"http://JUDIS.NIC.IN \nSUPREME COURT OF INDIA\nPage 1 of 8 \nPETITIONER:\nTHE ASSTT. COLLECTOR OF CENTRALEXCISE & ORS.\n Vs.\nRESPONDENT:\nDATA INDIA LTD.\nDATE OF JUDGMENT: 07/05/1996\nBENCH:\nSEN, S.C. (J)\nBENCH:\nSEN, S.C. (J)\nAHMADI A.M. (CJ)\nHANSARIA B.L. (J)\nCITATION:\n 1996 SCC (4) 563 JT 1996 (5) 230\n 1996 SCALE (4)508\nACT:\nHEADNOTE:\nJUDGMENT:\n J U D G M E N T\n The only point that falls for determination in this\nappeal is whether the benefit of exemption given to footwear\ncan be claimed by the manufacturer even where the wholesale\nprice of the footwear exceeds the limit of the exemption\nspecified in the notification. There can be no dispute that\nif the assessable Vague calculated according to Section 4 of\nthe Central Excise and Salt Act, comes upto or below the\nlimit set by the notification, the assessee will be entitled\nto the benefit of the notification.\n The notification which was originally issued under\nsub-rule (1) of Rule 8 of Central Excise Rules, 1944\nexempted footwear the value of which did not exceed Rs.5/-\nper pair from the whole of the duty of excise leviable\nthereon The exemption limit of Rs.5/- per pair - has been\nenhanced from time to time and at the material time, for\nthe purpose of this case, the exemption was limited to\nfootwear the value of which was upto Rs.60/ per pair.\n Mr. Shanti Bhushan on behalf of the respondent has\ncontended that if excise duty was payable on these shoes,\nthe amount of excise duty had to be deducted from the\nwholesale price in order to determine the assessable value\nof the shoes which was less than the limit set by the\nexemption notification. If this is not allowed, the\nDepartment will claim excise duty even on shoes which would\notherwise qualify for benefit of exemption notification\nbecause of the lower value. To illustrate this point, Mr.\nShanti Bhushan has argued that when the exemption\nnotification was limited to Rs.60/- per hair of shoes,\nthere would be no difficulty in cases where the wholesale\nprice was upto Rs.60/- or less. There can be no dispute that\nin respect of these types of shoes, no excise duty will be\nleviable. If the shoes were priced at Rs.60/- and above,\nthe excise duty will be levied. But, if the whole sale\n\nhttp://JUDIS.NIC.IN \nSUPREME COURT OF INDIA\nPage 2 of 8 \nprice was at Rs.62/- or Rs.66/-, in such a case, after\ndeduction of excise duty at the rate of 10%, the value of\nthe goods will be in the range of Rs.56.36 to Rs.60.00. Mr.\nShanti Bhushan has contended that even in such cases when by\ndeducting excise duty payable on goods, the value has been\narrived at the price of Rs.60/-.or less, the question of\nlevying excise duty will not arise. To demonstrate his\nargument, he has given a chart:\nWholesale Price Rate Deduction Value\nafter discounts of on account as per\netc. Duty of duty Section 4\n--------------- ------ -------- ---------\nRs.56.00 10% Rs.5.09 Rs.50.91\nRs.58.00 10% Rs.5.27 Rs.52.73\nRs.60.00 10% Rs.5.45 Rs.54.55\nRs.62.00 10% Rs.5.64 Rs.56.36\nRs.64.00 10% Rs.5.82 Rs.58.18\nRs.66.00 10% Rs.6.00 Rs.60.00\nRs.68.00 10% Rs.6.18 Rs.61.82\nRs.70.00 10% Rs.6.36 Rs.63.64\nRs.72.00 10% Rs.6.55 Rs.65.45\n It was argued that in respect of the first three items\nof which wholesale price (after trade discount etc.) was\nRs.56.00, Rs.58.00 or Rs.60.00, there was no controversy\nthat these were exempted. There was also no controversy in\nrespect of the last three items of which the wholesale price\n(after trade discount etc.) was Rs.68.00, Rs.70.00 or\nRs.72.00. The controversy is restricted to the items in the\nsecond category, where the wholesale price after trade\ndiscount etc. was in the range of Rs. 62.00, Rs.64.00 or\nRs.66.00. In these cases, if the excise duty element was\ntaken away, the value will become Rs.60.00 or less Applying\nrules of valuation laid down in Section 4 of the Act, no\nduty was payable even on shoes under this category\n Mr. Shanti Bhushan has contended that if excise duty is\npayable on these shoes, then the duty element has to be\ndeducted from the wholesale price in order to ascertain the\nassessable value under Section 4. Once excise duty at the\nrate of 10% is taken out from the wholesale price of the\nshoes falling under the disputed category, the assessable\nvalue would come to less than Ps.60.00 and the benefit of\nexemption notification cannot be denied to the manufacturer\nin these cases\n We are unable to uphold this contention because the\nnormal price charged by the manufacturer at the time and\nplace of removal of goods to the wholesaler is treated by\nthe Act to be the value of the goods. Subsection (l)(a) of\nSection 4 makes it clear that \"such value shall . . . be\ndeemed to be the normal price thereof, that is to say, the\nprice at which such goods are ordinarily sold by the\nassessee to a buyer in the course of wholesale trade \".\nTherefore, the normal wholesale price of the goods must be\ndeemed to be the value of the goods. It is not necessary to\nrefer to the various types of prices that may be charged\nfrom the buyer set out in the proviso to Section 4(1)(a).\nBut there cannot be any dispute that excise duty will be\nlevied on the value of the excisable goods and the basic\nrule is that the normal wholesale price is the value of the\ngoods. The normal wholesale price is the cum-duty price\nwhich the wholesaler has to pay to the manufacturer. The\ncost of production, estimated profit and the taxes on\nmanufacture and sale of the goods are usually included in\nthe wholesale price of the goods. It is only because the\nwholesale price is usually the cum-duty price that sub-\nsection (4)(d) lays down that ’value’ will not include duty\n\nhttp://JUDIS.NIC.IN \nSUPREME COURT OF INDIA\nPage 3 of 8 \nof excise, sales tax and other taxes, if any, payable on the\ngoods. But if a manufacturer includes in the wholesale price\nany amount by way of tax, even when no such tax is payable,\nthen he is really including something in the price which is\nnot payable as duty at all. He is really increasing the\nprofit element included in the wholesale price in another\nguise. In such a situation, there cannot be any question of\ndeduction of duty payable on the goods from the wholesale\nprice because as a matter of fact, no duty has actually been\nincluded in the wholesale price.\n In the chart given by Or. Shanti Bhushan the\ncontroversy relates to the second category of price-list\nafter discounts etc. But, these prices - Rs.62.00, Rs.64.00\nor Rs.66.00 are not inclusive of any duty. If that be so,\nthese are the values of goods on which excise duty would be\nleviable in usual course without any further deduction.\nClause (d) of sub-section (4) of Section 4 lays down that\n’value’ will include the cost of packing of the goods when\nthe goods are sold pin packed condition in certain cases.\nSub-clause (ii) of clause (d) provides that the value will\nnot include \"the amount of duty of excise,....... if any,\npayable on such goods.\" Otherwise, there will be tax upon\nthe amount of tax which forms-part of the price of the\ngoods. But in a case where the wholesale price is not\ninclusive of any duty payable on the goods, then no question\nof deduction of any duty for determination of value will\narise. Subclause (ii) of clause (d) specifically states that\nwhat will not be included in the value \"is the amount of\nduty of excise, . . .if any payable on -such goods\". The\nphrase \"if any\" signifies that if no duty is payable,\nnothing will be deducted from the wholesale price. It is\nonly when excise duty is actually payable that the duty\nelement can be excluded from the wholesale price. Sabyasachi\nMukharjee, J. (as his Lordship then was) pointed out in the\ncase of Hindustan Polymers v. Collector of Central Excise\n(1989) 4 SCC 323 that the two sub-clauses of Section 4(4)(d)\ndealt-with abatements or deductions in respect of actual\nburdens, either by way of an expenditure or discount, borne\nby the assessee. If the assessee has not allowed any trade\ndiscount, he cannot ask for deduction of the same from his\nprice. If he does not have to pay any tax as a matter of\nfact, he cannot ask for it to be deducted from the Wholesale\nprice for Calculating the value of the goods. In such a\ncase, the normal price, that is the wholesale price will be\ndeemed to be the value of the goods.\n To revert back to the chart, if value of the goods\nexclusive of any duty is Rs.56.36 or Rs.58.18 or Rs. 60.00,\nno duty is payable on such goods at all. The wholesale price\nneed not be higher than the value of the goods in such\ncases. These values are inclusive of profit intended to be\nmade by the manufacturer. The manufacturer can sell these\ngoods at the aforesaid prices and enjoy the tax exemption.\nBut if the manufacturer with full knowledge that no duty is\npayable when the value of the goods are below Rs.60.00,\nraises the prices to above Rs.60.00, then he has included in\nthe wholesale price something which is not the anticipated\nduty of excise payable on such goods but an extra amount of\nprofit in another guise.\n For the purpose of excise duty, the manufacturer has to\nsubmit a price-list to the excise authority before removal\nof the goods from the factory. He has to indicate in the\nforms and documents relating to assessment, the value of the\ngoods and the amount of duty which will form part of the\nprices at which such goods are to be sold. Costs and\nestimated profits are included in the price of the goods.\n\nhttp://JUDIS.NIC.IN \nSUPREME COURT OF INDIA\nPage 4 of 8 \nInclusion of the anticipated amount of the excise duty in\nthe wholesale price is the last part of the pricing\nmechanism. The manufacturer has to calculate the value on\nwhich duty would be payable, estimate the amount of duty\npayable and add that amount to the value of the goods to\narrive at the wholesale price. It is on the value of the\ngoods and not the cum-duty-price that the duty is paid to\nthe excise authority before the clearance of the goods. If,\nas in this case, before adding any amount by way of excise\nduty, the manufacturer found that the value of the footwear\nwas Rs.60.00 per pair or less, no question of payment of\nexcise duty could arise. There was no necessity to add\nanything on account of tax to raise the price of the goods\nto above Rs.60.00 per pair. The wholesale price of Rs.62.00,\nRs.64.00 and Rs.66 given in the chart included costs,\nestimated profits,etc, but could not have included any\namount by way of excise duty because footwear valued upto\nRs.60.00 per pair was exempt from duty.\n It has not been explained in the chart how the\nwholesale price has been fixed at Rs.62.00 or Rs.64.00 or\nRs.66 00 as inclusive of dully. Did these prices contain any\namount on account of estimated excise duty payable? If so,\nwhat were the values on which the manufacturer estimated the\namounts at the duties payable? For example, if Rs.62.00 is\nthe price, the manufacturer will have to explain by giving\nthe breakup, how was this price fixed. If 10% was the rate\nof duty and footwear valued upto Rs.60.00 per pair was\nexempt from duty, Rs.6 could not be added to the value for\nfixation of the price. If Rs.66.00 is an ex-duty price, then\nduty has not been included in the price. In such a\nsituation, no question of any deduction of duty from the\nwholesale price under Section 4(4)(d)(ii) could arise.\n The construction suggested by Mr.Shanti Bhushan will\nalso defeat the purpose of the exemption notification.\nExemption from duty has been given to footwear valued at\nRs.60.00 or less per pair. Excise duty is usually passed on\nto the consumer by including the duty in the price of the\ngoods. The obvious intention behind the notification was to\ngive relief to the consumers who could not afford to buy\nhigher priced footwear. If the argument on behalf of the\nmanufacturer is upheld, he will be entitled to sell footwear\nat a price of more than Rs.60.00 per pair and yet will be\nable to claim the benefit of the exemption notification and\nnot pay any duty. An anomalous situation will arise. The\nconsumer will pay ex-duty price of more than Rs.60/- per\npair and bear the brunt of a tax burden which is not payable\nby the manufacturer in law. The manufacturer will enjoy the\nbenefit of the exemption notification by deducting an amount\non account of nonpayable exciss duty from the price and\nthereby make profit in the guise of payment of tax. At the\nsame time, the revenue will be deprived of the duty which is\npayable on footwear valued at above Rs.60.00.\n If the ex-duty value of the footwear given in the chart\nwas Rs.60.00 or less, then that should have been the excise\nvalue. There could be no reason for fixing the price at\nabove Rs.60.00 except for the purpose of making a larger\nprofit. A manufacturer at the time of clearance of the goods\nhas to indicate in all the documents relating to assessment,\nthe amount of duty which will form part of the price at\nwhich such goods are to be sold. In the instant case, the\nmanufacturer could not have included any amount by way of\nexcise duty as part of the price of the goods, if the ex-\nduty value of the goods was Rs.60.00 or less per pair. A\nmanufacturer has to fix the wholesale price of the goods\nbefore removal of the goods from factory. The price will\n\nhttp://JUDIS.NIC.IN \nSUPREME COURT OF INDIA\nPage 5 of 8 \ninclude costs, planned profit and taxes, if any. If, as in\nthe chart given by Mr. Shanti Bhushan, the ex-duty price of\nthe footwear manufactured by the Company, after all other\npermissible adjustments, fell short of Rs.60.00, there could\nbe no reason for the manufacturer to price the goods at a\nrate above Rs.60.00 by including an amount as duty even when\nno such duty was payable. Sub-section (1) of Section 4 lays\ndown that ’value’ shall be deemed to be the normal price\nwhich is the wholesale price of the goods. But, if any\namount payable as excise duty or sales tax formed part of\nthe normal price that will have to be excluded from the\n’value’ of the goods under the provision of sub-clause (ii)\nof clause (d) of sub-section (J) of Section 4. If the\nvalues of the goods as given in the chart were Rs.60.00 or\nless, then these values should have been the normal prices\nof the goods, that is to say, the prices at which such\ngoods were sold to the wholesale - market. but, if even in\nsuch cases, the wholesale prices were fixed at Rs.62.00,\nRs.64.00 or Rs.66.00, per pair, then these prices were not\ninclusive of any tax. In such a situation, provisions of\nSection 4(4)(d)(ii) are not attracted at all. The value of\nthe goods shall be deemed to be the normal price of the\ngoods under Section 4(1) of the Act (Rs.62.00 or Rs.64.00\nor Rs.66.00 as the case may be).\n Unless it is shown by the manufacturer that the price\nof the goods includes an amount of excise duty payable by\nhim, no question of exclusion of the duty element from the\nprice for determination Of value under Section 4(4)(d)(ii)\nwill arise. What the manufacturer has really done in the\ninstant case is to increase the profit element in the\nwholesale price. In the chart given by Mr. Shanti Bhushan,\nin the second category the wholesale price of goods after\ndiscounts etc. has been shown to be Rs.62.00, Rs.64.00 and\nRs.66.00 inclusive of duty at 10%. These are self-\ncontradictory figures. If the Corresponding ex-duty figures\ncome to Rs.60.00 or less, then no excise duty was payable\non the goods. If the ex-duty price of the footwear\nmanufactured by the Company fell short of Rs.60.00 per\npair, then by virtue of the exemption notification no duty\nwas payable on the goods. In such a situation, a\nmanufacturer could not include in the price of the goods\nany amount by way of excise duty.\n Any doubt about this position in law has been\ndispelled by the Explanation added by Act 14 of 1982 to\nsub-clause (ii) of clause (d) which is as under:\n \"Explanation-For the purposes of\n this sub-clause, the amount of the\n duty of excise payable on any\n excisable goods shall be the sum\n total of -\n (a) the effective duty of excise\n payable on such goods under this\n Act; and\n (b) the aggregate of the effective\n duties of excise payable under\n other Central Acts, if any.\n providing for the levy of duties of\n excise on such goods,\n and the effective duty of excise on\n such goods under each Act referred\n to in clause (a) or clause (b)\n shell be,\n (i) in a case where a notification\n or order providing for any\n exemption (not being an exemption\n\nhttp://JUDIS.NIC.IN \nSUPREME COURT OF INDIA\nPage 6 of 8 \n for giving credit with respect to,\n or reduction of duty of excise\n under such Act on such goods equal\n to, any duty of excise under such\n Act, or the additional duty under\n Section 3 of the Customs Tariff\n Act, 1975 (51 of 1975), already\n paid on the raw material or\n component parts used in the\n production or manufacture of\n such goods from the duty of excise\n under such Act is for the time\n being in force, the duty of excise\n computed with reference to the rate\n specified in such Act in respect of\n such goods as reduced so as to\n give full and complete effect to\n such exemption; and\n (ii) in any other case, the duty of\n excise computed with reference to\n the rate specified in such Act in\n respect of such goods \"\n The Explanation makes it clear that the amount of\nduty of excise on any excisable goods shall only be the\neffective duty of excise payable as defined under the Act.\nTherefore, before deducting any amount claimed to - be\npayable on account of excise duty, it has to be seen what\nis the duty of excise in force at the material point of\ntime. Any notification granting exemption will have to be\ntaken into account; full and complete effect to such\nnotification will have to be given. In the instant case at\nthe material point of time, there was a notification\ngranting exemption from duty to a pair of footwear upto the\nvalue of Rs.60.00. This means that if the value of a pair\nof shoes came to Rs.60.00 or less no excise duty was\nleviable; it was not open to the manufacturer to claim any\ndeduction on account of any duty which was not payable.\n We are unable to uphold the contention of Mr.Shanti\nBhushan that the Explanation to Section 4(4)(d)(ii) comes\ninto operation only when there is a variation in the rate\nof duty and not otherwise. The duty of excise under Schedule\nI of the Act was imposable on- various bases. It could but\nimposed unitwise as in T.I.33AA (Parts of Wireless\nReceiving Sets) or lengthwise as in T.I.37 (Cinematograph\nFilms) or on the basis of weight as in the case of T.I.25\n(Iron in any Crude Form). The duty has to be calculated at\nthe rates prescribed in the Schedule on the basis of number\nof units, length or weight or some other basis, as laid\ndown in the Schedule. When the duty is imposed ad valorem,\ncalculation of duty at the prescribed rate will have to be\nmade on the basis of the value of the goods. Section 4\ndeals with value of excisable goods where the duty of\nexcise is chargeable with reference to value. It has\nnothing to do with the rate of duty. Sub-clause (ii) of\nsub-section (d) of Section 4 lays down the ’value’ will\nnot include the amount of duty of excise, if any, payable\non such goods. This is a rule of valuation, What is the\namount of duty excise payable will depend on this\nvaluation. The Explanation has been inserted \"for the\npurpose of this sub-clause\" i.e. sub clause(ii). The amount\nof excise duty payable has been explained to be the\neffective duty of excise Payable on such goods, in other\nwords, not the duty of excise calculated in the manner laid\ndown in Schedule I only. Regard must be had to any relief\nor abatement of duty given by any statutory notification or\n\nhttp://JUDIS.NIC.IN \nSUPREME COURT OF INDIA\nPage 7 of 8 \norder. It has been made clear by the Explanation that if a\nnotification or order providing for any exemption from duty\nof excise under the Act is in force, full and complete\neffect to such exemption will have to be granted for the\npurpose of Computation of the value. \"The duty of excise\ncomputed with reference to the rate specified\" has to be\ncalculated first. Thereafter the duty of excise so computed\nwill have to be reduced in accordance with the exemption\nnotification. For example, if duty on ’Footwear’ is 10 per\ncent ad valorem per pair then the duty payable on Footwear\nvalued at Rs 60 will be Rs 6. Since there is a notification\nexempting Footwear valued upto Rs 60 per pair from duty,\nunder the Explanation or even otherwise the dutiable amount\nof Rs 6 will have to be reduced in terms of the exemption\nnotification. To give full and complete effect to exemption,\nthe taxable amount will have to be reduced to nil. The\nargument of Mr. Shanti Bhushan that the Explanation is\nattracted only when the rate of duty is reduced is not\nsupported either by clear words of the Explanation or by\nnecessary implication. The amount of duty payable has to be\ncomputed by reference to the rate of duty in force on the\nvalue of the Footwear. The duty payable may be reduced by\nany notification or order by lowering the rate of duty or by\nexempting any excisable goods from duty wholly or in part.\nThe Explanation will apply to every case \"where a\nnotification or order providing for exemption from the duty\nof excise under such Act is for the time being in force\" and\nnot only to a case where the rate of duty is lowered. The\neffective duty of excise on the notified goods shall be the\nduty of excise computed with reference to the specified rate\nin the First Schedule \"as reduced\" so as to give full and\ncomplete effect to such exemption. \"As reduced\" in this\ncontext means the duty of excise as reduced by a\nnotification granting exemption.\n There is yet another way of looking at the problem. The\nnotification by exempting footwear upto the value of Rs 60\nfrom duty of excise has not removed \"footwear\" from the list\nof excisable goods in the first schedule. It has in effect\nreduced the ad veloram duty of 10 per cent payable on such\nfootwear upto the value of Rs 60 to nil.\n The construction suggested by Mr. Shanti Bhushan will\nlead to anomaly and should be avoided. It will have to be\nheld that \"the amount of duty payable, if any\" in sub-clause\n(ii) of clause (d) will mean the amount of duty payable as\ncomputed in accordance with the provisions of the First\nSchedule which will stand reduced only when relief is\ngranted by reduction in the rate of duty and not otherwise.\n\"A notification or order providing for exemption\" in the\nExplanation will have to be read as a notification or order\ngranting exemption by reduction in the rate of ad valorem\nduty only. The object of the statute is clearly to exclude\nthe actual burden of excise duty from the wholesale price\nfor determining the value of any excisable good. The\nconstruction suggested by Mr.Shanti Bhushan will defeat the\nobject of the statute altogether.\n The assessee has adopted a scheme which can easily be\nseen through. After valuing the footwear at less than\nRs.60.00, he has fixed the price et above Rs.60.00. He is\nentitled to make asmuch profit as he can. But he has tried\nto claim deduction of a part of the profit as excise duty\npayable for the goods. In order to claim this deduction,\nthe assessee will have to show that the ’value’ of the\ngoods became more than Rs.60.00 per pair because of\ninclusion of excise duty. If that Cannot be done, there\nis no question of deducting any duty payable on the goods\n\nhttp://JUDIS.NIC.IN \nSUPREME COURT OF INDIA\nPage 8 of 8 \nmanufactured by the assessee. The conundrum spoken of\nby Mr. Shanti Bhushan does not exist. Once the principle\nunderlying the mechanism of valuation of excisable goods\nis borne in mind, this becomes a straight forward case. No\nintriguing conundrum perplexes our mind. We can easily\nbehold what lies behind the assessee’s scheme.\n Strong reliance was placed on behalf of the assessee\non the decision of this Court in the case of Bata Shoe Co\nv. Central Excise, (1985) 3 SCR 960, and particularly, on\nthe passage below:-\n \".............. It is, therefore,\n plain that before determining the\n question of availability of the\n exemption under Notification\n dated July 24, 1967, the first\n essential step is to determine the\n ’value’ of the article in the\n manner prescribed in Section 4 of\n the Act. The fact that on such a\n computation the article may\n ultimately be found to be exempted\n from excise duty does not have any\n bearing on the question of\n applicability of Section 4 of the\n Act for determining the ’value’,\n for purpose of duty.\"\n Section 4 has undergone drastic changes since this case\nwas decided. The concept of receive duty of excise was also\nnot there at that time.\n The appeal is, therefore, allowed. The judgment dated\n5th March, 1993 passed by the Punjab and Haryana High Court\nis set asides There will be no order as to costs.\n"