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TMI Blog2018 (5) TMI 915X X X X Extracts X X X X X X X X Extracts X X X X ..... the product to make it suitable for sale or to facilitate such sale. At this stage, impost has nothing to do with the sale. The impost is on manufacture. But it is the value upto the stage of the first sale that is taken as the measure. Doing so does not introduce any inconsistency between the nature and character of the levy and the measure adopted. The amendment to Section 3 by substitution of the words “a duty of excise on all excisable goods” by the words “a duty of excise to be called the Central Value Added Tax (CENVAT) on all excisable goods” is conspicuous. The amendment of Section 3 to the Act not only incorporates the essentials of a changed concept of charging of tax on additions to the value of goods and services at each stage of production but also engrafts in the statute what was judicially held to be permissible additions to the manufacturing cost and manufacturing profit. Regarding decision in the case of Acer India Ltd (2004 (9) TMI 106 - SUPREME COURT OF INDIA). - Held that:- The observations made in paragraph 84 thereof to the effect that ‘transaction value’ defined in Section 4(3)(d) of the Act would be subject to the charging provisions contained in Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed industrial gases, liquid chlorine and other allied products. Cotton yarn and Post Mix Concentrate manufactured by two other individual assessees are also in issue. These articles are supplied to the customers in tonners, cylinders, carboys, paper cones and HDPE bags, BIBs, pipeline and canisters, which may be more conveniently referred to as containers . In some cases the containers are provided by the Assessees to the customers on rent whereas in others the customers bring their own containers. For making available or for filling up the containers provided by the customers the Assessees charge the customers certain amounts under different heads viz. packing charges, wear and tear charges, facility charges, service charges, delivery and collection charges, rental charges, repair and testing charges. The Assessees treat the said amounts as their income from ancillary or allied ventures. 2. The issue arising is whether the aforesaid charges realised by the Assessees are liable to be taken into account for determination of value for the purpose of levy of duty in terms of Section 4 of the Central Excise Act, 1944 (hereinafter referred to as the Act ) as amended with effect f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f this Court which we will take note of shortly. Do these principles that have withstood the test of time require a rethink is the question that poses for an answer in the present reference. 7. At this stage, it may be necessary to specifically take note of the provisions of Sections 3 and 4 as originally enacted and as amended from time to time. Section 3 Section 3 of the Act in force prior to amendment by Finance Act 2000 (Act 10 of 2000 Relevant portion of Section 3 as substituted/amended (with effect from 12th May, 2000) by Section 92 of the Finance Act, 2000 (No.10 of 2000) 3. Duties specified in the First Schedule to be levied. (1) There shall be levied and collected in such manner as may be prescribed,- (a) a duty of excise on all excisable goods which are produced or manufactured in India as, and at the rates, set forth in the First Schedule to the Central Excise Tariff Act, 1985; (b) 3. Duties specified in [the First Schedule and the Second Schedule] to the Central Excise Tariff Act, 1985] to be levied.- There shall be levied and collected in such manner as may be prescribed,- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , in relation to the goods so sold, be deemed to be the normal price thereof; (iii) where the assessee so arranges that the goods are generally not sold by him in the course of wholesale trade except to or through a related person, the normal price of the goods sold by the assessee to or through such related person shall be deemed to be the price at which they are ordinarily sold by the related person in the course of wholesale trade at the time of removal, to dealers (not being related persons) or where such goods are not sold to such dealers, to dealers (being related persons) who sell such goods in retail; (b) where the normal price of such goods is not ascertainable for the reason that such goods are not sold or for any other reason, the nearest ascertainable equivalent thereof determined in such manner as may be prescribed. (2) Where, in relation to any excisable goods the price thereof for delivery at the place of removal is not known and the value thereof is determined with reference to the 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 shall be excluded from such price. (3) The pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the assessee, for delivery at the time and place of the removal, the assessee and the buyer of goods are not related and the price is the sole consideration for the sale, be the transaction value; (b) in any other case, including the case where the goods are not sold, be the value determined in such manner as may be prescribed. (2) The provisions of this section shall not apply in respect of any excisable goods for which a tariff value has been fixed under sub-section (2) of section 3. (3) For the purpose of this section,- (a) assessee means the person who is liable to pay the duty of excise under this Act and includes his agent; (b) persons shall be deemed to be related if - (i) they are interconnected undertakings; (ii) they are relatives; (iii) amongst them the buyer is a relative and distributor of the assessee, or a subdistributor of such distributor; or (iv) they are so associated that they have interest, directly or indirectly, in the business of each other. Explanation. - In this clause - (i) inter-connected undertakings shall have the meaning assigned to it in clause (g) of section 2 of the Monopolies and Restrictive Trade Practices Act, 1969 (64 of 1969); and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect to duties of excise on tobacco and other goods manufactured or produced in India; except corresponds to Entry 84 of List-I of the Seventh Schedule to the Constitution of India. 9. Some extracts from the opinion rendered by Chief Justice Gwyer(all the Judges on the Bench gave their own opinions while agreeing to the eventual conclusion) would throw light on the nature of the levy of excise and is therefore being recollected below:- The federal legislative power extends to making laws with respect to duties of excise on goods manufactured or produced in India. Excise is stated in the Oxford Dictionary to have been originally accise , a word derived through the Dutch from the late Latin accensare, to tax; the modern form, which ousted accise at an early date, being apparently due to a mistaken derivation from the Latin excidere, to cut out. It was at first a general word for a toll or tax, but since the 17th century it has acquired in the United Kingdom a particular, though not always precise, signification. The primary meaning of excise duty or duty of excise has come to be that of a tax on certain articles of luxury (such as spirits, beer or tobacco) produced o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and a tax on the thing produced, this contention, no less than that of the Government of India, confuses the nature of the duty with the extent of the legislative power to impose it. Nor, for the reasons already given, is it possible to agree that in no circumstances could an excise duty be levied at a stage subsequent to production or manufacture. (Underlining and bold is ours) 10. The issue was considered further in The Province of Madras vs. Messrs. Boddu Paidanna Sons A.I.R. (29) 1942 Federal Court 33 (from Madras). The following observation would be relevant. In 1939 F.C.R. 18 the opinions expressed were advisory opinions only, but we do not think that we ought to regard them as any less binding upon us on that account. We accept, therefore, the general division between the Central and Provincial spheres of taxation which commended itself to the majority of the Court in that case .. They recognized that the expression 'duty of excise' is wide enough to include a tax on sales ; but where power is expressly given to another authority to levy a tax on sales, it is clear that duty of excise must be given a more restricted meaning than it might othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ale, and a sale has no necessary connexion with manufacture or production. The manufacturer or producer cannot of course sell his commodity unless he has first manufactured or produced it; but he is liable, if at all, to a sales tax because he sells and not because he manufactures or produces; and he would be free from liability if he chose to give away everything which came from his factory. 11. The early views on the nature of excise duty as a levy and the stage of collection thereof would make it clear that though the impost is on the manufacture of an article the point of collection of the same need not necessarily coincide with the time of manufacture. The stage of collection can and usually is a matter of administrative convenience and such stage, normally, is the stage of clearance of article when it, for the first time, enters the trade for sale. The above position was affirmed by the Privy Council in Governor-General in Council v. Province of Madras [A.I.R. (32) 1945 Privy Council 98] wherein it was, inter alia, held as follows: The term duty of excise is a somewhat flexible one: it may, no doubt, cover a tax on first and, perhaps, on other sales: it may in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fact that the subject in issue had received a full and detailed consideration of this Court. 14. In Bombay Tyre International Ltd. (supra) the issue, shortly put, was whether determination of assessable value for the levy of excise duty can be only on the manufacturing cost and the manufacturing profit. It was contended before this Court, by relying on the decision of this Court in A.K. Roy and Another vs. Voltas Limited (1973) 3 SCC 503, that having regard to the character of the levy the measure must be restricted thereto. The contention was rejected by referring to a long line of precedents including those referred to herein above to hold that the levy of a tax is defined by its nature, while the measure of the tax may be assessed by its own standard. It is true that the standard adopted as the measure of the levy may indicate the nature of the tax but it does not necessarily determine it. . The further view expressed in Bombay Tyre International Ltd. (supra) is that merely because excise is a levy on manufactured goods the value of the excisable article for the purpose of levy cannot be limited to only the manufacturing cost plus manufacturing profit. This Court went on to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered in Bombay Tyre International Ltd. (supra) on a specific contention advanced on behalf of the Assessees that the deductions under the following heads should be made from the sale price in the following terms: 48. We now proceed to the question whether any post-manufacturing expenses are deductible from the price when determining the value of the excisable article. The old Section 4 provided by the Explanation thereto that in determining the price of any article under that section no abatement or deduction would be allowed except in respect of trade discount and the amount of duty payable at the time of the removal of the article chargeable with duty from the factory or other premises aforesaid. The new Section 4 provides by sub-section (2) that where the price of excisable goods for delivery at the place of removal is not known and the value is determined with reference to the 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 has to be excluded from such price. The new Section 4 also contains sub-section (4)(d)(ii) which declares that the expression value in relation to an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity in the trade. Therefore, the expenses incurred on account of the several factors which have contributed to its value upto the date of sale, which apparently would be the date of delivery, are liable to be included. Consequently, where the sale is effected at the factory gate, expenses incurred by the assessee upto the date of delivery on account of storage charges, outward handling charges, interest on inventories (stocks carried by the manufacturer after clearance), charges for other services after delivery to the buyer, namely aftersales service and marketing and selling organisation expenses including advertisement expenses cannot be deducted. It will be noted that advertisement expenses, marketing and selling organisation expenses and after-sales service promote the marketability of the article and enter into its value in the trade. Where the sale in the course of wholesale trade is effected by the assessee through its sales organisation at a place or places outside the factory gate, the expenses incurred by the assessee upto the date of delivery under the aforesaid heads cannot, on the same grounds, be deducted. But the assessee will be entitled to a deduction on account o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... need not detain us. Softwares which were duty free items and could be transacted as softwares came to be combined with the computer hardware which was a dutiable item for purposes of clearance. The Revenue sought to take into account the value of the computer software for the purposes of determination of transaction value with regard to the computer. This Court negatived the stand of the Revenue taking the view that when software as a separate item was not dutiable its inclusion in the hard-disk of the computer cannot alter the duty liability of the software so as to permit the addition of the price/value of the software for the purpose of levy of duty. It is in the above context that the decision of this Court in Acer India Ltd. (supra) has to be understood. The observations made in paragraph 84 thereof to the effect that transaction value defined in Section 4(3)(d) of the Act would be subject to the charging provisions contained in Section 3 of the Act will have viewed in the context of a situation where an addition of the value of a non-dutiable item was sought to be made to the value of a dutiable item for the purpose of determination of the transaction value of the compos ..... X X X X Extracts X X X X X X X X Extracts X X X X
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