COMMISSIONER OF CENTRAL EXCISE, BELGAUM versus M/S. AKAY COSMETICS PVT. LTD.

Citation: [2005] 3 S.C.R. 118 · Decided: 01-04-2005 · Supreme Court of India · Bench: S.N. VARIAVA · Disposal: Dismissed

Judgment (excerpt)

A 
COMMISSIONER OF CENTRAL EXCISE, BELGAUM 
v. 
MIS. AKA Y COSMETICS PVT. LTD. 
APRIL I, 2005 
B 
[S.N. VARlAVA, DR. AR. LAKSHMANAN AND S.H. KAPADIA, JJ.] 
Central Excise Act, 1944: 
Sections 4(J)(a), 4(4)(c) and (d)-Excise duty-Manufacture of goods 
C by assessee-Selling price of 'a related person' considered as basis of 
assessable value-Deduction from the assessable value in respect of cost of 
secondary packing, turnover tax, octroi, boughtout items, freight, insurance 
and handling charges-Admissibility of-Held: Deduction for expenses for 
secondary packing, turnover tax, octroi and brought out items are admissible 
D subject to assessee submitting proof of actual expenses-Deductions in respect 
of freight, insurance and handling charges are not admissible. 
Section I I-A-Differential duty-Demand of-Without issue of show 
cause notice-Permissibility-Held: Such demand is unsustainable. 
E 
The question for determination in the present case is whether the 
claim of assessee for deduction from the assessable value in respect of cost 
of secondary packing (special packing), freight, handling charges, 
insurance, octroi, turnover tax and cost of bought out items was admissible 
u/s 4(4) 4(4)(d) of Central Excise Act, 1944, ifthe selling price of 'a related 
person' as defined in Section 4(4)(c) was considered as the basis of the 
F assessable value in terms of proviso(iii) to Section 4(1)(a) for the goods 
manufactured and cleared by the assessee. 
Partly allowing the appeal, the Court 
HELD: 1.1. Deduction for expenses incurred on account of special 
G packing, turnover tax, octroi and bought out items was admissible subject 
to the assessee submitting proof of incurring actual expenses in respect of 
the above items before the Commissioner (Appeals). The department was 
right indisallowing deduction for expenses on account of freight, insurance 
and handling charges. (139-B] 
H 
118 
C.C.E. BELGAUM v .. AKA Y COSMETICS PVT.LTD. 
119 
Union of India and Ors. v. Bombay Tyres International Pvt. Ltd., (J 984) A 
17 ELT 329 and Commissioner of Customs and Excise, Bangalore v. Mis. 
Sujata Textile Mills Ltd., (2005) 181 ELT 379, relied on. 
· 1.2. Once the goods become marketable in the individual packing of 
the assessee and removed from its factory gate, as such, the question as 
to whether the company alleged to be related was a "related person" or B 
not became insignificant and consequently, the cost <'!sredal packing was 
not includible in the assessable value. (137-D""'E) 
Commissioner of Central Excise, Allahabad etc. v. Mis. Hindustan Safety 
Glass Works Ltd. etc., (2005) 2 Scale 246, relied on. 
Hindustan Polymers v. Collector of Central Excise, (1989) 43 ELT 165, 
referred to. 
c 
1.3. Applying the test of essentiality, it is found that the bought out 
items hand-gloves and measuring cups were not essential for delivery of D 
the product in question in wholesale at the factory gate of the assessee. 
Hence the cost of the bought-ou~ items was not includible in the assessable 
value during the period. However, it is clarified that although in principle 
the deduction for these items was admissible, on the facts of this case, the 
assessee was required to produce evidence indicating the price at which 
the assessee had bought these items during the entire period. The assessee E 
was also required to prove the supply of these items with the product. 
Accordingly, the matter is remitted to the Commissioner (Appeals) to 
decide the quantification of deduction in respect of these two items for 
the period. [139-B-F] 
1.4. In the matter of interpretation of tax laws, deductions are F 
admissible in terms of the Section and not on the basis of general concepts. 
Hence, deduction for transport was confined to section 4(2). Similarly, 
under section 4(4)(d)(ii), the expression "value" was defined so as not to 
include excise duty, sales tax and other taxes. Similarly, section 4(4)(d)(i) 
made an express provision for including the "cost of packing" in the G 
determination of "value" for the purposes of excise duty provided it was 
for goods ordinarily sold in the course of wholesale trade. (132-D-E] 
1.5. There is a difference between the nature oflev)' and the measure 
of the levy. The method of collection does not affect the essence of the duty. 
While the natu~e of excise d~ty was indicated by the fact that it was H 
120 
SUPREME COURT REPORTS 
[2005] 3 S.C.R. 
A imposed in respect of the manufacture, the point at whi

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