ivil Appeal No 3041 of 1988
From the Judgment and Order dated 2 1988 of the Calcutta High Court in Original Order Tender No FMAT No 181 of 1987
Dr Shankar Ghosh Mrs Naresh Bakshi and KD Prasad for the Appellants
Ashok H Desai P Parmeshwaran and A Subba Rao for the Respondents
The Judgment of the Court was delivered by KULDIP SINGH J
Ms Burn Standard Company Limited the appellant before us is one of the leading manufacturer of wagons
The wagons manufactured and produced by the appellant are primarily supplied to the Railway Board
The wagons are manufactured in 962 accordance with the specifications terms and conditions contained in the agreements entered between the appellant and the Railway Board from time to time
It is the admitted case of the parties that the Railway Board supplies wheel sets axle boxes and various other finished components of wagons to the appellant which are termed as free supply items
These items are not manufactured by the appellant
The readymade free supply items are made available to the appellant by the Railway Board without charging any price
There items are fitted in the wagons manufactured by the appellant and are ultimately supplied to the Railway Board
The invoice value of the wagon charged by the appellant from the Railway Board does not include the value of the free supply items
On the above facts the short question for our determination is whether the excise duty under Section 3 and 4 of the hereinafter called the Act  is to be charged on the invoice value of the wagon or on the value of completed wagon including that of the free supply items
The central excise authorities issued various show cause notices in respect of different transactions calling upon the appellant to show cause as to why the excise duty be not computed and charged onthe value of the completed wagon including that of the Free supply items
The appellant challenged the show cause notices by way of writ petition under Article 226 of the Constitution of India before the Calcutta High Court which was heard by a learned Single Judge who allowed the writ petition and quashed the demand raised by the central excise authorities
The Learned Judge came to the conclusion that the excise duty could only be charged on the basis of the invoice value under the contract
The learned Judge based his conclusions on the following reasoning There is no dispute that certain items of finished components are supplied by the Railway Board to the petitioner
The value of these items is not taken into consideration in fixing the price of the wagons sold by the petitioner to the Railway Board
The price of the completed wagons is calculated on the basis of the manufacturing cost of the petitioner including the price of components acquired by the petitioner for which the petitioner has actually to pay the price
But the components which are supplied free of cost by the Railway Board do not enter into the pricing mechanism of the petitioner at all
Therefore the excise 963 value of the wagons manufactured by the petitioner cannot be calculated after adding back the price of the components supplied free of cost by the Railway Board
 The Union of India filed appeal against the judgment of the learned Single Judge which was heard by a Division Bench of the Calcutta High Court
The Bench did not agree with the reasoning and conclusions of the learned Single Judge set aside his judgment and dismissed the writ petition of the appellant petitioner
The division Bench allowed the appeal in the following words Admittedly in this case the cost of wagon as a whole has not been mentioned in the agreement and we feel that the cost of normal price should include cost of construction and furthermore when sale is the charge and the same under charging section of the said Act would mean actual price of the goods viz wagon as a whole so the value of a wagon as a whole will form part of the relevant and necessary assessable value under section 4 of the said Act as the manufacturing cost of a complete wagon cannot be conceived of without taking into account or consideration the cost of free supply items 
We hold that the valuation cost of the free supply items should be included in the manufacturing cost of wagons
We think that section 41a of the said Act applies in this case and as such the valuation of excisable goods will be charged or will take place when manufacture takes place
Thus we also find and hold that while determining the valuation of wagons for charging the duty the Revenue Authorities had acted duly and with justification in adding the cost of free supply items under the provisions of the said Act as indicated above the more so when under the agreement in this case the said petitioners were and are required to manufacture and supply completed wagons in which the free supply items were and are required to be fixed at the time of manufacture
There cannot be any doubt that without fixing the free supply items the production and manufacture of a wagon would not be effectively completed
The manufacture of a complete wagon thus takes place as soon as or as and when th free supply items are fitted and fixed by the said petitioners and with such manufacture the process of manufacture would be complete under section 2f of the said Act and the liability to duty will also be 964 attracted
We hold that the value of the manufactured goods must be determined at the factory gate ie at the stage when the manufactured goods here in this case wagons leave the factory The appeal against the judgment of the High Court via special leave petition is by Ms Burn Standard Company Limited
The relevant parts of Sections 3 and 4 of the Act are reproduced hereinafter 3 Duties specified in the First Schedule to be levied 1 There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India   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  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
 Section 3 of the Act provides for levy of the duty of excise
It is a levy on goods produced or manufactured in India
Section 4 of the Act lays down the measure by reference to which the duty of excise is to be assessed
The duty of excise is linked and chargeable with reference to the value of the excisable goods and the value is further defined in express terms by the said section
In every case the fundamental crite 965 rion for computing the value of an excisable article is the normal price at which the excisable article or an article of the like kind and quality is sold or is capable of being sold by the manufacturer
It is not disputed that the appellants are manufacturers of wagons
What comes down from the assembly line of the appellant s factory is a complete wagon and as such the appellant being manufacturer of wagons is liable to pay duty of excise on the value of a complete wagon
The free supply items like wheel sets etc
in the process of manufacturing become part of the complete wagon and loose their identity
It hardly matters how and in what manner the components of the wagon are procured by the manufacturer so long as the appellant is manufacturing and producing the goods called wagons it is liable to pay duty of excise on the normal value of the wagon
In Empire Industries Limited and Others vs Union of India and Others  this Court while interpreting Sections 3 and 4 of the Act held as under The fact that the petitioners are not the owners of the end product is irrelevant
Taxable event is manufacture not ownership
In Ms Ujagar Prints and Others vs Union of India and Others   MN Venkatachalaih J speaking for the Court observed as under Duties of excise are imposed on the production or manufacture of goods and are levied upon the manufacturer or the producer in respect of the commodity taxed
The question whether the producer or the manufacturer is or is not the owner of the goods is not determinative of the liability
 We therefore cannot accept the contention of the learned counsel for the appellant that the value of the free supply items should not be included in the assessable value of the wagons manufactured by the appellant
We see no infirmity in the reasoning and the findings reached by the Division Bench of the High Court
The appeal is therefore dismissed with no order as to costs
VPR Appeal dismissed


Summary:
The Ajmer Sound Amplifiers Control Act 1952 was enacted by the Ajmer Legislative Assembly which by section 21 Of the  was empowered to make laws for the whole or any part of the State with respect to any of the matters enumerated in the State List or in the Concurrent List
The respondents were prosecuted under section 3 Of the Act for breach of the conditions of the permit granted for the use of sound amplifiers
On a reference under section 432 of the Code of Criminal  Procedure the judicial Commissioner of Ajmer held that the Act fell within Entry NO 31 of the Union List and not within Entry No 6 of the State List as was claimed by the State and therefore was ultra vires the State Legislature
Held that the pith and substance of the impugned Act was the control of the use of amplifiers in the interests of health and also tranquillity and thus the Act was substantially within the powers conferred by Entry No 6 and conceivably Entry No 1 of the State List and did not fall within Entry No 31 of the Union List even though the amplifier the use of which is regulated and controlled is an apparatus for broadcasting or communication
Accordingly the Act was intra vires the State Legislature