M-S. MODIPON FIBRE COMPANY, MODINAGAR, U.P. v. COMMISSIONER OF CENTRAL EXCISE, MEERUT

Citation: [2007] 11 S.C.R. 688

Court: Supreme Court of India

Bench: S.H. KAPADIA, B. SUDERSHAN REDDY

Case summary

M-S. MODIPON FIBRE COMPANY, MODINAGAR, U.P. v. COMMISSIONER OF CENTRAL EXCISE, MEERUT.pdf

Judgment text

·--r MIS. MODIPON FIBRE COMPANY, MODINAGAR, U. P. v. COMMISSIONER OF CENTRAL EXCISE, MEERUT OCTOBER 25, 2007 [S. H. KAPADIA AND B. SUDERSHAN REDDY, JJ. ] . "- Central Excises Act, I 944: S. 4(4)(d)(ii) and Explanation appended thereto-Yarn-Turnover tax-Deduction of-By virtue of Exemption Notification, rate of turnover taxfor normal area sales was 2%andfor backwardarea sales was 0. 5%-Claim ofdeduction at 2%for entire clearance without mentioning two types ofsales effected by it-Entitlementfor-Held: Not entitled-Assessee entitled to deduction ofonly effective duty payable-Since exemption has been granted, exemption has to be deductedfi·om ad valorem duty-Central Excises Rules, I 944-Rule I 73-C-Finance Act, 1982-s. 47. S. I IA-Demand of duty on clearance of Yarn-By virtue of Notification, rate ofturnover tax for normal area sales was 2% and for baclnmrdarea sales was 0. 5'Yo-Assessee claimeddeduction at 2% for entire clearance-Demand.

for differential duty raised by department for period March I 994 to March 1997-Extendedperiod oflimitation-Invocation of-Held: Invokable as assessee was guilty ofsuppression oftwo types ofsales effected by it-However, since . }assessee intimated on I 4. 1. I 99 7 about the ll1'0 types of sales, Department cannot allege suppression after 14. 1. I 997-Notification dated 19. 10. 1993. The appellant-assessee had been engaged in the manufacture ofNylon and Polyester Yarn in its factory in U. P. which is cleared to its various Depots situated all over India including Surat from where the Yarn is sold to dealers. In respect ofyarn cleared and despatched to Surat depot, the assessee claimed deduction at 2% on account of Turnover Tax (TOT). This was on the footing that the Government MODIPONFIBRECOMPANY,MODINAGAR, U. P. v. 689 COMMNR. OF CENTRAL EXCISE, MEERUT ofGujaratvide Notification dated 19. 10.

1993 had exempted sale of Yarn ofall kinds by a registered dealer to a special manufacturer of processed Yarn or to an eligible unit to the extent to which the rate ofTOT exceeded 0. 5% ofthe total turnover. The Revenue issued show cause notice dated 19. 3. 1999 on the ground that the assessee had suppressed the fact that during the ~ period March 1994 to March 1997, there were two types of sales, . / one in the backward area as notified by the Gujarat Government and the other in areas other than the backward area; that the assessee had claimed deduction for TOT at the full rate of2% in respect of entire clearances of Nylon Yarn sent to its Surat depot without mentioning that in the State of Gujarat on account of Notification dated 19. 10. 1993 two rates of TOT existed and, therefore, the assessee had claimed wrongfully the deduction at higher rate of 2% as against the rate of 0.

5%; that since the assessee had deducted TOT at a higher rate to arrive at the y assessable value, it had lowered the assessable value to the extent of 1. 5% and, as such, a demand for difference was made on the assessee. The demand was confirmed by the authorities. On appeal, the Tribunal confirmed the demand, however it found that demand was beyond limitation after the assessee had informed Department on 14. 1. 1997 that there were two types ofsales and hence it was not open to Department to claim suppression after 14. ~. 1997. The assessee and Department both filed appeals against th~ order of Tribunal -1.. Dismissing the appeal of assessee and ofdepartment;the'Court HELD: 1. In terms ofs. 4(4)(d)(ii) ofCentral Excises Act, 1944, the excise duty can be deducted if it had. not b. ~en included in the invoice price. Ac~ording to the Explanation, what is deductible is the effective rate ofduty.

Where any exemption has been granted, that exemption has to be deducted from the ad valorem duty. Thus, it is ~,..... only the net duty liability of the assessee that can be deducted in ~ computing the assessable value. [Para 7] [698-E] IDL Chemicals Ltd. v. Collector ofCentral Excise, (1997] 5 SCC ~ ·-r 311; MRF Ltd v. Collectoro/Central Excise, Madras, [1997] 5 SCC 104; JK Synthetics Ltd v. Commercial Taxes Officer, [1994] 4 SCC 276; Harshad Shanti/al Mehta. v. Custodian and Ors. , [1998] 5 SCC 1 and Associated Cement Companies Ltd v. State ofBihar and Ors. , (2004] 7 sec 642, referred to. 2. S. 4(4)(d)(ii) does not refer to duty leviable under the relevant tariffentry without reference to exemption Notification that may be A. in existence at the time of clearance/removal. S. 47 of the Finance ' Act, 1982 which inserted the Explanation expressly sets out what is meant by the expression "the amount ofduty ofexcise payable on any excisable goods.

" By the amount ofduty ofexcise what is meant is the effective duty ofexcise payable on such goods under the Act and, therefore, effective duty ofexcise is the duty calculated on the basis ofthe prescribed rate as reduced by the exemption notification. This alone is excluded from the normal price under s. 4(4)(d)(ii). [Para ll] [701-D, E] 3. It is true that the Explanation to s. 4(4)(d)(ii) only refers to the amount ofduty ofexcise payable on excisable goods, however, the Explanation expressly sets out what is implicit in s. 4(4)(d)(ii) which states that "value" in relation to excisable goods does not include the amount of duty of excise, sales tax and other taxes if payable on such goods. Therefore, the test to be applied is that of the "actual value of the duty payable" and, therefore, the J Explanation is not restricted to the duty ofexcise. This principle can therefore apply also to actual value ofany other tax including TOT . j- f payable.

Even without the Explanation, the scheme ofs. 4(4)(d)(ii) shows that in computing the assessable value, one has to go by the actual value of the duty payable and, therefore, only the reduced duty was deductible from the value ofthe goods. It is clear that on the date when the assessee filed its price declaration under Rule 173-C of Central Excises Act, 1944, the assessee was aware that there was an exemption Notification dated 19. 10. 1993 in the State -. / ,,,ofGujarat; that there were depot sales in Surat; that there were two types ofsales, namely, backward area sales and normal area sales and that the rate ofTOT in respect ofbackward area sales was 0. 5% MODIPONFIBRECOMPANY,MODINAGAR, U. P. v. 691 COMMNR.

OF CENTRAL EXCISE, MEERUT whereas the rate ofTOT for normal area sales was at 2% and yet the assessee after suppressing the aforestated data claimed the TOT deductions at the rate of2% across the board for all clearances and, therefore, the Department was justified in calling upon the assessee to pay differential excise duty. [Paras 12and14] [701-F, G, H; 702-A, G; 703-A] ~ TOMCO v. Union ofIndia, (1980) ELT 768 (Born. ); and B. K I' Paper Mills Pvt. Ltd. v. Union ofIndia and Ors. , (1984) 18 ELT 701 (Born. ), referred to. 4. Every efficient manufacturer has to plan his operations , carefully to know what raw materials he will use and in what proportion he will use the raw materials in the manufacture of his final product. Generally, such manufacturers maintain Order Book. A manufacturer who is prudent would ordinarily work out on estimation, the extent ofexemption which he is likely to get. In the present case, the deduction has been claimed by the assesseey manufacturer.

The burden is on such manufacturer to maintain proper records, as the burden is on it to file a proper price declaration under Rule 173-C. The assessee has filed a declaration under the said Rule 173-C without disclosing to the Department any of the aforestated details. Therefore, the Department was right not only in raising the demand for differential duty but also for invoking the extended period oflimitation. [Para 15] [703-B, C, D, E] 5. There was no suppression after the Department had acquired i:. the knowledge for the first time by the assessee's letter dated 14. 1. 1997 and, therefore, it was not open to the Department to claim suppression after 14. 1. 1997. Therefore there is no reason to interfere with the findings recorded by the Tribunal on the question ofsuppression. [Paras 18and19] [704-A, B] CIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 8529- 8531 of 2007. Appeal against the Final Order No. 294/01-A dated 3. 7.

2001 passed by the Central Excise & Gold (Control) Appellate Tribunal, New Delhi in Appeal Nos. E/487, 604-605/2001-A. ·\ . .. ,. , WITH Civil Appeal Nos. 2008-2010/2002 S. K. Bagaria, Robina Nath, Javed Mujaffar, Ramesh Singh and Umesh Kumar Khaitan for the appellant and respondent in C. A. Nos. 2008-2010/2002. Dr. R. G. Padia, T. V. Ratnam and B. Krishna Prasad for the appellant """' and respondent in C. A. Nos. 8529-8531/2001. ' The Judgment ofthe Court was delivered by KAPADIA, J. 1. Delay condoned. 2. These cross appeals are filed by Mis Modipon Fibre Company and the Department under Section 35L of Central Excise Act, 1944 against order dated 3. 7. 2001 pass~d by the Customs Excise & Gold (Control) Appellate Tribunal ("CEGAT") holding that the assessee was entitled to deduction in respect ofturnover tax ("TOT") only at 0. 5% and / not at 2% as claimed. Civil Appeal Nos. 8529. ,8531 of2001 3.

The appellant-assessee is engaged in the manufacture ofNylon and Polyester Yam which is manufactured in its factory in U. P. and cleared to its various Depots situated all over India including Surat from where the Yam is sold to dealers. The assessee used to pay duty during the relevant period, at the time ofremoval ofyarn, on the basis ofthe depot sale price, after claiming permissible deductions under section 4 of the . j- Central Excise Act, 1944 ("1944 Act"). One such deduction was TOT in respect ofyam cleared and despatched to Surat depot from the factory ofthe assessee in U. P.. In respect ofsuch despatch, the assessee claimed deduction at 2% on account of TOT. This was on the footing that the Government ofGujarat vide Notification dated 19. 10. 1993 had exempted sale of Yam ofall kinds by a registered dealer to a special manufacturer ~ ofprocessed Yam or to an eligible unit to the extent to which the rate of TOT exceeded 0. 5% ofthe total turnover.

This was provided the specified manufacturer furnished to the selling dealer a certificate in Form 26 and if the processed Yam stood sold within the State ofGujarat. \ t "t. COMMNR. OF CENTRAL EXCISE, MEERUT [KAPADIA, J. ] 4. On 19. 3. 1999, a show cause notice was issued by the Department to the assessee in which it was alleged that the assessee had filed its price declaration under Rule 173-C in regard to the goods transferred to its depot in Surat for sale therefrom; that in the said price declaration, the assessee had indicated variety-wise ex-depot sale price, amount ofvarious deductions for sales tax, freight, discount, TOT, excise duty etc.

; that in the price declaration, the assessee had also declared the assessable value f arrived at by deducting the abovementioned elements from ex-depot sale / price; that, however, in the price declaration, the assessee had suppressed from the Department the fact that there were two types of sales, one in the backward area as notified by the Gujarat Government and the other in areas other than the backward area; that the assessee had failed to declare that the TOT was leviable on sale of goods during the period March, 1994 to March, 1997 at the dual rate of 0. 5% (for sales in backward areas) and at 2% (for sales in areas other than backward areas) respectively. According to the show cause notice, the assessee had claimed.

y deduction for TOT at 2% from ex-depot sale price in order to arrive at the assessable value; that although sales stood effected from the depot at two different rates, the assessee claimed deduction for TOT at the f1'Jl rate of2% in respect ofentire clearances ofNylon Yam sent to its Surat depot without mentioning that in the State of Gujarat on account of ,E Notification dated 19. 10. 1993 two rates ofTOT existed and, therefore, according to the show cause notice, the asseS'see had claimed wrongfully the deduction at a higher rate of2% as against the rate of0. 5%. According to the show cause notice, since the assessee had deducted TOT at a higher rate to arrive at the assessable value, it had lowered the assessable 1 value to the extent of 1. 5% and, as such, a demand for difference was made on the assessee.

According to the show cause notice, in the peculiar facts ofthis case, there should have been different assessable values in respect ofNormal Areas Sales and Backward Areas Sales, particularly when the rate ofTOT was different for the two types ofsales; that in the case of Normal Areas Sales, the assessable value should have been . \. __ arrived at allowing a deduction of2% on account ofTOT and in the case ofBackward Areas Sales, the assessable value should have been arrived at by deduction of0. 5% on account ofTOT. However, according to the Department, in the price declaration filed by the assessee, the assessee \ has claimed deduction at 2% on account ofTOT in respect ofthe entire clearance and thus, according to the Department, the assessee had claimed wrongfully a larger deduction than what he was entitled to.

Therefore, according to the show cause notice, the difference between the amount of TOT actually paid should have formed part of the assessable value and accordingly, the Department called upon the assessee to pay excise duty on the differential value. According to the Department, the assessee had wrongfully claimed deduction on account ofTOT; that the assessee had claimed wrongfully deduction on the entire clearances at 2%; that the assessee had claimed in the price declaration deduction on account of TOT at 2% when it had actually paid TOT @ 0. 5% in respect of backward area sales and, to that extent, the assessee had evaded excise duty by \vrongfully claiming excess amount ofdeduction on the amount ofdeduction on account ofTOT as compared to what was actually paid ~y it. The demand has been confirmed by all the authorities. Hence, these civil appeals. 5. Mr. S. K.

Bagaria, learned senior counsel, appearing on behalfof the assessee, submitted that the word "payable" in section 4(4)(d)(ii) is a function ofcharging duty. Ifthere is a charge, payability exists. Ifthere is charge, liability exists. That, levy ofduty is the legislative function. The first step is liability, whereas the second step is when the tax becomes due. On completion of assessment, the tax becomes due. Till such assessment, liability may exist but tax does not become due till quantification takes place. According to the learned counsel, the expression "payable" in section 4(4)(d)(ii) is "time related concept" as the assessable value has got to be determined at the time ofclearance/ · }removal. Learned counsel submitted that, therefore, the word "payable" in section 4(4)(d)(ii) should not be given a notional meaning. According to the learned counsel, assessable value is a matter relatable to chargeability.

That, liability to be assessed is not the same as payability as under the 1944 Act, "payability" has to be decided at the time of clearance ofgoods and, therefore, from the ex-depot price, assessee was ,;). required to deduct under section 4(2) the cost oftransportation as well as elements enumerated in section 4(4)(d)(ii). According to the learned counsel, on the date ofthe clearance ofthe goods, it was not possibl~ I ! MODIPON FIBRE COMPANY, MODINAGAR, U. P. v. 69. 5 "t COMMNR. OF CENTRAL EXCISE, MEERUT [KAPADIA, J. ] for the assessee to visualize as to how many sales would be Normal Area Sales and how many sales would be Backward Area Sales as it depended on eligibility ofspecial manufacturers. According to the learned counsel, on the date ofclearance, the assessee was only aware ofthe fact that the turnover tax was 2%. Therefore, there was no mis-declaration as alleged · by the Department. According to the learned counsel, the assessee used , ~ to manufacture variety ofyarns.

The factory ofthe assessee was in U. P.. i' These different varieties ofyarns were despatched from the factory in U. P. to various sales depot ofthe a<;sessee all over India. One such sales depot ofthe assessee was in Surat. Learned counsel pointed out that under the exemption Notification sales in backward areas were subject to certain eligibility criteria and compliance of the procedure mentioned in the exemption Notification issued by the Gujarat Government in 1993. According to the learned counsel, it was impossible for the assessee to have visualized as to how many dealers in Surat in future would be entitled to the benefit ofexemption Notification, particularly at the time when the y yarn was cleared at the factory gate ofthe assessee in U. P. and, therefore, according to the assessee, eligibility ofthe dealers in Surat, who were liable to pay TOT constituted post-clearance event.

According to the learned counsel, such post-clearance events are assumptions; that chargeability of excise duty cannot depend on such assumptions; that liability did not depend on assessment as it is fixed ex-hypothesis and, consequently, according to the learned counsel, the assessee was right in claiming deduction on account ofTOT at 2% as that was the only rate which existed on the date when the goods were cleared at the factory i gate. According to the learned counsel, at the time of filing the price declaration under Rule 173-C, the assessee had no means of knowing whether ultimately the TOT would be payable at 2% or at 0. 5% and, therefore, the assessee was justified in claiming deduction ofTOT at 2% being the prescribed tariffrate. According to the learned counsel, 0.

5% was the concessional rate which depended upon fulfilment ofconditions and eligibility criteria and, tl1erefore, it was not possible for the assessee ~ to visualize whether ultimately TOT would be payable at 2% or at 0. 5%. According to the learned counsel, section 4 of the 1944 Act provides for deduction oftax "payable" and since TOT was normally payable at the prescribed rate of2%, the assessee was justified in deducting TOT \ \ at 2% from the normal price in order to arrive at the assessable value at th~_factory gate (place ofremoval}. According to the learned counsel fodhe assessee, in terms of section 4(4)(d)(ii) and the Explanation thereto, the concept of"effective duty ofexcise" payable on the goods was restricted only to excise duty. It wa5 not extended to sales tax! fOT payable.

and, therefore, the assessee was justified in deducting the TOT payable in the State ofGujarat at the normal prescribed tariffrate of2% from the normal price ofthe yarn to arrive at the assessable value instead of deducting the concessional rate of TOT at 0. 5% prescribed by Notification dated 19. 10. 1993, which exempted the processors in backward areas in the State of Gujarat from paying TOT at 2% and instead provided for payment ofTOT at 0. 5%. According to the learned counsel, under the above circumstances, at the time ofsale, the assessee was not aware whether ultimately the TOT would be payable at 2% or at 0. 5%, therefore, the learned counsel urged that the assessee was justified in claiming deduction for TOT at 2% from the normal price. In this connection, learned counsel placed reliance on the judgments ofthis Court in the cases of IDL Chemicals Ltd v. Collector of Central Excise, reported in (1997] 5 SCC 311; MRF Ltd v.

Collector of Central Excise, Madras, reported in (1997] 5 SCC 104; J. K. Synthetics Ltd v. Commercial Taxes Officer, reported in (1994] 4 SCC 276; Harshad Shanti/al Mehta v. Custodian and ors. , reported in (1998} 5 sec J and Associated Cement Companies Ltd V. State of Bihar and Ors. , reported in (2004] 7 SCC 642. 6. Dr. R. G. Padia, learned senior counsel appearing on behalfof the Department, submitted that on the date when the assessee had filed · }price declaration under Rule 173-C, the assessee was aware of Notification dated I9. 10. 1993 issued by the Gujarat Government; that the assessee was also aware that there existed backward area sales and normal area sales on the date when it filed the price declaration; that the assessee had never informed the Department that there were two separate rates prevalent under the above Notification dated 19. 10.

1993; that if ~ the amount of TOT paid by the assessee was less than the amount claimed as TOT deduction at the time of ex-factory clearances, tne assessee should have paid the differential excise duty but the assessee "+- COMMNR. OF CENTRAL EXCISE, MEERUT [KAPADIA, J. ] never disclosed to the Department that there were two types of sales, namely, backward area sales and normal area sales and nor did the assessee inform the Department about the TOT actually paid by it and, therefore, Department was right in con:finning the show cause notice dated 19-. 3. 1999 for the period March, 1994 to March, 1997. 7. The question to be answered is the meaning ofthe word "payable" in section 4(4)(d)(ii). The said word is descriptive. One has to see'the context in which the said word finds place in the aforestated section 4(4)(d)(ii). We quote hereinbelow section 4(4)(d)(ii), which reads as under: "4. Valuation ofexcisable goods for purposes ofcharging ofduty ofexcise.

- (1) to (3) xxx xxx xxx (4) For the purposes ofthis section, - (a) to (c) xxx xxx xxx (d) "value", in relation to any excisable goods,- (i) xxx xxx xxx (ii) does not include the amount of the duty ofexcise, sa/ifs tax and other taxes, ifany, payable on such goods and, subject to such rules as may be made, the trade discount (sudh discount not being refundable on any account whatsoever) allowed in accordance with the normal practice of th'e wholesale trade at the time ofremoval in respect ofsuch goods sold or contracted for sale. Explanation. - For purposes ofthis sub-clause, the amount ofth~ duty of excise payable on any excisable goods shall be the sum total of-- (a) the effective duty ofexcise payable on such goods under this Act; and (b) the aggregate ofthe effective duties ofexcise payable under. other Central Acts, ifany, providing for the levy ofduties ofexcise on such goods, an~ the effective duty ofexcise on.

such goods under each Act referred to in clause (a) or clause (b) shall be, - (i) in a case where a notification or order providing for any exemption (not being an exemption for giving credit with respect to, or reduction ofduty of excise under such Act on such goods equal to, any duty ofexcise under such Act, or the additional duty under Section 3 of the Customs Tariff Act, 1975 (51of1975), already paid on the raw material or component parts iised in the production ofmanufacture ofsuch goods) from the duty ofexcise under such Act is for the time being in force, the duty ofexcise computed with reference to the rate specified in such Act, in respect ofsuch goods as reduced so as to give full and complete effect to such exemption; and (ii) in any other case, the duty ofexcise computed with reference to the rate specified in such Act in respect ofsuch goods.

" (emphasis supplied) As can be seen from the above quoted section, excise duty can be deducted ifit had not been included in the invoice price. According to the Explanation, what is deductible is the effective rate ofduty. Where any exemption has been granted, that exemption has to be deducted from the ad valorem duty. In other words, it is only the net duty liability ofthe assessee that can be deducted in computing the assessable value. The said principle stands incorporated in the E_xplanation. For example, ifthe . fassessee recovers duty at the tariffrate but pays duty at concessional rate, then excise duty has to be a part ofthe assessable value. Similarly, refund ofexcise duty cannot be treated as net profit and added on to the value ofclearances. There is no provision in section 4 ofthe 1944 Act to treat refund as part ofassessable value. Ifexcise duty paid to the Government is collected at actuals from the customers and if, subsequently, exemption _.

;i becomes available, such excise duty which is not passed on to the assessee, would become part ofassessable value under section 4(4)(d)(ii). 8. In the case of TOMCO v. Union ofIndia reported in (1980) --- COMMNR. OF CENTRAL EXCISE, MEERUT [KAPADIA, J. ] ELT 768 (Born. ) the assessees were manufacturers ofvegetable product known as 'Pakav'. The prices were fixed by the Controller, who fixed the prices statutorily under the Vegetable Control Order, 1947. These prices were fixed by the Controller, net of any tax during the period March, 1969 to December, 1969. The prices so fixed by the Controller included the element ofexcise duty payable thereon. TOMCO contended ,;. __ that it was entitled to claim rebate ofduty by virtue ofNotification No. 6/62-CE dated 10. 2. 1962.

TOMCO further contended that, it was declaiing the assessable value after deducting the element ofduty at 5% from the price fixed by the Controller and, therefore, entitled to deduct from the selling price the duty payable at 5% ad valorem. At this stage, it may be noted that TOMCO showed the deduction at 5% from the price fixed by the Controller on the duty payable under the above Notification whereas, according to the Department, the correct method to arrive at the assessable value ("a. v. '') was to deduct from the selling price not the duty payable under the Notification but the duty actually payable after y the rebate, which the assessee was entitled to on account ofcotton seed oil content. In other words, according to the Department, the duty element ofthe rebate was also admissible for deduction from the selling price in order to arrive at the correct a. v.. This was the controversy before the Bombay High Court.

Therefore, the main issue, which arose before the High Court was whether TOMCO was entitled to deduction of 5% ad valorern or whether it was entitled to the deduction of 5% ad valorem minus the rebate which it was entitled to receive under exemption Notification No. 6/62-CE dated l0. 2. 1962. According to TOMCO. the rebate of 6 paise was admissible to the manufacturers who used indigenous cotton seed oil in the manufacture ofvegetable product, namely, Pakav (ghee) and, therefore, according to TOMCO, what was given by rabate/exemption under the above Notification was not deductible from the excise duty. In short, as in the present case, TOMCO claimed higher deduction of 5% whereas Department contended that the assessee was G, entitled to deduction of5% minus 6 paise (rebate). On behalfofTOMCO, as in the present case, it was argued that exemption was given under the Notification by way ofai1 encouragement to a manufacturer to make use ofcotton seeds in the manufacture of Pakav.

The rebate in duty was not a general rebate. It was a rebate admissible only to the manufacturer 1 A satisfying certain conditions. ll1erefore, the position, in the present case, and the position prevalent in TOMCO's case were identical. In the present case also the TOT deducti<;m was available only on fulfilment ofcertain conditions. Rejecting the arguments ofTOMCO, the Bombay High Cowt held that the rebate of 6 paise had to be deducted from 5% ad valorem duty as the exemption under the Not(ftcation was not by way of a windfallfor the manzifacturer but it was admissible only on account of ,-\ the use ofcotton seed oil in the manufacture ofPakav. 9. At this stage, we may note that there was a conflict of views at the relevant time when TOMCO case was decided by Bombay High Court on 24. 7. 1980.

It is precisely in order to avoid the conflict that the Legislature inserted the above Explanation in section 4(4)(d)(ii) ofthe 1944 Act by using the words "the effective duty ofexcise payable on goods under this Act. " IO. In the case of B. K. Paper Mills Pvt. Ltd v. Union ofIndia and Ors. , Reported in (1984) 18 ELT 701 (Born. ) the assessee was the y manufacturer ofvarious types ofpapers at their facto1y in Bombay. The papers manufactured by the assessee was liable to excise duty under Tariff Item 17 of the First Schedule to the 1944 Act (as it then stood) at the rate specified therein. Under Notification No. 45173 dated 1. 3. 1973 an exemption from excise duty to the extent mentioned in the Notification was given in respect ofce1tain types of papers cleared by the assessee (manufacturer). In preparing the invoices, the assessees did not give the benefit of exemption Notification to their customers.

The assessees contended that the exempted duty ofexcise was, in fact a subsidy and, . }therefore, they were not required to pass on the benefit ofexemption to their customers. The assessees filed their price lists for the period July, 1976 to July, 1979 under Rule 173-C. The Department issued a show cause notice stating that the assessees were paying duty al a concessional rate while, in fact, they were charging full tariffrate ofduty to their buyers and, therefore, they were liable to pay the differential duty , j, calculated on the revised a. v. by applying section 4 ofthe 1944 Act. 111e Department directed the a. v. to be determined by deducting from the normal price the actual value ofthe duty payable. This dete1mination / } f- COMMNR. OFCENTRALEXCISE,MEERUT[KAPADIA,J. ] '")' was challenged by the assessee. The Bombay High Court, speaking through Sujata v.

Manohar, J, as she then was, held vide para 25 that looking to the provisions of section 4(4)(d)(ii) ofthe 1944 Act and the language used therein, it was clear that only the reduced rate ofduty was excludible from the value ofthe goods. That, the Explanation did not add something extra to section 4(4)(d)(ii) as it merely explained what was implicit in that Section. ~. / 11. In our view, the above two judgments ofthe Bombay High Court lay down the correct principle underlying the Explanation to section 4(4)(d)(ii). As held in TOMCO 's case (supra), the exemption was not by way ofa windfall for the manufacturer-assessee but on account of cotton seed oil used by TOMCO in the manufacture ofPakav. Similarly, in the case of B. K. Paper Mills (supra), the Bombay High Court has correctly analysed section 4(4)(d)(ii) with the Explanation to say that only the reduced rate ofduty can be excluded from the value ofthe goods and that Explanation explains what was implicit in that Section.

That, the said section 4(4)(d)(ii) did not refer to duty leviable under the relevant tariff entry without reference to exemption Notification that may be in existence at the time ofclearance/removal. That, section 47 ofthe Finance Act, 1982 which inserted the Explanation expressly sets out what is meant by the expression "the amount ofduty ofexcise payable on any excisable goods. " By the amount ofduty ofexcise what is meant is the effective duty of excise payable on such goods under the Act and, therefore, effective duty ofexcise is the duty calculated on the basis ofthe prescribed rate as reduced by the exemption notification. This alone is excluded from ·-i the normal price under section 4(4)(d)(ii). 12. It is true that the Explanation to section 4(4)(d)(ii) only refers to the amount ofduty ofexcise payable on excisable goods, however, as held by the Bombay High Court in the case of B. K.

Paper Mills (supra), the Explanation expressly sets out what is implicit in section 4(4)(d)(ii) which states that "value" in relation to excisable goods does not include the amount of duty of excise, sales tax and other taxes if payable on such goods. Therefore, the test to be applied is that of the "actual value ofthe duty payable" and, therefore, there is no merit in the argument advanced on behalf of the assessee that the Explanation is restricted to the duty ofexcise. This principle can therefore apply also to actual value ofany other tax including TOT payable. Even without the Explanation, the scheme ofsection 4(4)(d)(ii) shows that in computing the assessable value, one has to go by the actual value ofthe duty payable and, therefore, only the reduced duty was d. eductible from the value of thegoods. 13. To the same effect is the judgment ofthe Division Bench ofthe -~ Bombay High Court in the case of Central India Spinning, Weaving and Manufacturing Co. Ltd. and Ors. v.

Union of India and Ors. , reported in (1987) 30 ELT 217 (Born. ). We quote hereinbelow para 7 ofthe saidjudgment, which reads as follows: "It is true that according to Section 4(4)(d)(ii) of the Central Excises Act, the value does not include the amount of duty of excise, ifany payable on such goods, but in view ofExplanation to Section 4(4)(d)(ii), the 'duty ofexcise' means the duty payable in terms of the Central Excise Tariff read with Exemption Notification issued. under Rule 8 ofthe Central Excise Rules. In this view ofthe matter, the only deduction that is permissible is of the actual duty paid or payable while·fixing the assessable value. Thus where the company/ manufacturer whose goods were liable to excise duty at a reduced rate in consequence ofan exemption notification, while paying duty at reduced rate collected duty at a higher rate i. e.

tariffrate from its customers the authorities were justified in holding that what was being collected by the company as excise duty was not excise duty but the value in substance of the goods and therefore, the excess value collected by the petitioner from the customers was recoverable under Section 11A of the Central Excises and Salt Act, 1944. " 14. Applying the above tests to the facts of the present case, it is clear that on the date when the assessee filed its price declaration under Rule 173-C the assessee was aware that there was an exemption . :'. Notification dated 19. 10. 1993 in the State of Gujarat; that there were depot sales in Surat; that there were two types ofsales, namely, backward area sales and normal area sales and that the rate ofTOT in respect of MODIPONFIBRECOMPANY,MODINAGAR, U. P. v. 703 COMMNR. OFCENTRALEXCISE,MEERUT[KAPADIA,J. ] backward area sales was 0.

5% whereas the rate ofTOT for normal area sales was at 2% and yet the assessee after suppressing the aforestated data claimed the TOT deductions at the rate of2% across the board for all clearances and, therefore, the Department was justified in calling upon the assessee to pay differential excise duty. We accordingly confifQl the demand. I f · 15. Before concluding, we may add that every efficient manufacturer has to plan his operations sufficiently carefully to know what raw materials he will use and in what proportion he will use the raw materials in the manufacture ofhis final product. Generally, such manufacturers maintain what is called as Order Book. A manufacturer who is prudent would ordinarily worked out on estimation, the extent ofexemption which he is likely to get, in which event, the uncertainty to which the learned counsel has made reference would in fact hardly arise. In the present easel we are concerned with the amount of deduction.

That deduction has been claimed by the assessee-manufacturer (appellant). The burden is on such manufacturer to maintain proper records, as the burden is on it to fi,le proper price declaration under Rule 173-C. The burden to claim deduction is on the manufacturer. In the present case, the assessee has filed a declaration under the said Rule 173-C without disclosing to . the Department any ofthe aforestated details. We are, therefore, ofthe view that the Department was right not only in raising the demand for differential duty but also for invoking the extended period of limitation. 16. For the aforestated reasons, we find no merit in these civil -1. appeals and the same are accordingly dismissed with no order as to costs. Civil Appeal Nos. 2008-2010 of2002 17. This batch ofcivil appeals have been filed by the Department against order dated 3. 7. 2001 passed by the CEGAT ("the Tribunal'') which order stands confirmed by our above judgment in civil appeal Nos.

8529t 8531 of2001 in favour ofthe Department. 18. By the impugned order, the Tribunal has confinned the demand made on the assessee vide show cause notice dated 19. 3. 1999 for the period March, 1994 to March, 1997. However, tl1e Tribunal found that H the demand made by the Department was beyond limitation after the assessee had categorically informed the Department vide letter dated 14. 1. 1997 that there were two types of sales, namely, backward area sales and normal area sales. According to the Tribunal, therefore, there was no suppression after the Department had acquired the knowledge forthe first time vide the assessee's letter dated 14. 1. 1997 and, therefore, it was not open to the Department to claim suppression after 14. 1. 1997. 19. We see no reason to interfere with the findings recorded by the Tribunal on the question ofsuppression. I- 20. Accordingly, civil appeal Nos. 8529-8531 of2001 filed by 'the assessee and the cross civil appeal Nos.

2008-2010of2002 filed by the Department stand dismissed with no order as to costs. D. G. Appeals dismissed. ',•