Whether the Price declared by assessee for their cars which is admittedly below the Cost of manufacture can be regarded as "transaction value”?

Case:- COMMISSIONER OF CENTRAL EXCISE, MUMBAI VERSUS M/s FIAT INDIA PVT LTD & ANR

Citation: -2012-TIOL-58-SC-CX

Brief facts: - TheRespondents-assessee are the manufacturer of motor cars, i.e. Fiat Uno model cars. The said goods are excisable under chapter sub-heading No. 8703.90 of the Central Excise Tariff Act, 1985. The said business was initially managed by M/s Premier Automobiles Ltd. However, M/s Premier Automobile surrendered its central excise registration on 6.4.1998. Thereafter, M/s Ind Auto Ltd. (now M/s Fiat India Ltd.) carried on the said business after obtaining fresh central excise registration. The assessee have filed several price declarations in terms of Rule 173C of the Central Excise Rules, 1944 (hereinafter referred to as 'the 1944 Rules') declaring wholesale price of their cars for sale through whole sale depots during the period commencing from 27.05.1996 to 04.03.2001. The authorities under the Central Excise Act, 1944 (hereinafter referred to as 'the Act') had made enquiries on 20.12.1996 and 31.12.1996, under Sub-rule 3 of Rule 173C of the 1944 Rules read with Section 14 of the Act. They had prima facie found that the wholesale price declared by the assessee is much less than the cost of production and, therefore, the price so declared by them could not be treated as a normal price for the purpose of quantification of assessable value under Section 4(1)(a) of the Act and for levy of excise duty as it would amount to short payment of duty.

Since further enquiry was required to be conducted regarding the assessable value of the cars, the Assistant Commissioner, Central Excise, Kurla Division, vide his order dated 03.01.1997, had inter alia directed for the provisional assessment of the cars at a price which would include cost of production, selling expenses (including transportation and landing charges, wherever necessary from 28.09.1996) and profit margin, on the ground that the cars were not ordinarily sold in the course of wholesale trade as the cost of production is much more than their wholesale price, but were sold at loss for a consideration, that is, to penetrate the market which has been confirmed by the assessee vide its letter dated 30.10.1996 and during the course of enquiry under Section 14 of the Act read with sub Rule (3) of Rule 173C of the 1944 Rules. He had further directed the respondents to execute B-13 bond for payment of differential duty with surety or sufficient security, that is, 25% of the bond amount. Thereafter, respondents executed B-13 bond for Rs. 7.70 crores. However, the respondents showed their inability to submit 25% bond amount as a bank guarantee and requested the Revenue authorities to reduce the same. On such request, the Commissioner, vide letter dated 23.04.2007, directed the respondents to execute bank guarantee equivalent to 5% of the bond amount. Accordingly, the respondent furnished a bank guarantee of Rs. 38 lakhs which was subsequently renewed and later fresh bank guarantees in lieu of original were submitted by the respondents.

The Preventive and Intelligence Branch of the Kurla Division sometime in the year 1997-98 had conducted investigation into the affairs of the respondents, whereby it was found that the respondents were importing all the kits in CKD/SKD condition for manufacturing the cars and the cost of production of a single car was Rs. 3,98,585/- for manufacture from SKD condition and Rs. 3,80,883/- for manufacture from CKD condition against the assessable value of Rs. 1,85,400/-. In the investigation, it was also revealed that the respondents had entered into a spin-off agreement vide Deed of Assignment dated 30.03.1998, whereby M/s Fiat India Ltd. would be liable for any excise liability accruing from 29.09.1997 onwards, in respect of the Cars in issue.

After completion of the investigation, the Commissioner of Central Excise, Mumbai-II, had appointed Cost Accountant M/s Rajesh Shah and Associates on 25.01.1999 under Section 14A of the Act to conduct special audit to ascertain the correctness of the price declared by the respondents. The Cost Accountant had calculated the average price of the Fiat UNO Car by adding material cost (import, local, painting and others), rejection at 1% of total cost and notional profit at 5% of total cost for the period from April, 1998 to December, 1998 vide his report dated 31.03.1999, which came to Rs. 5,04,982/- per car. In the meantime, the Superintendent of Central Excise, Kurla Division had issued 11 show cause notices to assessee for the period from June 1996 to February 2000, inter alia, making a demand of differential duty on the assessable value calculated on the basis of manufacturing cost plus manufacturing profit minus MODVAT availed per car, and the duty which the respondents were actually paying on the assessable value. It is alleged in the show cause notices that the respondents have failed to determine and pay the correct duty on Fiat UNO cars while clearing them. It is further stated that the assessee have not taken into account the cost of raw material, direct wages, overheads and profits for calculating the assessable value of the cars which were declared in the invoices and declarations for the purpose of Section 4 of the Act. In this regard, the assessee were required to show cause as to why the correct duty due on the said goods along with interest should not be recovered from them under Rule 9 of the 1944 Rules read with Sections 11A and 11AB of the Act, the goods should not be confiscated and penalty imposed under Rule 9 read with Rule 52-A and Rule 173Q of the Rules, and further, penalty equal to the amount of duty should not be imposed under Section 11AC of the Act.

Assessee had replied in detail to the show cause-cum-demand notices. After receipt of the reply so filed, the adjudicating authority vide his order-in-original dated 31.01.2002 has proceeded to conclude that the assessee’s main consideration was to penetrate the market, therefore, the price at which they were selling the Cars in the market could not be considered to be a normal price as per Section 4 of the Act. He has also observed that the cost of production of the Fiat UNO Cars is much higher than the price at which the assessee are selling them to the general public; that the price is artificial and arrived at without any basis just to capture the market and drive out the opponents from business; that the Fiat UNO Cars in issue are equipped with powerful Fire Engine and superior quality gadgets and that when normal price cannot be ascertained as per Section 4(1) (a) of the Act, the alternate procedure under the Valuation Rules, i.e. cost of production and profit has to be applied. He also observed, by referring to the decisions of this Court in Bombay Tyre's and MRF Tyre's cases, that all costs incurred to make goods saleable/marketable should be taken into account for determining the assessable value and that the loss incurred by the assessee to penetrate the market should be borne by them and in the process Government should not lose revenue. He further found the basis of the price arrived at by the Cost Accountant in its report as authentic and acceptable, but adopted the average price of Rs.4,53,739/- reached by the Range Superintendent for different models of Cars in the show cause-cum demand notices as more reasonable and appropriate. Accordingly, he had confirmed the show cause-cum-demand notices issued and, thereby, had directed the respondents to pay the difference in duty.

Being aggrieved by the order passed by adjudicating authority the assessee had carried the matter in appeal before the First Appellate Authority, The appellate authority by its orders dated 11.09.2002 and 30.09.2002 has sustained the order passed by the adjudicating authority and rejected the appeals.The assessee, being aggrieved by the order so passed, had carried the matter in appeal before the Tribunal. The Tribunal vide its judgment and order dated 21.11.2003, has reversed the findings and conclusions reached by the First Appellate Authority and the Adjudicating Authority and, accordingly, allowed the appeals on the ground that there is no allegation that the wholesale price charged by the assessee was for extra commercial consideration and that dealing of the assessee and their buyers was not at arms length or that there is a flow back of money from the buyers to the assessee and, therefore, the price declared by the assessee is the ascertainable normal price in view of the decision of this Court in Commissioner of Central Excise, New Delhi v.Guru Nanak Refrigeration Corporation, 2003 (153) ELT 249 (SC) = (2003-TIOL-02-SC-CX).It is thecorrectness or otherwise of the findings and conclusions reached by the Tribunal is the subjectmatter of these appeals.

Appellant’s Contention: - The learned ASG, contends that the assessee are not fulfilling the conditions enumerated in Section 4(1)(a) of the Act and therefore, the valuation has to be done in accordance with Section 4(1)(b) of the Act read with the 1975 Valuation Rules. He would contend that the price fixed by the assessee do not reflect the true value of the goods as manufacturing cost and the profit is much higher than the sale price. He would further contend that since the price of the cars sold by the assessee do not reflect the true value of goods and that sole reason for lowering the price by the assessee below the manufacturing cost is just to penetrate the market and compete with other manufacturers and, therefore, such price cannot be treated as "normal price" in terms of Section 4(1)(a) of the Act. He would submit that since the price of the cars sold by the assessee was not ascertainable, the Revenue is justified in computing the assessable value of the goods for the levy of excise duty under Section 4(1)(b) of the Act and the relevant rules. The learned counsel further contends that under Section 4(1)(a) of the Act, value shall be deemed to be the normal price. A normal price, as per Section 4(1)(a), is the price at which the goods are ordinarily sold. A loss making price cannot be the price at which goods are ordinarily sold and the loss making price cannot be the normal price. Shri Bhattacharya would heavily rely on the decision of this Court in Union of India v.Bombay Tyre International, 1983 (14) ELT 1896 (SC) = (2002-TIOL-374-SC-CX),and contends that the judgement makes it abundantly clear that for arriving at the assessable value, the department is entitled to take into account the manufacturing cost plus manufacturing profit.

Respondent’s Contention : The learnedsenior counsel would submit that the charging Section and the computation Section are independent to each other and should not be mixed up. He would contend that the normal price as found in Section 4(1)(a) of the Act is nothing but the price at which the particular assessee sold his goods to his buyers in the ordinary course of business. He would state that the reason for the assessee for selling the Cars for lower price than the manufacturing cost was due to the assessee had no foothold in the Indian market and, therefore, had to sell at a lower price than the manufacturing cost in order to compete in the market. He would submit that the issue raised by the Revenue in the instant case is squarely covered by the decision of this Court in the case of Guru Nanak Refrigeration. He submits that the case of Bombay Tyre International (Supra) would only assist the assessee and not the Revenue. He would submit that this Court in Bombay Tyre's case has held that though the incident of excise is the manufacturing activity, the legislature was free to choose the time of collection and imposition of excise duty. He further points out that this Court in Bombay Tyre's case (supra) has separated the levy from the collection, that being the case, the learned senior counsel submit that the cost of manufacture is irrelevant for the purpose of valuation under Section 4 of the Act. He would submit that 'normal price' is the selling price at which that particular assessee has sold the goods to all the buyers in the ordinary course of business. He would refute Shri Bhattacharya's argument that the price is not the sole consideration, by stating the word 'consideration' is used in the Section in the same sense as used in the Section 2 (d) of the Indian Contract Act, and it is only the monetary consideration from the buyer to the assessee that requires to be taken note of for the purpose of valuation under the Act. He would point out from the show cause notice that the sole ground for rejecting the invoice price of the assessee is that the price was not the sole consideration. He would submit that the intention and consideration cannot be treated as same; it is only the intention of the assessee to penetrate the market and the only consideration for the assessee from the buyer was the sale price. He would further submit that the assessable value has to be gathered from the normal price and not from cost of manufacture which is irrelevant when normal price is ascertainable. Therefore, he would submit only when the normal price is not ascertainable in terms of Section 4(1)(a), then Section 4(1)(b) read with the 1975 Valuation Rules would come into play to determine nearest equivalent assessable value of the goods. He would contend that the Valuation Rules have to be applied sequentially, namely, Rules 4 and 5 should be invoked first in order to determine the assessable value and if Rules 4 and 5 of the 1975 Valuation Rules are not applicable or assessable value cannot be ascertained by applying the said Rules, then only Rule 6 can be invoked. He would further submit that it is only Rule 6(b)(ii) of the 1975 Valuation Rules which contemplates determination of assessable value on the basis of cost of manufacture only when the goods are captively consumed by the manufacturer and value of comparable goods manufactured by the assessee or any other assessee is not available. In this regard, he would submit, relying on few decisions of this Court, that fiscal provisions have to be construed strictly and also where a statute prescribes that a particular thing has to be done in a particular manner, then, that thing has to be done only in that manner and not otherwise. He further submits that when the normal price is not ascertainable under Section 4(1)(a) of the Act when transaction is between related persons or price is not the sole consideration, then nearest equivalent at the time of removal of the goods is the criteria for the purpose of computation of assessable value. He would contend that it is when there is no like or identical article available at the time or place of removal, only then, Rule 6 of the 1975 Valuation Rules is invoked which deals with cost of manufacture. He would further submit by relying on the Bombay Tyre's case (Supra) that even old Section 4 (b) (prior to the 1973 amendment) suggests that in case wholesale price for the valuation is not ascertainable under old Section 4(a), then, the value of nearest equivalent article of like kind and quality, which is sold or capable of being sold at the time and place of removal, is considered for the purpose of valuation. He would further submit that it is not practical to go into cost of manufacture in each and every case in order to determine whether goods are sold below the cost of production. He would submit that if wholesale price under Section 4(1)(a) is not ascertainable, then, assessing authority can go to the nearest equivalent to determine assessable value for the purpose of levy of excise duty under the Act.

He further submitted that by referring to Section 2(d) of the Indian Contract Act, the consideration should flow from buyer to the seller. He would submit that the meaning of the expression 'consideration' in Section 4 should be determined by comprehensively reading Section 4 along with the Valuation Rules. In this regard, he would submit by referring to Rule 5 that in case the price is not the sole consideration then the value of the goods can be determined by taking into account the monetary value of the additional consideration flowing directly or indirectly from the buyer to the seller. He would submit that any additional consideration should flow from buyer to seller. He would submit that intention of the assessee to penetrate the market cannot be treated as a consideration as no money consideration flows from the buyer to the seller. Therefore, there is no additional consideration flowing from buyer to seller and whole transaction is bonafide. He would submit that this Court has already answered this issue of 'sole consideration' in the cases of Guru Nanak Refrigeration (supra) and CCE v. Bisleri International Pvt.Ltd., 2005(186) ELT 257 (SC) = (2005-TIOL-97-SC-CX).

The learned counsel, who also appears for the assessee but for the period April 1998 to June 2001, would submit that the Cost Auditor's report has not been relied on or referred to in any of the show cause notices issued to the assessee, which are the basis of entire proceedings and, therefore, proceedings initiated by the assessing authority are contrary to the settled principles enunciated by this Court. He would submit that nothing as to sole consideration or transaction between related person has been alleged in the show cause notices, therefore, the show cause notices are without any basis. He would submit that the assessee has not been furnished with Cost Auditor's report till date. He would submit that the Revenue is not justified in rejecting the assessee's price as the price is a bench mark in order to sell the goods in market and it is even higher in comparison to other similar cars, although it is less than the cost of manufacture. He would further submit that the economic concept to penetrate the market is recognized by Article 6 of the WTO and Article VII of Customs Valuation Rules of WTO and further, Section 14 of the Indian Customs Act incorporates the above concept in harmony with other countries. He would submit that when the price of assessee is higher than that of its competitors, it would mean that the assessee is bench marking his prices. He would submit that the price at which goods are sold by the assessee to the buyer is purely a competitive price and there is no allegation as to transactions are with related person(s) and price is not the sole consideration and that there is flow back from buyer to the assessee in any form. He would submit that value is a function of price and where price is not available, one of the methodology to determine it is cost. He would further submit, relying on Ship Breaker's case that this Court while explaining the meaning of expression 'Ordinary sale' occurring in Section 14 of the Customs Act which is in pari materia with Section 4 of the Act has observed that "Ordinary Sale' would mean the sale where goods are sold to unrelated parties and price is the sole consideration.

He would further submit that Section 4 of the Act was amended on 1^st April 2000 to incorporate 'transaction value' as an assessable value instead of 'normal price' and the expression 'ordinarily' was dropped. Therefore, the new Section 4 (after 2000 amendment) is applicable to the transactions which took place during the period from July, 2000 to June, 2001. Further the word 'ascertain' and 'determination' have different meaning and connotation. He would submit that the word 'ascertain' would mean to find a thing which already exists whereas determination mean to arrive at something by adding or subtracting. He would then submit that when ascertainment of normal price is not possible under Section 4(1)(a) then that price has to be determined by the process of computation as provided under Section 4 (1) (b) of the Act read with the Rules framed thereunder. He would submit by relying on the decision of this Court in Elgi Equipment Pvt. Ltd. v. CCE, Coimbatore, 2007 (215) ELT 348 (SC) = (2007- TIOL-161-SC-CX)that the word 'Ordinary sale' would mean the normal practice or the practice followed by majority of persons in the wholesale trade in the concerned goods. He would submit that in the present case, the assessee is better placed as the entire sale is at the same price or rate, so the condition of the expression 'ordinarily sold' is being satisfied. Further certain considerations for fixing the price like quantity or volume, long term relationship and status of buyer are all commercial consideration. He would further contend that consideration can be in any form but must flow from buyer to the seller. He would submit relying on the decision of this Court in Philips India Ltd. v.Collector of Central Excise, Pune, 1997 (91) E.L.T. 540 (SC) = (2002-TIOL-127-SC-CX),that where the buyer is taking responsibility on behalf of the seller, then it would be added in the sale price of seller while assessing him and in case where seller and buyer share expenditure, then, it cannot be added in the sale price of the seller-assessee. He would further submit relying on the decision of this Court in VST Industries Ltd. v. Collector of Central Excise, Hyderabad, 1998 (97) E.L.T. 395 (SC) = (2002-TIOL-140-SC-CX) that this Court has distinguished Metal Box decision by observing that the notional interest on interest free deposit made by the buyer to the seller should not be included in the sale price of the seller-assessee as no extra commercial consideration is flowing from the buyer to the seller, there is no nexus between the security deposit and sale price, and if department is not able to quantify the money value of the additional consideration, then Rule 7 of the Valuation Rules is not applicable. He would further submit that expression 'sale and purchase' is defined under Section 2(h) of the Act which would mean the transfer of possession of goods from one person to other in the ordinary course of trade for cash or deferred payment or other valuableconsideration. He would submit by relying on the constitution bench decision of this Court in Devi Das Gopal v. State of Punjab, (1967) 20 STC 430, that the term 'purchase' would mean acquisitionof goods for sale for cash or deferred payment or other valuable consideration. He would furthersubmit that sale and purchase are different perspectives of same transaction and the price isdefined in the Sale of Goods Act as "money consideration" and the expression 'cash', 'deferredpayment' and 'other valuable consideration' are consistently used as monetary consideration. Hefurther contended that Section 4(1)(a) of the Act has six ingredients and if any one of theseingredients is missing, then only the Revenue could invoke the Valuation Rules. He relies on Circular, issued by the Board, No.215/49/96-Cx., dated 27.05.1996, wherein the Board has clarified that if price was not the sole consideration then any additional consideration that flow from the buyer to assessee would have to be quantified in terms of money, if the Department was not in a position to determine the same, then Rule 7 would not be applicable. Learned counsel would state that Rule 7 was the only Rule which could be applied in case the price was not sole consideration and if that Rule was not applicable then no Rule of the Valuation Rules would apply.

Further relying on the decision of this Court in Basant Industries v. Addl. Collector of Customs, Bombay, 1996 (81) E.L.T. 195 (SC) = (2002-TIOL-275-SC-CUS), that ordinarily Courts would not interfere in the price fixation by merely stating that there is undervaluation and proceed on such presumption. He further relied on the decision of this Court in CCE v. Rajasthan Spinning and Weaving Mills, (2007) 218 E.L.T. 641 (SC) = (2007-TIOL-219-SC-CX), to contend that different methods prescribed under the Valuation Rules have to converge to a common valuation and it is not possible to accept wide variation in the results in order to ascertain the basis of assessable value. In conclusion, the learned counsel would submit that the Tribunal was justified in allowing the assessee’s appeals by relying on the decision of this Court in Guru Nanak Refrigeration's case (supra). In nutshell, the arguments of both the learned senior counsel is that in terms of Section 4 of the Act, duty liability is on the normal price at which the goods are sold in wholesale trade to the buyers when the sale price is the sole consideration. The basis for valuation of excisable goods is the normal price at which the goods are sold. Only if, such a sale price is not available, valuation based on cost production can be resorted to. In summarization, it is contended that once the normal price at which the goods are sold is available, the Revenue cannot reject the normal price merely because it is less than the cost of production, specially when the genuineness of the sale price is not in doubt. Since the adjudicating authority does not question the genuineness of the sale price in the show cause notices issued, he cannot resort to Section 4(1)(b) of the Act read with relevant Rules for the purpose of quantification of assessable value.

Reasoning of Judgment: The Hon’ble Supreme Court held that In the context of Section 4(1)(a) of the Act, the word 'ordinarily' does not mean majority of the sales; what it means is that price should not be exceptional. In our considered opinion, the word 'ordinarily', by no stretch of imagination, can include extra-ordinary or unusual. In the instant cases, as already noticed, the assessee sell their cars in the market continuously for a period of five years at a loss price and claims that it had to do only to compete with the other manufacturers of cars and also to penetrate the market. If such sales are taken as sales made in the ordinary course, it would be anathema for the expression 'ordinarily sold'. There could be instances where a manufacturer may sell his goods at a price less than the cost of manufacturing and manufacturing profit, when the company wants to switch over its business for any other manufacturing activity, it could also be where the manufacturer has goods which could not be sold within a reasonable time. These instances are not exhaustive but only illustrative. In the instant cases, since the price charged for the sale of cars is exceptional, the submission of the learned counsel to give a meaning which does not fit into the meaning of the expression 'ordinarily sold'. Therefore such sales may be disregarded as not being done in the ordinary course of sale or trade. In our view, for the purpose of Section 4(1) (a) all that has to be seen is: does the sale price at the factory gate represent the wholesale cash price. If the price charged to the purchaser at the factory gate is fair and reasonable and has been arrived at only on purely commercial basis, then that should represent the wholesale cash price under Section 4(1)(a) of the Act. This is the price which has been charged by the manufacturer from the wholesale purchaser or sole distributor. What has to be seen is that the sale made at arms length and in the usual course of business, if it is not made at arms length or in the usual course of business, then that will not be real value of the goods. The value to be adopted for the purpose of assessment to duty is not the price at which the manufacturer actually sells the goods at his sale depots or the price at which goods are sold by the dealers to the customers, but a fictional price contemplated by the section. This Court in Ram Kumar Knitting Mills case (supra), while construing the said expression, has held that the word 'ordinarily sold' do not refer to contract between the supplier and the importer, but, the prevailing price in the market on the date of importation and exportation. Excise duty is leviable on the value of goods as manufactured. That takes into account manufacturing cost and manufacturing profit. Excise is a tax on the production and manufacture of goods and Section 4 of the Act provides for arriving at the real value of such goods. When there is fair and reasonable price stipulated between the manufacturer and the wholesale dealer in respect of the goods purely on commercial basis that should necessarily reflect dealing in the usual course of business, and it is not possible to characterize it as not arising out of agreement made at arms length. In contrast, if there is an extra-ordinary or unusual price, specially low price, charged because of extra-commercial considerations, the price charged could not be taken to be fair and reasonable, arrived at on purely commercial basis, as to be counted as the wholesale cash price for levying excise duty under Section 4(1)(a) of the Act.

The Hon’ble Supreme Court Further held that what requires to be considered is what is the meaning of the expression 'sole consideration'. Consideration means something which is of value in the eyes of law, moving from the plaintiff, either of benefit to the plaintiff or of detriment to the defendant. In other words, it may consist either in some right, interest, profit or benefit accruing to the one party, or some forbearance, detriment, loss or responsibility, given, suffered or undertaken by the other, as observed in the case of Currie v. Misa (1875) LR 10 Ex. 153.

Webster's Third New International Dictionary (unabridged) defines, consideration thus:

"Something that is legally regarded as the equivalent or return given or suffered by one for the act or promise of another."

In volume 17 of Corpus Juris Secundum (p.420-421 and 425) the import of 'consideration' has
been described thus:

"Various definitions of the meaning of consideration are to be found in the text-books and judicial opinions. A sufficient one, as stated in Corpus Juris and which has been quoted and cited with approval is "a benefit to the party promising or a loss or detriment to the party to whom the promise is made..... At common law every contract not under seal requires a consideration to support it, that is, as shown in the definition above, some benefit to the promisor, or some detriment to the promisee.”

In Salmond on Jurisprudence, the word 'consideration' has been explained in the following words:

"A consideration in its widest sense is the reason, motive or inducement, by which a man is moved to bind himself by an agreement. It is for nothing that he consents to impose an obligation upon himself, or to abandon or transfer a right. It is in consideration of such and such a fact that he agrees to bear new burdens or to forego the benefits which the law already allows him."

The gist of the term 'consideration' and its legal significance has been clearly summed up in
Section 2(d) of the Indian Contract Act which defines 'consideration' thus:

"When, at the desire of the promisor, the promisee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain from doing, something, such act or abstinence or promise is called a consideration to the promise."

From a conspectus of decisions and dictionary meaning, the inescapable conclusion that follows is that 'consideration' means a reasonable equivalent or other valuable benefit passed on by the promisor to the promisee or by the transferor to the transferee. Similarly, when the word 'consideration' is qualified by the word 'sole', it makes consideration stronger so as to make it sufficient and valuable having regard to the facts, circumstances and necessities of the case.

Since under new Section 4(1)(a) the price should be the sole consideration for the sale, it will be open for the Revenue to determine on the basis of evidence whether a particular transaction is one where extra- commercial consideration has entered and, if so, what should be the price to be taken as the value of the excisable article for the purpose of excise duty and that is what exactly has been done in the instant cases and after analysing the evidence on record it is found that extra-commercial consideration had entered into while fixing the price of the sale of the cars to the customers. When the price is not the sole consideration and there are some additional considerations either in the form of cash, kind, services or in any other way, then according to Rule 5 of the 1975 Valuation Rules, the equivalent value of that additional consideration should be added to the price shown by the assessee. The important requirement under Section 4(1)(a) is that the price must be the sole and only consideration for the sale. If the sale is influenced by considerations other than the price, then, Section 4(1)(a) will not apply. In the instant case, the main reason for the assessee to sell their cars at a lower price than the manufacturing cost and profit is to penetrate the market and this will constitute extra commercial consideration and not the sole consideration. As we have already noticed, the duty of excise is chargeable on the goods with reference to its value then the normal price on which the goods are sold shall be deemed to be the value, provided: (1) the buyer is not a related person and (2) the price is the sole consideration. These twin conditions have to be satisfied for the case to fall under Section 4(1)(a) of the Act. In the instant cases, the price is not the sole consideration when the assessee sold their cars in the wholesale trade. Therefore, the assessing authority was justified in invoking clause (b) of Section 4(1) to arrive at the value of the exercisable goods for the purpose of levy of duty of excise, since the proper price could not be ascertained. Since, Section 4(1)(b) of the Act applies, the valuation requires to be done on the basis of the 1975 Valuation Rules. After amendment of Section 4 :- Section 4 lays down that the valuation of excisable goods chargeable to duty of excises on ad-valorem would be based upon the concept of transaction value for levy of duty. 'Transaction value' means the price actually paid or payable for the goods, when sold, and includes any amount that the buyer is liable to pay to the assessee in connection with the sale, whether payable at the time of sale or at any other time, including any amount charged for, or to make provisions for advertising or publicity, marketing and selling, and storage etc., but does not include duty of excise, sales tax, or any other taxes, if any, actually paid or payable on such goods. Therefore, each removal is a different transaction and duty is charged on the value of each transaction. The new Section 4, therefore, accepts different transaction values which may be charged by the assessee to different customers for assessment purposes where one of the three requirements, namely; (a) where the goods are sold for delivery at the time and place of delivery; (b) the assessee and buyers are not related; and (c) price is the sole consideration for sale, is not satisfied, then the transaction value shall not be the assessable value and value in such case has to be arrived at, under the Central Excise Valuation (Determination of Price of Excisable Goods) Rules 2000 ('the Rules 2000' for short) which is also made effective from 1st July, 2000. Since the price is not the sole consideration for the period even after 1st July, 2000, in our view, the assessing authority was justified in invoking provisions of the Rules 2000.

The Supreme court on the basis of the Case law referred by the assessee and department has held that either the decision of Guru Nanak's case (supra) or the decision in Bisleri's case (supra) would assist the assessee in any manner whatsoever. So for the reason, that, in Guru Nanak's case, the department had accepted the price declared by the assessee and the narration of the facts both by the Tribunal and this Court would reveal that it was one time transaction and lastly, this Court itself has specifically observed that the view that they have taken, is primarily based on the facts and circumstances of the case. In the instant cases, the department never accepted the declared value. It is for this reason, provisional assessments were completed instead of accepting declared price by the assessee under Rule 9B of the Rules inter alia holding that during the enquiry, the assessee had admitted that they did not have any basis to arrive at the assessable value but they are selling their goods at 'loss price' only to penetrate the market. Secondly, as already noticed that for nearly five years the assessee was selling its cars in the wholesale trade for a 'loss price' and therefore, the conditions envisaged under Section 4(1)(a) of the Act, namely; the normal price, ordinarily sold and sole consideration are not satisfied. The Hon’ble Supreme Court further hold that the decision in Bisleri's case (supra) will also not assist the assessee for the reason that the issue that came up for consideration is entirely different from the legal issue raised in these civil appeals. Before concluding on this issue, court intend to refer to the often quoted truism of Lord Halsbury that a case is only an authority for what it actually decides and not for what may seem to follow logically from it. The Hon’ble Supreme Court may also note the view expressed by this Court in the case of Sushil Suri vs. Central Bureau of Investigation & Anr. (2011)5 SCC 708,wherein this Court has observed, "Each case depends on its own facts and a close similarity between one case and another is not enough because either a single significant detail may alter the entire aspect. In deciding such cases, one should avoid the temptation to decide cases (as said by Cardozo) by matching the colour of one case against the colour of another. To decide, therefore, on which side of the line a case falls, the broad resemblance to another case is not at all decisive." Thus Supreme Court do not intend to overload this judgment by referring to other decisions on this well settled legal principle.

The Hon’ble Supreme Court further held that Under Section 4(1)(b) of the Act, 1944, any goods which do not fall within the ambit of Section 4(1)(a) i.e. if the 'normal price' cannot be ascertained because the goods are not sold or for any other reason, the 'normal price' would have to be determined in the prescribed manner i.e. prior to 1st day of July, 2000, in accordance with Rules, 1975 and after 1st day of July 2000, in accordance with Rules, 2000. Rule 2 of the 1975 Valuation Rules provides for definition of certain terms, such as "proper officer", "value" etc., Rule 3 of the above Rules, provides that the value of any excisable goods, for the purposes of Clause (b) of Sub-Section (1) of Section 4 of the Act be determined in accordance with these Rules. Rule 4 provides that the value of the excisable goods shall be based on the value of such goods by the assessee for delivery at any other time nearest to the time of removal of goods under assessment. Rule 5 provides that when the goods are sold in the circumstances specified in Clause (a) of Sub-Section (1) of Section (4) of the Act except that the price is not the sole consideration, the value of such goods shall be based on the aggregate price and the amount of the money value of any additional consideration flowing directly or indirectly from the buyer to the assessee. Rule 6 provides, that, if the value of the excisable goods under assessment cannot be made, then to invoke provisions of Rule 6 of the Rules, wherein certain adjustments requires to be made as provided therein. Rule 7 is in the nature of residuary clause. It provides that if the value of excisable goods cannot be determined under Rule 4, 5 and 6 of the Rules, the adjudging authority shall determine the value of such goods according to the best of his judgment and while doing so, he may have regard to any one or more methods provided under the aforesaid Rules. A bare reading of these rules does not give any indication that the adjudging authority while computing the assessable value of the excisable goods, he had to follow the rules sequentially. The rules only provides for arriving at the assessable value under different contingencies. Again, Rule 7 of the Valuation Rules which provides for the best judgment assessment gives an indication that the assessing authority while quantifying the assessable value under the said Rules, may take the assistance of the methods provided under Rules 4, 5 or 6 of the Valuation Rules. Therefore, contention of the learned counsel that the assessing authority before invoking Rule 7 of the 1975 Valuation Rules, ought to have invoked Rules 4, 5 and 6 of the said Rules cannot be accepted. In our view, since the assessing authority could not do the valuation with the help of the other rules, has resorted to best judgment method and while doing so, has taken the assistance of the report of the 'Cost Accountant' who was asked to conduct special audit to ascertain the correct price that requires to be adopted during the relevant period. Therefore, The Hon’ble Supreme Court cannot take exception of the assessable value of the excisable goods quantified by the assessing authority. In the result, the appeals require to be allowed and, accordingly, they are allowed and the impugned order is set aside and the order passed by the adjudicating authority is restored.

Decision:- Revenue Appeal allowed.

Comment:-The Apex court has held in this case that the practice of selling of cars by the assessee at below cost consistently for a period of 5 years cannot be said to be held to be in “ordinary course”. It has been held by that the main reason for the assessee to sell their cars at a lower price than the manufacturing cost and profit is to penetrate the market and this will constitute extra commercial consideration and cannot be held as “the sole consideration”. Therefore, valuation under section 4(1)(a) cannot be made.

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PJ/Case Laws/2012-13/1372

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