Commissioner of Central Excise, Allahabad v. M/S J.R. Organics Ltd.

1[2023] 2 S.C.R. 1 COMMISSIONER OF CENTRAL EXCISE, ALLAHABAD v. M/S J.R. ORGANICS LTD. (Civil Appeal No. 8502 of 2009) MARCH 01, 2023 [S. RAVINDRA BHAT AND DIPANKAR DATTA, JJ.] Central Excise Rules, 1994 – r. 6(p)(ii) – Determin ing the value of the spirit –Respondent was engaged in the manufa cture of organic chemicals and for which purpose it was nece ssary to procure specially denatured spirits from its unit a t Kaptanganj – The dispute arose when the commissioner had, for the purpose of determining the value of the spirit, determined the hi ghest rate of the denatured spirit prevalent at another unit on the specific date – Aggrieved by it, the respondent approached Customs Excise & Services Tax Appellate Tribunal, which allowed the plea of the respondent holding that the price was to be determined at th e most conservative price and not at the highest of the prices as it will lose the character of the normal price – Aggrieved by the deci sion, the appellant approached the Supreme Court – Held : Decision of the tribunal upheld, the most conservative price is to be taken into account while determining the value of the goods – CESTAT approach and conclusions, cannot be faulted with – Appeal dismissed. A.K. Roy v. Voltas Limited (1973) 3 SCC 503 : [1973] 2 SCR 1089 – relied on. Union of India v. Delhi Cloth and General Mills (1963) 1 Suppl. SCC 586 – referred to. Vacuum Oil Company v. Secretary of State for India AIR 1932 PC 168 – referred to. Case Law Reference [1973] 2 SCR 1089 relied on Para 7

(1963) 1 Suppl. SCC 586 referred to Para 8 CIVIL APPELLATE JURISDICTION : Civil Appeal No. 8502 of 2009. From the Judgment and Order dated 27.07.2009 of the Customs Excise & Service Tax Appellate Tribunal, Principal Bench, New Delhi in Excise Appeal No. 467 of 2001. N. Venkatraman, A.S.G., Mukesh Kumar Maroria, Rupesh Kumar, Adit Khorana, Vanshja Shukla, Ms. Preeti Rani, Santosh Kumar, Dharma Datta Verma, Advs. for the Appellant. V Lakshmikumaran, Ms. Charanya Lakshmikumaran, Ms. Apeksha Mehta, Ms. Falguni Gupta, Ms. Neha Choudhary, Advs. for the Respondent. The Judgment of the Court was delivered by

S. RAVINDRA BHAT, J.

¶1The revenue has filed this appeal, aggrieved by the ord er of Customs Excise & Service Tax Appellate Tribunal (CESTAT), Principal Bench, New Delhi dated 27.07.2009. CESTAT had rendered its Order dated 12.11.2007 upon a remand order by this Court in CA No. 4975/ 2002.

¶2The respondent-assessee manufactures organic chemicals for the purposes of which it sources Specially Denatured Spirits (hereinafter ‘SDS’) produced, inter alia,from its unit at Kaptanganj, Uttar Pradesh. To manufacture SDS one of the essential raw materials re quired is molasses. The assessee was issued three show cause notices covering the following period :-

¶3The respondent-assessee, contended that upon a p roper valuation in terms of Rule 6(p)(ii) of the Central Excise Rule, 1994, the value of SDS was determinable on the basis of its in-house production at Kaptanganj. The order in original, however, held otherwise, confirming the demand made in the show cause notices. Since the first show cause notice covered an extended period, penalty too was imposed. Aggrieved, the assessee approached CESTAT which, by its order dated 20.02.2002 allowed the appeal holding that the method adopted by the Commissioner was incorrect. The Commissioner had for the purposes of determining the value of SDS, determined the highest rate of the produc t of SDS prevalent in another unit at Sarai District, Gorakhpur, on a specific date.

¶4The revenue’s appeal was allowed by this Court which remanded the matter for fresh consideration, inter alia, observing that the mere rejection of the highest rate was insufficient and the Court had to decide on the basis of judicial discretion of the assessing officer, whether there was any rationale in the fixation done and what was the a ppropriate method of valuation.

¶5CESTAT in the second round, after remand held, inter alia, as follows after considering the evidence on the record : “The normal price of the goods is the price at which t he goods are ‘ordinarily’ sold in the course of wholesale tra de, it is a sort of representative price of the course of w holesale trade. It is a sort of representative price of the goods d uring a particular period. Hon’ble Supreme Court in the c ase of A.K. Roy ad another vs. Voltas Limited (supra), in para ‘19’ the judgment has observed the while determining the price which is to represent the real value of the goods to be taxe d, the price must be conservative in every respect. Th erefore, while determining the price of the goods being clea red for captive consumption by invoking Rule 6(b) (i), on th e basis of the price of comparable goods of the same assess ee or other assesses, the most conservative price must be adopted, not the highest of the prices as itwill loose the cha racter of the normal price.”

¶6Learned counsel for the revenue submitted that CESTAT fell into error in not accepting the Commissioner’s determination t hat the value of the goods were properly determined under Rule 6(b)(i ). He submitted that given the various ingredient mentioned in that provision, COMMISSIONER OF CENTRAL EXCISE, ALLAHABAD the revenue was under an obligation to decide the value b ased upon factors such as material characteristics and the nearest ascertainable value of the goods. Given these circumstances, the discretion exercised by the Commissioner in basing himself upon the value of the goods on a particular day (when it was in its highest price) in the Sarai Distillery at Gorakhpur was valid and legal one.

¶7Having considered the records and the submissions of the parties, this Court is of the opinion that the impugned order can not be faulted. This Court in its judgment reported as ‘ A.K. Roy Vs. Voltas Limited1’ held as follows :- “21. The next question is : what exactly is the meaning of the term the ‘wholesale cash price’? In Vacuum Oil Company v . Secretary of Statefor India in Council, it was held that the term means the price paid by retail traders on whol esale purchase. The essence of the idea is that the purchas e must be a wholesale purchase and not a retail one. In other words, the sale must be wholesale and not a retail one in order that the price realised may be termed the ‘wholesale cash pr ice’. In that case the appellants before the Privy Council impor ted at Bombay, very large quantities of lubricating oil of a particular manufacture and mark. They sold it direc t to numerous customers, never to dealers. The price they c harged was the same whether a large or small quantity was bought, except that if a consumer contracted to buy from them all hi s requirements for a year, he was entitled to a discount from 2-1/2 to 15 per cent according to the quantity bought in the year. No other lubricating oil of a like kind and qua lity was sold in Bombay. On the question whether the appellant was bound to pay customs duty on the basis of clause (a) or claus e

(b) of Section 30 of the Sea Customs Act, 1878, the Privy Council held that since the sales were to customers direct, th e real value of the goods cannot be ascertained under c lause

(a) of Section 30and that clause (b) of Section 30 was applicable. Their Lordships said that in determining the pr ice which is to represent the real value of the goods to be ‘taxed, “the price must be conservative in every respect and free in particular from any loading for any post-importation charges incurred in relation to the goods”. “The price is to be a pr ice 1 1973 (3) SCC 503 for goods. as they are both at the ‘time’ and ‘plac e’ of importation. It is to be a ‘cash price’, that is to sa y a price free from any augmentation for credit or other adva ntage allowed to a buyer; it is to be a net price, that is to s ay it is a price ‘less trade discount’”. Their Lordships, therefore, held that the words the ‘wholesale price’ were used in the sect ion in contradistinction to a ‘retail price’, and that not only on the round that such is a well recognised meaning of the words but because their association with the words ‘trade discount’ indicates that sales to the trade are those in contem plation, and also because only by attaching that meaning to the wor d is the ‘wholesale price’ relieved of the loading repr esenting post-importation expenses which, as a matter of bu siness, must always be charged to the consumer, and which a re eliminated.”

¶8As is evident in Voltas Ltd. (supra) had cited previous authorities such as ‘Vacuum Oil Company Vs. Secretary of State for India 2’ and ‘Union of India vs. Delhi Cloth and General Mills 3’.

¶9In view of the clear principle enunciated by this Court which is that the most conservative price is to be taken into account while determining the value of goods, CESTAT approach and conclusions, in the opinion of this Court cannot be faulted. The impugned order of the CESTAT is accordingly affirmed.

¶10The appeal is, therefore, dismissed. There shall be No order as to costs. Pending application(s), if any, shall stand disposed of. Ankit Gyan Appeal dismissed. (Assisted by : Mahendra Yadav, LCRA) 2 AIR 1932 PC 168 3 1963 Suppl. (1) SCC 586 COMMISSIONER OF CENTRAL EXCISE, ALLAHABAD