COMMISSIONER OF CENTRAL EXCISE, ALLAHABAD versus M/S J.R. ORGANICS LTD. on 1 March 2023

1. The revenue has filed this appeal, aggrieved by the order ofDCustoms Excise & Service Tax Appellate Tribunal (CESTAT), PrincipalBench, New Delhi dated 27.07.2009. CESTAT had rendered its Orderdated 12.11.2007 upon a remand order by this Court in CA No. 4975/2002.

2. The respondent-assessee manufactures organic chemicals forEthe 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 required ismolasses. The assessee was issued three show cause notices coveringthe following period :- F

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

4. The revenue’s appeal was allowed by this Court which remandedthe matter for fresh consideration, inter alia, observing that the mererejection of the highest rate was insufficient and the Court had to decideon the basis of judicial discretion of the assessing officer, whether therewas any rationale in the fixation done and what was the appropriatemethod of valuation.

5. CESTAT in the second round, after remand held, inter alia, asfollows after considering the evidence on the record :

“The normal price of the goods is the price at which thegoods are ‘ordinarily’ sold in the course of wholesale trade,it is a sort of representative price of the course of wholesaletrade. It is a sort of representative price of the goods duringa particular period. Hon’ble Supreme Court in the case ofA.K. Roy ad another vs. Voltas Limited (supra), in para ‘19’the judgment has observed the while determining the pricewhich is to represent the real value of the goods to be taxed,the price must be conservative in every respect. Therefore,while determining the price of the goods being cleared forcaptive consumption by invoking Rule 6(b) (i), on the basisof the price of comparable goods of the same assessee orother assesses, the most conservative price must be adopted,not the highest of the prices as itwill loose the character ofthe normal price.”

6. Learned counsel for the revenue submitted that CESTAT fellinto error in not accepting the Commissioner’s determination that thevalue of the goods were properly determined under Rule 6(b)(i). Hesubmitted that given the various ingredient mentioned in that provision, AB

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Athe revenue was under an obligation to decide the value based uponfactors such as material characteristics and the nearest ascertainablevalue of the goods. Given these circumstances, the discretion exercisedby the Commissioner in basing himself upon the value of the goods on aparticular day (when it was in its highest price) in the Sarai Distillery atGorakhpur was valid and legal one.B

7. Having considered the records and the submissions of theparties, this Court is of the opinion that the impugned order cannot befaulted. This Court in its judgment reported as ‘A.K. Roy Vs. VoltasLimited[1]’ held as follows :- “21. The next question is : what exactly is the meaning of theCterm the ‘wholesale cash price’? In Vacuum Oil Company v.Secretary of Statefor India in Council, it was held that theterm means the price paid by retail traders on wholesalepurchase. The essence of the idea is that the purchase mustbe a wholesale purchase and not a retail one. In other words,Dthe sale must be wholesale and not a retail one in order thatthe price realised may be termed the ‘wholesale cash price’.In that case the appellants before the Privy Council importedat Bombay, very large quantities of lubricating oil of aparticular manufacture and mark. They sold it direct tonumerous customers, never to dealers. The price they chargedEwas the same whether a large or small quantity was bought,except that if a consumer contracted to buy from them all hisrequirements for a year, he was entitled to a discount from 2-1/2 to 15 per cent according to the quantity bought in theyear. No other lubricating oil of a like kind and quality wasFsold in Bombay. On the question whether the appellant wasbound to pay customs duty on the basis of clause (a) or clause(b) of Section 30 of the Sea Customs Act, 1878, the PrivyCouncil held that since the sales were to customers direct, thereal value of the goods cannot be ascertained under clause(a) of Section 30and that clause (b) of Section 30 wasGapplicable. Their Lordships said that in determining the pricewhich is to represent the real value of the goods to be ‘taxed,“the price must be conservative in every respect and free inparticular from any loading for any post- importation charges incurred in relation to the goods”. “The price is to be a priceH1 1973 (3) SCC 503

for goods. as they are both at the ‘time’ and ‘place’ ofimportation. It is to be a ‘cash price’, that is to say a pricefree from any augmentation for credit or other advantageallowed to a buyer; it is to be a net price, that is to say it is aprice ‘less trade discount’”. Their Lordships, therefore, heldthat the words the ‘wholesale price’ were used in the sectionin contradistinction to a ‘retail price’, and that not only onthe round that such is a well recognised meaning of the wordsbut because their association with the words ‘trade discount’indicates that sales to the trade are those in contemplation,and also because only by attaching that meaning to the wordis the ‘wholesale price’ relieved of the loading representingpost- importation expenses which, as a matter of business,must always be charged to the consumer, and which areeliminated.”

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

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

10. The appeal is, therefore, dismissed. There shall be No orderas to costs. Pending application(s), if any, shall stand disposed of.

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Ankit Gyan(Assisted by : Mahendra Yadav, LCRA)

FAppeal dismissed.

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2 AIR 1932 PC 168

3 1963 Suppl. (1) SCC 586

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