then, notwithstanding anything contained in clause (iii) of this proviso, the price or the maximum price, as the case may be, so fixed, shall, in relation to the goods so sold, be....
X X X X Extracts X X X X
X X X X Extracts X X X X
....where the goods are delivered at the time of removal in a packed condition, includes the cost of such packing except the cost of the packing which is of a durable nature and is returnable by the buyer to the assessee. Explanation. - In this sub-clause, "packing" means the wrapper, container, bobbin, pirn, spool, reel or warp beam or any other thing in which or on which the excisable goods are wrapped, contained or wound; (ii) does not include the amount of the duty of excise, sales tax and other taxes, if any, payable on such goods and, subject to such rules as may be made, the trade discount (such discount not being refundable on any account whatsoever) allowed in accordance with the normal practice of the wholesale trade at the time of removal in respect of such goods sold or contracted for sale. Explanation. - For the purposes of this sub-clause, the amount of the duty of excise payable on any excisable goods shall be the sum total of - (a) the effective duty of excise payable on such goods under this Act; and (b) the aggregate of the effective duties of excise payable under other Central Acts, if any, providing for the levy of duties....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... (i) on the value of the comparable goods produced or manufactured by the assessee or by any other assessee : Provided that in determining the value under this sub-clause, the proper officer shall make such adjustments as appear to him reasonable, taking into consideration all relevant factors and, in particular, the difference, if any, in the material characteristics of the goods to be assessed and of the comparable goods; (ii) If the value cannot be determined under sub-clause (I), on the cost of production or manufacture including profits, if any, which the assessee would have normally earned on the sale of such goods; (c) where the assessee so arranges that the excisable goods are generally not sold by him in the course of wholesale trade except to or through a related person and the value cannot be determined under clause (iii) of the proviso to clause (a) of sub-section (1) of Section 4 of the Act, the value of the goods so sold shall be determined. (i) in a case where the assessee sells the goods to a related person who sells such goods in retail, in the manner specified in clause (a) of this rule; (ii) in a case where a related p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....as to be determined on the cost of their manufacture, including profits. Sub-section (4) of Section 4 defines certain words "for the purposes of this section". It defines "`Value' in relation to any excisable goods". It says, so far is relevant here, that the value of excisable goods does not include the amount of the duty of excise payable on such goods. The Explanation thereto says that, for the purposes of the sub-clause, the amount of excise duty payable on excisable goods is the sum total of the effective excise duty payable thereon under the Act plus the aggregate of the effective excise duties payable thereon under other Central Excise statutes. By reason of Clause (i) of the Explanation, where there is an exemption "notification or order" giving an exemption in respect of the excisable goods it shall be given effect to and the excise duty leviable under the concerned Central Excise statute shall be reduced to the extent of such exemption, provided such notification or order is not one "for giving credit with respect to, or reduction of duty of excise under such Act on such goods equal to any duty of excise under such Act, or the additional duty under Section 3 of the Cus....
X X X X Extracts X X X X
X X X X Extracts X X X X
....y General cited the judgment of a learned Single Judge of the Allahabad High Court in Super Cassettes Industries Ltd. v. Union of India [1997 (94) E.L.T. 302]. The learned Judge found no warrant for the view that Modvat credit once availed of by making the necessary entries was irrevocable. He held that there could be no final credit until the inputs were used and excise duty on the final product was paid or the inputs were otherwise disposed of. 14. Before we look at the Rules relating to the Modvat scheme we must set out the submissions of the learned Attorney General in this regard. He submitted that the raw material suffered excise duty legally and factually. If there had been no Modvat scheme excise duty on the raw material would be included in the cost of production of the excisable product. The Modvat scheme did not alter this fundamental position. By virtue of it the cost of the raw material was not reduced. The Modvat scheme resulted in reducing the excise duty on the excisable product. It was a separate and special facility that had the effect of reducing the excise duty incidence on the excisable product and had no bearing in determining the cost of its production. Th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd restrictions that may be specified in the notification : Provided that the Central Government may specify the goods or classes of goods in respect of which the credit of specified duty may be restricted." Rule 57C states that no credit of duty paid on a final product may be allowed if the final product is exempt from the whole of the excise duty leviable thereon or is chargeable to a nil rate of duty. Rule 57D says that the credit of duty allowed in respect of any inputs shall not be denied or varied on the ground that part of the inputs is contained in any waste, refuse, or by-product arising from the manufacture of the final product or on the ground that any intermediate product has come into existence during the course of the production of the final product. Rule 57E says that if the duty paid on any inputs on which credit has been allowed is varied subsequently, the credit allowed shall be varied accordingly by adjustment of the credit account or, if adjustment is not possible for any reason, by cash recovery from or, as the case may be, by refund to the manufacturer availing of the credit. Rule 57F(1) reads thus : "The inputs in respect of which a....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., therefore, indefeasible. It should also be noted that there is no co-relation of the raw material and the final product; that is to say, it is not as if credit can be taken only on a final product that is manufactured out of the particular raw material to which the credit is related. The credit may be taken against the excise duty on a final product manufactured on the very day that it becomes available. 18. It is, therefore, that in the case of Eicher Motors Ltd. v. Union of India [1999 (106) E.L.T. 3] this Court said that a credit under the Modvat scheme was "as good as tax paid." 19. With this in mind, we must now determine whether the excise duty paid on the raw material should form part of the cost of the excisable product for the purposes of Section 4(1)(b) of the Act read with Rule 6 of the Valuation Rules? 20. Learned Counsel for the respondents drew our attention to the judgment of this Court in Challapalli Sugars Ltd. v. Commissioner of Income Tax, A.P., [1975 (98) ITR 167]. The Court was concerned with `written down value'. The `written down value' had to be taken into consideration while considering the question of deduction on account of depreciation and dev....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ts of India. The Guidance Note deals (in paragraph 6) with "Accounting treatment in case of inputs used in for relation to manufacture of final products". It states : "In the light of the above, it may be stated that Modvat is a procedure whereby the manufacturer can utilise credit for specified duty on inputs against duty payable on final products. Duty credit taken on inputs is of the nature of set-off available against the payment of excise duty on the final products. There are two alternative methods of treatment of Modvat credit in accounts : (a) Specified duty paid on inputs may be debited to a separate account, e.g., Modvat credit Receivable (Inputs) Account. As and when Modvat credit is actually utilised against payment of excise duty on final products, appro-priate accounting entries will be required to adjust the excise duty paid out of Modvat credit Receivable (Inputs) Account to the account maintained for payment/provision for excise duty on final product. In this case, the purchase cost of the inputs would be net of the specified duty on inputs. Therefore, the inputs consumed and the inventory of inputs would be valued on the basis of purchase cost ne....