Circular No. 136/47/95-CX
dated 12/7/95
F.No. 6/15/95-CX. 1

Government of India

Ministry of Finance

Department of Revenue, New Delhi

Subject :- Review of instructions on valuation matters in the light of Supreme Court judgement in 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 jubgement has already Customs” letter F.No. 275 / 25/ 95-CX. *A 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. 1 dated 31.12.1993 stand modified to the extent they are in conflict with the above mentioned judgement dated 3.5.1995 of the Hon”ble supreme Court.

(S.C. Bhatia)

Under Secretary to the Govt. of India.

M. Chandrasekharan
Additional Solicitor General of India
46, Bank Enclave
Delhi – 110 092

Dear Dr. Rao,

Subject: Supreme Court Judgement in the MRF Case.

As you are aware, the Hon”ble supreme Court has now delivered its judgement in the MRF CASE, the decision in which had earlier been recalled and the case reheard by a Bench comprising the Hon”ble Mr. Justice B.P. Jeevan Reddy,  the Hon”ble Mr. Justice Subhas C.Sen and the Hon”ble Mr. Justice G.T. Nanavati.

The matter was heard at length and the judgement has been delivered on 3.5.1995 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  Case represents the correct interpretation of Section 4 of the Central Excise and Salt Act, 1994, both old and new.

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

3. The price at which the assessee sells its goods to the Government at the factory gate cannot be adopted as the price in respect of its total sales.

4. In cases where the goods are sold in the course of wholesale trade at place or places outside the place of removal i.e., at the depots, the expenses incurred in maintaining and running the said depots can-not 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 in 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 excludable 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 are 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 receivable 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 a 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 decision of the Hon”ble 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 the steps may be taken during the summer vacation of the Court to collect all such cases which are pending in 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.

(M. Chandrasekharan)

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

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