Case: Asstt Collector Of Central Excise  Vs. Bata India

2. The notification which was originally issued under sub-rule (1) of Rule 8 of Central Excise Rules, 1944 exempted footwear, the value of which did not exceed Rs. 5/- per pair from the whole of the duty of excise leviable thereon. The exemption limit of Rs. 5/- per pair has been enhanced from time to time and at the material time, for the purpose of this case, the exemption was limited to footwear the value of which was upto Rs. 60/- per pairThere can be no dispute that if the assessable value calculated according to Section 4 of the Central Excises & Salt Act, comes upto or below the limit set by the notification, the assessee will be entitled to the benefit of notification2. The notification which was originally issued undere (1) of Rule 8 of Central Excise Rules, 1944 exempted footwear, the value of which did not exceed Rs. 5/per pair from the whole of the duty of excise leviable thereon. The exemption limit of Rs. 5/per pair has been enhanced from time to time and at the material time, for the purpose of this case, the exemption was limited to footwear the value of which was upto Rs. 60/per pair.

Court's reasoning:
4. It was argued that in respect of the first three items of which wholesale price (after trade discount etc.) was Rs. 56.00; Rs. 58.00 or Rs. 60.00, there was no controversy that these were exempted. There was also no controversy in respect of the last three items of which the wholesale price (after trade discount etc.) was Rs. 68.00, Rs. 70.00 or Rs. 72.00. The controversy is restricted to the items in the second category, where the wholesale price after trade discount etc. was in the range of Rs. 62.00, Rs. 64.00 or Rs. 66.00. In these cases, if the excise duty element was taken away, the value will become Rs. 60.00or less.Applying rules of valuation laid down in Section 4 of the Act, no duty was payable even on shoes under this category5. Mr. Shanti Bhushan has contended that if excise duty is payable on these shoes, then the duty element has to be deducted from the wholesale price in order to ascertain the assessable value under Section 4. Once excise duty at the rate of 10% is taken out from the wholesale price of the shoes falling under the disputed category, the assessable value would come to less than Rs. 60.00 and the benefit of exemption notification cannot be denied to the manufacturer in these cases.6. We are unable to uphold this contention because the normal price charged by the manufacturer at the time and place of removal of goods to the wholesaler is treated by the Act to be the value of the goodsTherefore, the normal wholesale price of the goods must be deemed to be the value of the goods. It is not necessary to refer to the various types of prices that may be charged from the buyer set out in the proviso to Section 4(1)(a). But there cannot be any dispute that excise duty will be levied on the value of the excisable goods and the basic rule is that the normal wholesale price is the value of the goods. The normal wholesale price is the cum duty price which the wholesaler has to pay to the manufacturer. The cost of production, estimated profit and the taxes on manufacture and sale of the goods are usually included in the wholesale price of the goods. It is only because the wholesale price is usually the cum duty price thatn (4)(d) lays down that value will not include duty of excise, sales tax and other taxes, if any, payable on the goods. But if a manufacturer includes in the wholesale price any amount by way of tax, even when no such tax is payable, then he is really including something in the price which is not payable as duty at all. He is really increasing the profit element included in the wholesale price in another guise. In such a situation, there cannot be any question of deduction of duty payable on the goods from the wholesale price because as a matter of fact, no duty has actually been included in the wholesale price17. We are unable to uphold the contention of Mr. Shanti Bhushan that the Explanation to Section 4(4)(d)(ii) comes into operation only when there is a variation in the rate of duty and not otherwise. The duty of excise under Schedule (I) of the Act was imposable on various bases. It could be imposed unitwise as in T.I. 33AA (Parts of Wireless Receiving Sets) or lengthwise as in TI 37 (Cinematograph Films) or on the basis of weight as in the case of T.I. 25 (Iron in any Crude Form). The duty has to be calculated at the rates prescribed in the Schedule on the basis of number of units, length or weight or some other basis, as laid down in the Schedule. When the duty is imposed ad valorem, calculation of duty at the prescribed rate will have to be made on the basis of the value of the goods. Section 4 deals with value of excisable goods where the duty of excise is chargeable with reference to value. It has nothing to do with the rate of duty.e (ii) ofn (d) of Section 4 lays down the value will not include the amount of duty of excise, if any, payable on such goods. This is a rule of valuation. What is the amount of excise duty payable will depend on this valuationThe argument of Mr. Shanti Bhushan that the Explanation is attracted only when the rate of duty is reduced is not supported either by clear words of the Explanation or by necessary implication. The amount of duty payable has to be computed by reference to the rate of duty in force on the value of the Footwear. The duty payable may be reduced by any notification or order by lowering the rate of duty or by exempting any excisable goods from duty wholly or in part. The Explanation will apply to every case "where a notification or order providing for exemption from the duty of excise under such Act is for the time being in force" and not only to a case where the rate of duty is lowered. The effective duty of excise on the notified goods shall be the duty of excise computed with reference to the specified rate in the First Schedule "as reduced" so as to give full and complete effect to such exemption. "As reduced" in this context means the duty of excise as reduced by a notification granting exemption19. The construction suggested by Mr. Shanti Bhushan will lead to anomaly and should be avoided. It will have to be held that "the amount of duty payable, if any" ine (ii) ofclause (d) will mean the amount of duty payable as computed in accordance with the provisions of the First Schedule which will stand reduced only when relief is granted by reduction in the rate of duty and not otherwise. "A notification or order providing for exemption" in the Explanation will have to be read as a notification or order granting exemption by reduction in the rate of ad valorem duty only. The object of the statute is clearly to exclude the actual burden of excise duty from the wholesale price for determining the value of any excisable goods. The construction suggested by Mr. Shanti Bhushan will defeat the object of the statute altogether20. The assessee has adopted a scheme which can easily be seen through. After valuing the footwear at less than Rs. 60.00, he has fixed the price at above Rs. 60.00. He is entitled to make as much profit as he can. But he has tried to claim deduction of a part of the profit as excise duty payable for the goods. In order to claim this deduction, the assessee will have to show that the value of the goods became more than Rs. 60.00 per pair because of inclusion of excise duty. If that cannot be done, there is no question of deducting any duty payable on the goods manufactured by the assessee. The conundrum spoken of by Mr. Shanti Bhushan does not exist. Once the principle underlying the mechanism of valuation of excisable goods is borne in mind, this becomes a straightforward case. No intriguing conundrum perplexes our mind. We can easily behold what lies behind the assessees scheme22. Section 4 has undergone drastic changes since this case was decided. The concept of effective duty of excise was also not there at that time.