Has the amendment to Section 4 of the Central Excise Act, 1944 affected the method of determination of value of excisable goods? SC explains

Supreme Court: Explaining the scheme of provisions under the Central Excise Act, 1944, the 3-judge bench of SA Bobde, CJ and AS Bopanna and V. Ramasubramanian, JJ has laid down elaborate principles that the Adjudicating Authorities has to keep in mind while determining the value of excisable goods. The said order of the Court intends to clear the confusion over the method of determination of value of excisable goods before and after 01.07.2000, since Section 4 of the Central Excise Act, 1944 was amended with effect from 01.07.2000 under Act 10 of 2000.

CASES WHERE THE PERIOD OF ASSESSMENT IS PRIOR TO 01.07.2000

I. First ascertain the price at which such goods are ordinarily sold by the assessee to a buyer who is not related to him, in the course of wholesale trade, at the time and place of removal and also find out whether the price is the sole consideration for the sale. If the Adjudicating Authority is able to find this out, he may take such price as the normal price and treat the case as covered by Section 4(1)(a), applying, wherever permissible, the prescriptions contained in the proviso to clause (a) of sub­section (1) of Section 4.

II. If the normal price is not ascertainable, either for the reason that the goods are not sold or for any other reason, then he may take it that the case would fall under Section 4(1)(b) and take recourse in such cases, to the Central Excise (Valuation) Rules, 1975.

III. The phrase “for any other reason” appearing in Section 4(1) (b) would include cases where the price charged in the course of wholesale trade is not discernible or where the same, though discernible, cannot be linked to delivery at the time and place of removal or where the price is not the sole consideration for the sale, even though the price charged in the course of wholesale trade for delivery at the time and place of removal are available.

IV. If the case falls under Section 4(1)(b) and the Adjudicating Authority takes recourse to the method of valuation prescribed in the 1975 Rules, he shall find out which among the relevant rules would apply to the cases on hand before proceeding with the valuation.

CASES WHERE THE PERIOD OF ASSESSMENT IS AFTER 01.07.2000

I. First ascertain the “transaction value”, with particular reference to the definition of the said expression contained in Section 4(3)(d)

II. Apply the transaction value so ascertained, to cases where three conditions, namely

    • the goods are sold for delivery at the time and place of removal,
    • the assessee and buyer are not related and
    • the price is the sole consideration, are satisfied.

This is because such cases will fall under Section 4(1)(a).

III. In cases where one or more of the aforesaid three conditions are not satisfied, and also in cases where there is no sale, the Adjudicating Authority should treat the cases as falling under Section 4(1)(b) and hence take recourse to the Central Excise Valuation (Determination of Price of Excisable Goods) Rules, 2000.

IV. If a case falls under Section 4(1)(b) and the Adjudicating Authority takes recourse to the method of valuation prescribed in the 2000 Rules, he shall find out which among the relevant rules would apply to the case on hand before proceeding with the valuation.

PRINCIPLES APPLICABLE IN COMMON (BOTH PRE AND POST AMENDMENT)

  • The Adjudicating Authority may treat any amount received either in cash or otherwise, over and above the invoice value, as the value of excisable goods even in cases falling under Section 4(1)(a) (after the amendment), as the definition of “transaction value” under Section 4(3)(d) means the price actually paid or payable.
  • The Adjudicating Authority shall keep in mind the fact that while the expression “normal price” was not defined in Section 4(1) before amendment, the expression “transaction value” is defined very exhaustively in Section 4(3)(d) and this definition is both inclusive as well as exhaustive.
  • Wherever there is a finding that a particular dealer/ customer has paid a consideration over and above what is reflected in the invoice, the additional payment made by him together with the invoice value shall be taken to be the transaction value, for all the transactions that the particular dealer/customer had with the assessee. In simple terms, if a dealer/customer has made 10 purchases during the period in question, for a particular value stated in the invoice, the transaction value determined on the basis of material relatable to a few out of those transactions, can be applied to all the transactions of that customer/dealer across the board for that period. However, the same value cannot be applied to the other dealers/ customers. This principle shall be followed in respect of cases arising after the amendment.
  • Since the matters are more than a decade old, the Adjudicating Authorities may conduct hearings, afford adequate opportunities to the parties and pass orders in original as early as possible.

[Commissioner of Central Excise, Customs and Service Tax v.  Cera Boards and Doors, Kannur Kerala, 2020 SCC OnLine SC 657, decided on 19.08.2020]

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