A five-judge bench of the Supreme Court, in Commissioner of Central Excise vs. M/s. Grasim Industries Ltd. held that the measure of the levy of tax contemplated in Section 4 of the Central Excise Act, 1944 would not be controlled by the nature of the levy.
In the instant case, the assessee is the manufacturers of dissolved industrial gases, liquid chlorine, and other allied products which are supplied to the customers in tonner, cylinders, paper cones, and bags. 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.
The issue before the Court was whether the charges realized by the assessee were liable to be taken into account for the determination of value for the purpose of levy of duty in terms of Section 4 of the Central Excise Act, 1944 as amended with effect from 1st July 2000. Noticing a conflict of decisions in Union of India and Ors. v. Bombay Tyre International Ltd. and Ors and Commissioner of Central Excise, Pondicherry v. Acer India Ltd, a two-judge bench of the Court referred the matter to a larger bench.
The constitutional bench observed that the Supreme Court in Bombay Tyre International had observed 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. The Court went on to hold that “a broader-based standard of reference may be adopted for the purpose of determining the measure of the levy. Any standard which maintains a nexus with the essential character of the levy can be regarded as a valid basis for assessing the measure of the levy.”
The Bench comprising of Justices Ranjan Gogoi, N.V. Ramana, R. Banumathi, Mohan M. Shantanagoudar and S. Abdul Nazeer noted that the price charged for a manufactured article at the stage when the article enters into the stream of trade in order to determine the value or transaction value for computation of the quantum of excise duty payable doesn’t come into conflict with the essential character or nature of the levy.
“The measure is the value and value is related to price. The price charged at the stage of clearance, in addition to manufacturing cost and manufacturing profit, can include certain value additions and inclusions which enrich the value of 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 in manufacture. But it is the value up to 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.” observed the Bench.
The bench further observed that so long a reasonable nexus is discernible between the measure and the nature of the levy both Section 3 and 4 of the Customs Excise Act, 1944 would operate in their respective fields. They noted that the view expressed in Bombay Tyre International Ltd. was the correct exposition of the law. The bench also held that “transaction value” as defined in Section 4(3)(d) brought into force by the Amendment Act, 2000, statutorily engrafts the additions to the ‘normal price’ under the old Section 4 as held to be permissible in Bombay Tyre International Ltd. besides giving effect to the changed description of the levy of excise introduced in Section 3 of the Act by the Amendment of 2000.
“In fact, we are of the view that there is no discernible difference in the statutory concept of ‘transaction value’ and the judicially evolved meaning of ‘normal price’,” said the Bench.
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