Case Note & Summary
The dispute arose out of central excise valuation of glass bottles manufactured by the appellant, a unit within the Khoday Group of Industries, which supplied bottles to related group units for bottling beer and other alcoholic liquors. Until 1978, the group purchased bottles from Alembic Glass Industries, but subsequently set up its own bottling unit, the appellant, to manufacture bottles. The appellant filed two price lists on October 24, 1979 and September 10, 1981, which were provisionally approved. On scrutiny, the excise authorities found that the declared values were much below cost of production, the data was vague and incomplete, and some bottles were sold to outsiders. Two show cause notices dated February 8, 1984 and June 16, 1984 were issued proposing re-determination of values under Rule 7 of the Central Excise (Valuation) Rules, 1975, read with Section 4(1)(b) of the Central Excises & Salt Act, 1944. The Assistant Collector confirmed the proposed values. The Collector (Appeals) allowed the appellant's appeal and directed adoption of the sale price charged by the appellant to others as the basis under Section 4(1)(a). The Collector of Central Excise appealed to the Customs, Excise and Gold (Control) Appellate Tribunal, which held that the declared price was far below cost price and only a fraction of Alembic's price for similar bottles; sales to outsiders were of inferior quality and reject bottles to dealers in second-hand bottles and hence not acceptable for valuation under Section 4(1)(a); and due to failure to produce relevant data, valuation had to be done under Section 4(1)(b), specifically Rule 6(b)(i). The Tribunal directed that during the period 1.7.1979 to 30.6.1983, wherever appellant's declared prices were lower than Alembic's comparable prices, Alembic's approved prices should be adopted as the basis of assessment; where appellant's prices were higher, appellant's prices should be adopted. The appellant contended before the Supreme Court that the Tribunal should have uniformly adopted Alembic prices for all bottles and that the dual basis was inequitable and illegal. The Revenue argued that the dual approach was consistent with the Rules and that the appellant could not object to acceptance of its own higher declared values. The Supreme Court held that Rule 7 is residuary and applies only when valuation cannot be determined under other rules; here Rule 6(b)(i) applied because the appellant did not sell the goods but used or consumed them in manufacturing other articles, and the value of comparable goods manufactured by any other assessee should be adopted. The Court further held that bottles of different sizes and shapes are different classes of goods, requiring separate valuation for each class or category. The manufacturer must declare the price of each class, category or type separately, and different categories may call for different methods of valuation. The Court found nothing illegal in the Tribunal's direction adopting the appellant's own higher declared prices for some categories and Alembic's comparable prices for others. The appeal was dismissed, and the Tribunal's order was upheld, with the department entitled to finalise assessments and recover differential duties forthwith.
Headnote
A) Central Excise - Valuation of Excisable Goods - Captive Consumption - Central Excises & Salt Act, 1944, Section 4(1)(b); Central Excise (Valuation) Rules, 1975, Rule 6(b)(i) - Where an assessee does not sell excisable goods but uses or consumes them in manufacture of other articles, Rule 6(b)(i) provides that the value of comparable goods manufactured by the assessee or any other assessee shall be adopted - The appellant manufactured bottles and supplied them to related group units for bottling liquor; the Tribunal correctly invoked Rule 6(b)(i) to value the bottles by reference to comparable bottles manufactured by Alembic Glass Industries - Held that the Tribunal's direction to adopt Alembic's approved prices for comparable bottles where appellant's declared prices were lower was consistent with Rule 6(b)(i) (Paras 54-E to 55-C). B) Central Excise - Valuation Rules - Residuary Rule - Central Excises & Salt Act, 1944, Section 4(1)(b); Central Excise (Valuation) Rules, 1975, Rules 6 and 7 - Rule 7 is a residuary rule applicable only when valuation cannot be determined under other rules; where specific provision under Rule 6(b)(i) applies, resort to Rule 7 is unnecessary - The Revenue had initially proposed valuation under Rule 7, but the Tribunal found Rule 6(b)(i) was the appropriate rule for captive consumption - Held that the Tribunal did not err in directing valuation under Rule 6(b)(i) rather than Rule 7 (Paras 54-E to 55-C). C) Central Excise - Valuation of Different Classes/Categories of Goods - Separate Valuation of Each Class - Central Excises & Salt Act, 1944, Section 4(1); Central Excise (Valuation) Rules, 1975, Rule 6(b)(i) - The manufacturer is required to declare price for each class, category or type of goods separately; different classes may require different methods of valuation - The Tribunal directed dual basis: where appellant's declared price higher than Alembic's comparable price, appellant's price adopted; where lower, Alembic's price adopted - Held that there is nothing illegal or inequitable in such separate valuation, and the appellant cannot object to acceptance of its own higher declared prices (Paras 54-G-H, 55-A-C).
Issue of Consideration
Whether the Customs, Excise and Gold (Control) Appellate Tribunal erred in directing that, for the period 1.7.1979 to 30.6.1983, where appellant's declared prices for glass bottles were lower than comparable Alembic prices, Alembic approved prices should be adopted, while where appellant's prices were higher, appellant's prices should be adopted; and whether Rule 6(b)(i) of the Central Excise (Valuation) Rules, 1975 was correctly applied instead of Rule 7
Final Decision
The appeal was dismissed. The Supreme Court upheld the Tribunal's order directing that during the period 1.7.1979 to 30.6.1983, wherever the appellant's declared prices were lower than those of Alembic for comparable bottles, the prices approved for Alembic should be adopted, and where the appellant's prices were higher, those higher declared prices should be adopted. The department was entitled to finalise assessments on this basis and recover differential duties forthwith.
Law Points
- Valuation of captively consumed excisable goods must be based on comparable goods under Rule 6(b)(i) of Central Excise (Valuation) Rules
- 1975
- Rule 7 is residuary and applies only where no other valuation rule is applicable
- manufacturer must declare price separately for each class/category/type of goods
- different categories may be valued by different methods
- assessee cannot challenge adoption of its own higher declared prices
- sales of inferior/reject bottles to dealers in second-hand bottles cannot be basis for normal price under Section 4(1)(a)
