IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 3159 OF 2004
Commissioner of Central Excise, Indore …Appellant (s)
Versus
M/s Grasim Industries Ltd …Respondent (s)
WITH
C.A. Nos.2982-2985/2005, C.A. No.2986/2005, C.A. No.7143/2005, C.A.
No.2261/2006, C.A. Nos.2246-2247/2008, C.A. Nos.2934-2935/2008, C.A. No.
3528/2008, C.A. No.4820/2008, C.A. No. 6695/2008, C.A. No.2534/2009, C.A.
No.8541/2009 , C.A. No. 253/2010, C.A. No.445/2010, C.A. No.1382/2010,
C.A. Nos.2003-2004/2010, C.A. No.2363/2010, C.A. No.2430/2010, C.A.
Nos.7174-7175/2010, C.A. No. 4696/2011, C.A. No.2705/2012, C.A.
No.3455/2004, C.A. No.6984/2011 and C.A. No.7272/2005.
O R D E R
1. By order dated 30.7.2009 the following questions have been referred
for consideration by a larger Bench in terms of which the matters have been
posted before us.
“1. Whether Section 4 of the Central Excise Act, 1944 (as substituted with
effect from 01.07.2000) and the definition of “Transaction Value” in Clause
(d) of sub-Section (3) of Section 4 are subject to Section 3 of the Act?
2. Whether Sections 3 and 4 of the Central Excise Act, despite being
interlinked, operate in different fields and what is their real scope and
ambit?
3. Whether the concept of “Transaction Value” makes any material departure
from the deemed normal price concept of the erstwhile Section 4(1)(a) of
the Act?”
2. The facts in brief are as follows:
The respondents-assessees are manufacturers of dissolved and
compressed industrial gases and allied products. These gases are
transported and 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. Some container items are provided
by the assessees and in some instances the customers bring their own
cylinders/containers. For providing the containers, the assessees charge
the customers certain amounts under different heads. These amounts are not
reflected in the sale invoices for the purpose of computation of assessable
value. The assessees treat the said amounts as their income from ancillary
or allied ventures.
3. The issue arising in all these appeals is whether the aforesaid
charges 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
from 1.7.2000.
4. Section 3 of the Act is the charging section and reads as follows:
“3. (1) There shall be levied and collected in such manner as may be
prescribed,
(a) a duty of excise to be called the Central Value Added Tax (CENVAT)] on
all excisable goods (excluding goods produced or manufactured in special
economic zones) 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 (5 of 1986);
…………………
5. Section 4 (1) (a) of the Act, as substituted with effect from
01.07.2000, reads as under:
“4. Valuation of excisable goods for purposes of charging of duty of
excise.–(1) Where under this Act, the duty of excise is chargeable on any
excisable goods with reference to their value, then, on each removal of the
goods, such value shall–
(a) in a case where the goods are sold 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;”
6. “Transaction Value” as defined by Section 4 (3) (d) reads as follows:
“(d) “transaction value” means the prices actually paid or payable for the
goods, when sold, and includes in addition to the amount charged as price,
any amount that the buyer is liable to pay to, or on behalf of, the
assessee, by reason of, or in connection with the sale, whether payable at
the time of the sale or at any other time, including, but not limited to,
any amount charged for, or to make provision for, advertising or publicity,
marketing and selling organization expenses, storage, outward handling,
servicing, warranty, commission or any other matter; but does not include
the amount of duty of excise, sales tax and other taxes, if any, actually
paid or actually payable on such goods.”
7. Prior to amendment of Section 4 (1) (a) with effect from 1.7.2000 the
unamended Section 4 (1) (a) read as follows:
“4. Valuation of excisable goods for purposes of charging of duty of
excise.–(1) Where under this Act, the duty of excise is chargeable on any
excisable goods with reference to value, such value, shall, subject to the
other provisions of 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.”
8. Section 4 (1) (a) [prior to the substitution] was considered by a
Three Judges Bench of this Court in Union of India & Ors. Vs. Bombay Tyre
International Ltd. & Ors.[1]. While considering the interplay between
Section 3 and 4, it was held as follows:
“…Section 3 of the Central Excises and Salt Act provides for the levy of
the duty of excise. It creates the charge, and defines the nature of the
charge. That it is a levy on excisable goods, produced or manufactured in
India, is mentioned in terms in the Section itself. Section 4 of the Act
provides the measure by reference to which the charge is to be levied. The
duty of excise is chargeable with reference to the value of the excisable
goods, and the value is defined in express terms by that Section. It has
long been recognized that the measure employed for assessing a tax must not
be confused with the nature of the tax.
… … …
It is apparent, therefore, that when enacting a measure to serve as a
standard for assessing the levy the Legislature need not contour it along
lines which spell out the character of the levy itself. Viewed from this
standpoint, it is not possible to accept the contention that because the
levy of excise is a levy on goods manufactured or produced the value of an
excisable article must be limited to the manufacturing cost plus the
manufacturing profit. We are of opinion 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. In our opinion, the original Section 4 and the new Section 4 of the
Central
Excises and Salt Act satisfy this test.
… … …
A contention was raised for some of the assessees, that the measure was to
be found by reading Section 3 with Section 4, thus drawing the ingredients
of Section 3 into the exercise. We are unable to agree. We are concerned
with Section 3(1), and we find nothing there which clothes the provision
with a dual character, a charging provision as well as a provision defining
the measure of the charge.”
9. In Commissioner of Central Excise Vs. Acer Ltd.[2], the scope and
purport of Section 3 of the Act, Section 4 (1) (a) as substituted with
effect from 1.7.2000 and Section 4 (3) (d) defining “transaction value”
came up for consideration before another Three Judges Bench of this Court.
In the said case, the question that arose is whether value of software
attached to a computer, which is otherwise exempt from duty, is liable to
be included in the assessable value of the computer for the purposes of
levy of duty. Paragraphs 67, 69 and 84 of the judgment in Commissioner of
Central Excise Vs. Acer Ltd. (supra) would be relevant and is, therefore,
noticed below:
“67. It is not in dispute that operational softwares are available in the
market separately. They are separately marketable commodities. The
essentiality test or the functional test cannot be applied for the purpose
of levy of Central excise inasmuch as the tax is on manufacture of “goods”.
The Act being a fiscal legislation an attempt must be made to read the
provisions thereof reasonably. Computer comes within the definition of
excisable goods. So is a software. They find place in different
classifications. The rate of duty payable in relation to these two
different goods is also different.
69. While calculating the value of the computer the value of the hard disc,
value of the firmware, the cost of the motherboard as also the costs for
loading operating softwares is included. What is excluded from the total
value of the computer is the value of the operating softwares like Windows
2000, Windows XP which are secondary softwares. Indisputably, when an
operating software is loaded in the computer, its utility increases. But
does it mean that it is so essential for running the computer that
exclusion thereof would make a computer a dead box? The answer to the said
question as would appear from the discussions made hereinafter must be
rendered in the negative. It is not disputed before us that even without
operational softwares a computer can be put to use although by loading the
same its utility is enhanced. Computers loaded with different operational
softwares cater to the specific needs of the buyer wherefor he is required
to place definite orders on the manufacturer. It is also not in dispute
that an operating software loaded on the hard disc is erasable. It is also
accepted that the operating software despite being loaded on to the hard
disc is usually supplied separately to the customers. It is also beyond any
controversy that operating software can be updated keeping in view the
development in the technology and availability thereof in the market
without affecting the data contained in the hard disc. Concededly, even in
the case of hard disc crash the software contained in the CDs is capable of
being reloaded on to the hard disc and its utility by the users remains the
same. An operational software, therefore, does not form an essential part
of the hardware.
84. In other words, computers and softwares are different and distinct
goods under the said Act having been classified differently and in that
view of the matter, no Central excise duty would be leviable upon
determination of the value thereof by taking the total value of the
computer and software. So far as the valuation of goods in terms of
“transaction value” thereof, as defined in Section 4(3)(d) of the Act is
concerned, suffice it to say that the said provision would be subject to
the charging provisions contained in Section 3 of the Act as also sub-
section (1) of Section 4. The expressions “by reason of sale” or “in
connection with the sale” contained in the definition of “transaction
value” refer to such goods which is excisable to excise duty and not the
one which is not so excisable. Section 3 of the Act being the charging
section, the definition of “transaction value” must be read in the text and
context thereof and not dehors the same. The legal text contained in
Chapter 85, as explained in Chapter Note 6, clearly states that a software,
even if contained in a hardware, does not lose its character as such. When
an exemption has been granted from levy of any excise duty on software
whether it is operating software or application software in terms of
Heading 85.24, no excise duty can be levied thereupon indirectly as it was
impermissible to levy a tax indirectly. In that view of the matter the
decision in PSI Data Systems must be held to have correctly been rendered.”
10. From the above, it clearly appears that, though in the backdrop of
different factual scenarios, two Coordinate Benches (Three Judges) have
taken what would appear to be contrary views with regard to purport and
effect and the interconnection between Section 3 and 4 of the Central
Excise Act, 1944.
11. In the above situation, we are of the view that another Coordinate
Bench should not venture into the issues raised and even attempt to express
any opinion on the merits of either of the views expressed in Union of
India & Ors. Vs. Bombay Tyre International Ltd. & Ors. (supra) and
Commissioner of Central Excise Vs. Acer Ltd. (supra). Rather, according to
us, the questions referred should receive consideration of a Larger Bench
for which purpose the connected papers may now be placed before the Hon’ble
the Chief Justice of India for appropriate directions.
…….……………………………J.[RANJAN GOGOI]
………………………………….J.[ARUN MISHRA]
…………………………….……J.[PRAFULLA C. PANT]
NEW DELHI;
MARCH 30, 2016.
———————–
[1] (1984) 1 SCC 467
[2] (2004) 8 SCC 173
Read Also: Case Brief – Commnr. Of Central Excise, Indore Vs. M/S. Grasim Industries Ltd