Circular No. 136/47/95-CX dated 12/7/95

Subject: Review of instructions on valuation matters in the light of Supreme Court judgement m the M.R.F. Case - Addition/deduction of certain items of expenses to arrive at assessable value.

The Hon"ble Supreme Court in its judgement dated 3.5.1995 in case of U.O.I. & Others etc. v. the Madras Rubber Factory Ltd. & Ors. etc. have decided the issues relating to valuation matters and a copy of the judgement has already " been communicated to all the Commissioners vide Central Board of Excise & Customs" letter F. No. 275/25/95-CX.8A dated 25.5.1995.

2. The Supreme Court has analysed various issues relating to Valuation matters and these have been summarised by the Attorney General of India in his letter dated 9.5.1995 (A copy of which is enclosed for your ready reference).

3. In the light of the above. Board desires you to finalise all assessments and connected matters after taking into-account the above mentioned Supreme Court judgement dated 3.5.1995.

4. Further, all earlier instructions regarding Valuation matters including 37-B Order issued vide F.N. 6/25/93-CX.I dated 31.12.1993 stand modified to the extent they are in conflict with the abovementioned judgement dated 3.5.19 of the Hon"ble supreme Court.

Sd/-
(S.C.Bhatia)
Under Secretary to the Govt. of India

F.No. 6/15/95-CX.1 M. Chandrasekharan
Additional Solicitor General of India 383589(0)
46, Bank Enclave 224357 (R)
Delhi-110 092

Dear Dr. Rao,

Sub: Supreme Court Judgement in the MRF Case.

As you are aware, the Hon"ble Supreme Court has now delivered judgement in the MRF CASE, the decision in which had earlier been rectify and the case reheard by a Bench comprising the Hon"ble Mr. Justice B.P. Jeevi Reddy, the Hon"ble Mr. Justice Subhas C. Sen and the Hon"ble Mr. Justice G.1 Nanavati.

The matter was heard at length and the judgement has been delivered S 3.5.95 by the Hon"ble Mr. Justice B.P. Jeevan Reddy.

The following are the main points decided by the Hon"ble Court:

1. The law enunciated by the Hon"ble Supreme Court in the Bombay Tyre International Case represents the correct interpretation Section 4 of the Central Excises and Salt Act, 1944, both old and net

2. Where the freight is averaged and the average freight is included i the wholesale cash price that the wholesale cash price at any proforma or places outside the factory gate is the same as the whole sale ca price at the factory gate, the average freight included in su wholesale cash price has to be deducted in order to arrive at the p wholesale cash price at the factory gate and no excise duty can I "charged on such averaged freight.

3. The price at which the assessebells its goods to the Government at the factory gate cannot be adops as the price in respect of its total safes,

4. In cases where the goods are sold in the course of wholesale traded place or places outside the place of removal i.e., at the depots, the expenses incurred in maintaining and running the said depots cannot be deducted from the price but the cost of transportation along with the cost of insurance on freight can be deducted,

5. As regards packing, the test is whether packing, the cost whereof is sought to be included, is the packing in which it is ordinarily sold in the course of a wholesale trade to the wholesale buyer. In other words, whether such packing is necessary for putting the excisable article in the condition in which it is generally sold in the wholesale market at the factory gate. If it is, then its cost is liable to be included in the value of the goods; and if it is not, the cost of such packing has to be excluded.

6. TAC/Warranty discount is not excludible from the assessable value.

7. 1% turn over discount cannot be included and the claim of the assessee is to be allowed.

8. Year-ending discount and prompt payment discount arc to be allowed to the assessee as a deduction.

9. Special secondary packing for tread rubber cannot be deducted from the assessable value of tread rubber.

10. The interest on value of finished products from the date the stocks are cleared from the gate till the date of sale through the depots will not qualify for deduction.

11. Interest on receivables being an amount received subsequent to the sale from the depots is excludible and the deduction has to be allowed to the assessees.

12. As regards the method of computation of assessable value in c\ cum-duty-price the decision on this point as contained in the recalled decision in the MRF Case has been reiterated as laying down the correct law. In fact, the assessees did not question the correctness of this part of the earlier decision which had been recalled. In other words, the ad valorem excise duty can only be computed after reducing the assessable value by permissible deductions and then applying the Tariff rate to the assessable value. This was in accordance with the stand adopted by the Department all throughout.

The above are some of the salient points decided by the Hon"ble Supreme Court and the decision does iron out certain discrepancies which had been sought to be made out as having arisen as a result of decisions of the.Hon"blc Supreme Court subsequent to the decision in Bombay Tyre International Ltd. case. In my opinion, the main issues relating to the inclusion of the depot charges and the computation of the duty in the case of a cum-duty price have both been decided in favour of the Department and would bring in substantial Revenue on these accounts.

The Hon"ble Court has also directed that all the cases which are pending in the court would now be taken up for hearing individually and orders passed. I am sending a copy of this letter to the Revenue Secretary also so that steps may be taken during the summer vacation of the Court to collect all such case^ which are pending on the Supreme Court and to give a list which would enable all the cases to be fixed up for disposal immediately after the reopening of the court. I have already been assured of full cooperation in this regard by the Revenue Secretary and this should not be difficult.

Sd/-
(M.Chandrasekharn)

Dr. P.C. Rao
Law Secretary,
Shastri Bhawan,
New Delhi-110 001

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