BARIN GHOSH, C.J. -
(1.) THE assessee in the instant case has a manufacturing unit situate at Bhimtal, Uttarakhand. The place of removal of goods for the purpose of excise duty is the factory premises of the assessee. Therefore, assessee is liable to pay excise duty on removal of goods from its factory situate at Bhimtal, Uttarakhand. Assessee has only one customer i.e. the holding company of the assessee. The said customer, therefore, is a related person in so far as the assessee is concerned. This related person of the assessee sells the goods manufactured by the assessee, not in wholesale, but in retail. In order to facilitate such sale in retail, the assessee has set up depots at various places, including some within the State of Uttarakhand. There appears to be no dispute to the aforementioned factual matters.
(2.) SINCE the goods dealt with by the assessee have no wholesale market, the value of the excisable goods manufactured by the assessee is required to be determined on the basis of retail price, as reduced by such amount as is necessary and reasonable. Assessee contends that freight and insurance charges incurred by the assessee for taking goods from its factory to its depots are such amount as are necessary and reasonable for arriving at the retail sale price, when the same is the sole consideration for sale. On the other hand, it is the contention of the Revenue that the amount of expenditure incurred on account of freight and insurance charges for carrying goods from the factory to depots cannot be reduced for the purpose of arriving at the value of the excisable goods manufactured by the assessee. In order to answer this short question one is required to take notice of Section 4 of the Central Excise Act, 1944. Section 4 deals with two situations. One is where the goods have a wholesale market and accordingly, are sold in course of wholesale trade, and the other is where there is no such wholesale market. Clause (a) of sub Section (1) of Section 4 deals with such goods, which have a wholesale market. In doing so, the said Clause also takes note of such cases where the assessee arranges the things in such a way that the goods are generally not sold by him in course of wholesale trade except to or through a related person. It provides that in such case the normal price of goods thus sold shall be deemed to be the price at which they are sold by the related person in course of wholesale trade or to dealers or again to yet another related person, who sells such goods in retail. This contingency, as contemplated, does not apply to the instant case, inasmuch as, that the person related to the assessee does not sell the goods in the wholesale market or to dealers or to yet another related person; instead, there is no dispute that, the related person in this case sells the goods to the ultimate customer. Clause (b) of sub Clause (1) of Section 4 directs that when normal price i.e. the wholesale price is not ascertainable, then the nearest ascertainable equivalent should be determined in such manner as may be prescribed. That has been prescribed by Rule 6 of the Central Excise (Valuation) Rules 1975. Clause (c)(i) of the said Rule provides that when the goods are not sold in wholesale trade except (as applicable in this case) to a related person and the value cannot be determined under Clause (a) of Section 4 of the Act, the value shall be determined in case where the assessee sells the goods to a related person, who sells such goods in retail in the manner prescribed in Clause (a) of Rule 6 of the said Rules. Clause (a) of Rule 6 of the said Rules is as follows:
"where such goods are sold by the assessee in retail, the value shall be based on the retail price of such goods reduced by such amount as is necessary and reasonable in the opinion of the proper officer to arrive at the price at which the assessee would have sold such goods in the course of wholesale trade to a person other than a related person: Provided that in determining the amount of reduction, due regard shall be had to the nature of the excisable goods, the trade practice in that commodity and other relevant factors;".
Therefore, the value of such goods is to base on retail price of the goods at which the related person has sold the goods in retail reduced by such amount as is necessary and reasonable.
The argument of the learned counsel for the assessee is that retail price, as contemplated in the Excise Act, is that price which is the sole consideration for the sale. It was contended that in order to arrive at such price one has to take into account not only the manufacturing cost but also all other expenses directly connected with reaching the manufactured goods to the customer who pays for the price of the goods as manufactured as well as the price of reaching the goods to him. In this connection, reference was made to the Explanation 1 to Section 4A of the Act. It was submitted that cost of carrying the goods to the ultimate customer is one of those factors which has been taken note of while specifying what retail price is. It was also submitted that proviso to Clause (a) of Rule 6 not only directs to take into account trade practice in the commodity, but also the nature of the excisable goods and other relevant factors for the purpose of determining which amount should be reduced proceeding on the basis that the same was necessary and reasonable. The learned counsel for the Department submitted that the amount necessary and reasonable for being reduce is the amount incurred for affecting the sale and, accordingly, whatever expenses have been incurred for carrying the goods from the depot to the customer's point may be reduced, but not the expenses incurred for taking goods from the factory end to the depot.
Therefore, the answer to the question raised in the present proceeding is whether reduction of the cost freight and insurance charges incurred for carrying the goods from the depot to the customer's end would make the wholesale price available.
(3.) AS aforesaid, in terms of the provisions of the Act, the assessee become liable to pay excise duty at the time of removal of the manufactured goods from its factory, but such duty is leviable on the wholesale price of the manufactured goods. The assessee does not have any wholesale market either outside its factory gate or at anywhere else. The Law authorizes reduction from the retail price, such amount, as is necessary and reasonable to arrive at wholesale price. Retail price includes all costs, charges and expenses necessary to make the goods available at such price when the price is the only consideration for sale. In that background, if the amount of expenditure incurred on freight and insurance for carrying the goods from the factory end to the depot is not taken note of, then the price, which is the sole consideration of sale of the manufactured goods in retail, will not include the same. At the same time in the Rules, while it has not been said that cost incurred on freight, transportation, insurance etc. should be deducted, it has been provided that the reduction of such amount as is necessary and reasonable be made. Therefore, the conclusion would be that, while there is no direction that the freight and insurance charges for carrying the goods from the factory to the depot is to be reduced from the retail price, there is no bar in reducing the same and, while doing so, as provided in the proviso, the proper officer is required to take note of the nature of the excisable goods, the trade practice in that commodity and other relevant factors. The carrying cost for taking the goods from the factory to one depot may be at variance with the carrying cost for taking the goods from the factory premises to yet another depot. A reasonable part thereof as is necessary and reasonable having regard to the nature of the excisable goods, trade practice in the commodity and other relevant factors may be allowed. What would be reasonable in the case of the assessee has not yet been determined. On the other hand it has been held out that the assessee is not entitled to any deduction at all. The instant matter stood closed as far back as in 2003. Subsequent matters were permitted to be closed in favour of the assessee by not taking up the matters higher up from the Tribunal. In the circumstances, it would not be appropriate on our part to interfere with the judgment of the Tribunal. We make it clear that in future it will be permissible for the revenue to go into the question whether the entire freight and insurance, as paid by the assessee, for carrying the goods from its factory to different depots would stand the test of necessity and reasonableness having regard to the nature of the goods dealt with, the trade practice in the commodity and other relevant factors. With the observation as above, we close the matter and, accordingly, dismiss the central excise reference.;