1983 (5) TMI 33 - SC - Central Excise

Position prior to the amendment of section 4 of the Central Excises and Salt Act, 1944 and as amended by Act XXII of 1973 Held that - The wholesale cash price at the factory gate is the basis for determination of value of an excisable article and whatever be the wholesale cash price at which the excisable article is sold in wholesale trade at the factory gate, would represent the value of the excisable article on which excise duty is leviable and no deduction from such wholesale cash price is permissible except in respect of trade discount and the amount of excise duty payable at the time of removal of the excisable article from the factory or any other premises of manufacture or production. No amount is deductible from such price in respect of advertisement or publicity expenses incurred by the assessee or expenses in connection with the storage of excisable article or expenses of the sales organisation or any other expenses incurred by the assessee upto the date of delivery. So far as the cost of packing is concerned, no deduction is permissible in respect of such cost from the wholesale cash price of the excisable article at the factory gate, whether the packing be primary packing or secondary packing and whether its cost is shown separately or as included in the wholesale cash price. After amendment the price at which the excisable 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 as defined in sub-section (4)(b) of section 4 is the basis for determination of excisable value provided, of course, the buyer is not a related person within the meaning of sub-section (4)(c) of section 4 and the price is the sole consideration for the sale. Where wholesale price of any excisable goods for delivery at the place of removal is not known and the value thereof is determined with reference to the wholesale price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery should be excluded from such price

Summary

Issues:
1. Interpretation of section 4 of the Central Excises and Salt Act, 1944 prior to and after the amendment by Act XXII of 1973.

Analysis:
The judgment by the Supreme Court of India delves into the interpretation of section 4 of the Central Excises and Salt Act, 1944 both before and after the amendment by Act XXII of 1973. Prior to the amendment, the value of an excisable article for determining excise duty was based on the price at which it was sold in wholesale trade at the factory gate. No deductions were permissible from this wholesale cash price except for trade discount and excise duty payable at the time of removal. The cost of packing, whether primary or secondary, could not be deducted unless it was a special secondary packing provided at the buyer's request. Additionally, if freight was averaged and included in the wholesale cash price, it had to be deducted to determine the real wholesale cash price.

After the amendment, the value was determined based on the price at which the goods were ordinarily sold in wholesale trade for delivery at the time and place of removal, unless certain conditions were met. The judgment clarified that the definition of 'related person' did not encompass all distributors but only those who were relatives of the assessee as per the Companies Act, 1956. The amended section also maintained restrictions on deductions from the wholesale price, allowing only for trade discount, excise duty, taxes payable, and averaged freight. Other expenses like advertisement, storage, packing, and sales organization expenses were not deductible for the purpose of determining excisable goods' value for excise duty levy.

Overall, the judgment provides a detailed analysis of the changes in the interpretation and application of section 4 of the Central Excises and Salt Act, 1944 before and after the 1973 amendment, outlining the criteria for determining excisable goods' value and the permissible deductions from the wholesale price under both scenarios.