COMMISSIONER OF CENTRAL EXCISE, INDORE versus M/S. S. KUMARS LTD. AND ORS.

Citation: [2005] SUPP. 5 S.C.R. 370 · Decided: 21-11-2005 · Supreme Court of India · Bench: RUMA PAL · Disposal: Disposed off

Judgment (excerpt)

A 
COMMISSIONER OF CENTRAL EXCISE, INDORE 
V. 
MIS. S. KUMARS LTD. AND ORS. 
NOVEMBER 21, .2005 
B 
[RUMA PAL AND H.K. SEMA, JJ.] 
Central Excise (Valuation) Rules, 1975: Rules 3,· 4, .5 and 7. 
Processed goods-Assessable value of~Assessee processed grey fabric-
C Sometimes the grey fabrics were processed on its own account and sometimes 
·the grey fabrics were re<;:eived for processing on job charge basis from 
"merchant manufacturers'"--For the period 01.9.1985 to 28.2.1989, the 
assessee had paid excise duty on the fabrics processed by it during this period, 
calculating the duty payable by treating the value of the processed febrics as 
D being that at which the "merchant manufacturer" was selling the.processed 
goods-With effect from 0I.3.1989, the same method was followed in respec~ 
of the fabrics processed by the gssessee on its own account-However, on the 
fabrics processed by it which had been received from the ''merchant 
manufacturers'', the assessee valued the processed goods on the basis of the 
cost of grey fabrics plus the processing charges as well as its manufacturing 
E expenses and profits-The price at which the ''merchant manufacturer'' was 
selling the processed goods was not taken into account-Etcise authorities 
issued show cause notice proposing to recover differential duty of excise from 
the assessee-Excise authorities claimed to treat the price charged by the 
assessee from the independent dealers as the assessable value of the processed 
F fabrics and to levy excise duty thereon-The Tribunal allowed the appeal filed 
by the ·assessee-However, the Tribunal did not go into the question whether 
the assessee were related persons as alleged in the show cause n/Jtice-
Correctness of-Held: The assessable value of manufactured goods is normally 
the ordinary wholesale price-However, this principle is subject to certain 
exceptions among them being the qualifica,tion that the sale is not tu or through 
G a related person as defined in S. 4(4)(c)~fJthe transaction is between related 
persons, the profit would not be ''normally earned'' within the meaning of R. 
6(b)(ii)-Hence, matter remitted to the Tribunal to determine whether the 
assessee and the ''merchant manufacturers'' were related persons and whether 
the assessee would be entitled to claim discounts or could claim the 
H 
370 
COMMR. OF CENTRAL EXCISE v. S. KUMARS LTD. 
371 
advertisement expenses incurred by the dealers-Central Excise Act, 1944. 
A 
r 
Respondent No.:1-assessee processed grey fabric. Sometimes the grey 
fabrics were processed on its own account and sometimes the grey fabrics 
were received for processing on job charge basis from "merchant 
manufacturers". For the period from 01.9.1985 to 28.2.1989, the a~sessee 
B 
had paid excise duty on the fabrics processed by it during this period, 
calculating the duty payable by treating the value of the processed fabrics 
as being that at which the "merchant manufacturer" was selling the 
processed goods. With effect from 01.3.1989, the same method was 
followed in respect of the fabrics processed by the assessee on its own 
account. However, on the fabrics processed by it which had hen received c 
from the "merchant manufacturers", the assessee valued the processed 
goods on the basis of the cost of grey fabrics plus the processing charges 
as well as its manufacturing expenses and profits. The price at which the 
"merchant manufacturer" was selling the processed goods was not taken 
into account. The appellant issued a show cause notice proposing to recover 
differential duty of excise from the assessee under the proviso to Section D 
llA of the Central Excise Act, 1944. The appellant claimed to treat the 
price charged by the assessee from the independent dealers as the 
assessable value of the processed fabrics and to levy excise duty thereon. 
The Customs, Excise and Gold (Control) Appellate Tribunal allowed the 
appeal filed by the assessee on the ground that the assessee had rightly E 
invoked the principles of Mis. Ujagar Prints III. However, the Tribunal did 
not go into. the question whether the assessee and th.e "merchant 
manufacturers" were related persons as alleged in the show cause notice. 
Hence the appeal. 
The following question arose before the Court:-
F 
• 
Whether the principles laid down in Mis. Ujagar Prints III apply to 
the respondent-assessee's case? 
Disposing the appeal, the Court 
HELD: 1. The demand for excise duty raised by the appellant against G 

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