- (1.) The appellants are the manufacturers of silver oxide zinc batteries (hereinafter referred to as "batteries") supplied to Ministry of Defence (hereinafter referred to as 'MOD') and Hindustan Aeronautics Limited (hereinafter referred to as 'HAL'). The issue in this appeal relates to the excise duty in respect of the batteries supplied to the 'MOD'. The appellants supplied the batteries to 'HAL' at a higher price than the price charged to 'MOD'. The price charged to 'MOD' was Rs. 33,393/- and to 'HAL' was Rs. 53,993/-. The prices charged were in terms of the contract entered into by the appellants with the respective buyers. Silver is one of the raw materials used in the manufacture of the "batteries". In the case of supplies to 'MOD', there was a stipulation in the contract that the appellants would be supplied with the silver. 'MOD' was holding the stock of silver in Bombay and Calcutta Mints and supplied the same to various manufacturers of batteries from whom it was purchasing the batteries. 'MOD' used to obtain silver at Rs.2,500/- per Kg. from the Mints. After sometime, 'MODs' stock of silver at Bombay and Calcutta Mints got depleted. Hence, they supplied the old life expired batteries to various manufacturers to recover the silver from those batteries and use the recovered silver in the manufacturing of the fresh batteries and the appellants were to give a rebate to the 'MOD' in the price to be charged per battery. The appellants while invoicing the goods to the 'MOD', took the value of the silver used in those batteries as was recovered from the life expired batteries at the rate of Rs.2,500/- per kg. as against Rs.6,666/- per kg. which was adapted for the batteries supplied to 'HAL'. According to appellants, the reason for taking the value of silver at Rs.2,500/- per kg. was that the 'MOD' was allowed to purchase the silver from the mint at the rate of Rs.2,500/- per kg. and according to the contract, the stipulation was that the price of the silver to be adapted for arriving at the price to be charged was to be Rs.2,500/- per kg. The Collector of Central Excise, Hyderabad, after noticing the difference in the price charged on the batteries supplied to 'MOD' and 'HAL' issued a show cause notice demanding differential duty on batteries supplied by appellants to 'MOD', on the ground that the market value of silver should be taken as the basis for determining the assessable value. In spite of demur the said demand was confirmed.
(2.) On appeal, the appellate Tribunal held that the price determined by the appellants for the batteries by adapting the lower silver price at the rate of Rs.2,500/- per kg. as against the open market price of Rs.6,666/- was a notional workout and the price indicated by the 'MOD' is not reflective of the true value of the silver. The Tribunal held that as per Section 4 of the Central Excise Act, 1944 the price that is to form the basis for assessment is the price at which the goods are sold in the ordinary course of business and the sale to 'MOD' cannot be taken to be the sale in the ordinary course of business. The sale of batteries to 'MOD' was held to be a special arrangement and a notional price of silver was adapted. The Tribunal held that this cannot be considered as transaction in the ordinary course of business and the price which is chargeable in the open market should form the basis of assessment. It was held that price based on comparable goods was to be adapted as the price of the silver i.e. at the rate of Rs.6,666/- per kg. as was adapted in case of supply of batteries to 'HAL' and dismissed the appeal. Hence this appeal.
(3.) The question that arises for consideration is as to what is the assessable value of silver which is used in the manufacture of silver oxide zinc batteries supplied to 'MOD'. Is the price at which 'MOD' got silver from the mint or the market price of the silver The contention of the appellant is that the contract price at which the batteries are sold to 'MOD' is the sole consideration of the sale of batteries to the 'MOD' and on that contract price the assessable value of silver has to be determined.;