Central Value Added Tax. In 1986 modified value added tax i.e.

MODVAT introduced by the central government which enabled the manufacturers to avail credit of excise duty paid on the input used in or in relation to manufacture of end product. MODVAT scheme was renamed as central value added tax scheme i.e. CENVAT scheme in the year 2000. Under this scheme duty paid on input stage is offset against duty payable at the final stage. Scheme designed to reduce the cascading effect of indirect taxes on final products. Statutory Basis Of Cenvat. Section 2A of The Central Excise Act ,1944 states that unless otherwise expressly provided or unless context otherwise requires , references to the expressions duty duty of excise and duties of excise shall be construed to include a reference to Central Value Added Tax (CENVAT) Section 37 (xvia xvic) of CEA gives power to the central govt. to make rules to (a) provide for credit of duty paid or deemed to have been paid on goods used in or in relation to manufacture of excisable goods . (b)provide for giving sums of money with respect to raw materials used in manufacture of excisable goods. (c) provide for credit of service tax paid or payable on taxable services used in , or in relation to , the manufacture of excisable goods. In exercise of these powers , the central govt. made Cenvat Credit Rules , 2004 , which governs the CENVAT scheme. How Tax Credit System works. VAT is based on Tax Credit System where the duty paid on input stage is offset against duty payable at final stage. In conventional tax system , tax is calculated with reference to selling price of the product . However, modern production technology requires variety of inputs and multiple processing in manufacture of goods. Thus for manufacture of a product , output of one manufacturer becomes input for other manufacturer, who carries out further processing and sells it to third manufacturer. The process continues till final product is manufactured. In multiple processing manufacture, a tax based on selling price of a product will result in taxation at many stages, as raw material passes from one stage to another till the manufacture of final product. As stages of production and sale continues , each subsequent purchaser has to pay tax again and again on the inputs which has already been subjected to tax. This is called cascading effect. VAT eliminates the cascading effect of tax by Tax Credit System. Under TCS , credit is provided at each stage of tax paid at earlier stage. Assuming that rate of Tax is 10%. Under Tax Credit system. Assuming rate of Tax is 10%. If the cost price a product manufactured by A is Rs. 100 and that product is purchased by manufacturer B as input for further processing. Then along with tax, purchase price of B will be Rs. 110. However B will get a credit of duty already paid i.e Rs. 10 , he will not consider this amount in his cost . B does a value addition Rs. 40 on that input , then selling price of that product will be Rs. 154. (Rs. 100+40=140 + 10% Tax(Rs.14)= 154). Though B will mark the invoice price as Rs. 154 , he will pay a tax of only Rs. 4 (14-10) as B has got a credit of Rs. 10 on account of 10% tax already paid on that product by earlier manufacturer C purchases the product from B as input for further processing , does a value addition of Rs. 60, then the selling price of that product will be Rs. 206( 140+60=200+10% Tax= 220-14=206).

Here C will not consider Rs. 14 as his cost as he is getting a credit of Rs. 14 , which is the amount of tax paid by the earlier manufacturer. C will only pay Rs. 6 as tax i.e. 10% of value addition of Rs. 60 done by him. If C sells his product to D for further processing, Then purchase price of D will be Rs. 220. However D will get a credit of duty already paid i.e Rs. 20 , so he will not consider this amount in his cost . If D does a value addition of Rs. 50 on that input the selling price of D will be Rs. 275( 200+ 50=250 + 10% Tax= 275). However D will pay only Rs. 5 as duty (10% of Rs. 50) as he has got a credit of Rs. 20 i.e. amount of tax paid by earlier manufacturer. Advantages of Tax Credit System. Under TCS and VAT , exports can be made tax free which allows goods manufactured in India to compete with goods manufactured in other countries on price front. As the exporters are allowed CENVAT credit , inputs for manufacture of export products comes totally duty free which helps in keeping the prices low and competitive. Taxation can be target specific as VAT allows differential taxation of goods and services. It is a self regulating system where value chain is unbroken and each user of input has a interest in keeping the system working. Tax enforcement is strengthened as TCS provides audit trail through different stages of production and trade. It acts as a self policing mechanism as every stakeholder has a monetary interest involved i.e. getting the tax credit. If someone wants to evade tax, he will not get the benefit of tax credit and there is no incentive for evading taxes. Moreover his products will also not find market as users of inputs will not buy something which does not give them tax credit.

VALUATION IN CUSTOMS Definitions: Import with its grammatical variations and cognate expressions, means bringing into India from a place outside India - 2(23) imported goods means any goods brought into India from a place outside India but does not include goods which have been cleared for home consumption 2(25) Indian Customs Waters means the waters extending into the sea upto the limit of contiguous zone of India under section 5 of the Territorial Waters Continental Shelf, Exclusive Economic Zone and other Maritime Zones Act, 1976 and includes any bay, gulf, harbour, creek or tidal river 2(28) jurisdiction of the Act Goods includes- (a) vessels, aircrafts and vehicles; (b) stores; (c) baggage; (d) currency and negotiable instruments; and (e) any other kind of movable property 2(22) Section 12. Dutiable goods- (1) Except as otherwise provided in this Act, or any law for the time being in force, duties of customs shall be levied at such rates as may be specified under the Customs Tariff Act, 1975 or any other law for the time being in force, on goods imported into, or exported from, India

CUSTOMS VALUATION (DETERMINATION OF PRICE OF IMPORTED GOODS) RULES, 1988 Definitions. "identical goods" means imported goods-

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1.which are same in all respects, including physical characteristics, quality and reputation as the goods being valued except for minor differences in appearance that do not affect the value of the goods; o 2.produced in the country in which the goods being valued were produced; and o 3.produced by the same person who produced the goods, or where no such goods are available, goods produced by a different person, but shall not include imported goods where engineering, development work, art work, design work, plan or sketch undertaken in India were completed directly or indirectly by the buyer on these imported goods free of charge or at a reduced cost for use in connection with the production and sale for export of these imported goods; "similar goods" means imported goods o 1.which although not alike in all respects, have like characteristics and like component materials which enable them to perform the same functions and to be commercially interchangeable with the goods being valued having regard to the quality, reputation and the existence of trade mark; o 2.produced in the country in which the goods being valued were produced; and o 3.produced by the same person who produced the goods being valued, or where no such goods are available, goods produced by a different person, but shall not include imported goods where engineering, development work, art work, design work, plan or sketch undertaken in India were completed directly or indirectly by the buyer on these imported goods free of charge or at a reduced cost for use in connection with the production and sale for export of these imported goods; "related persons " meanso 1. they are officers or directors of one another's businesses; o 2. they are legally recognised partners in business; o 3.they are employer and employee; o 4.any person directly or indirectly owns, controls or holds 5 per cent or more of the outstanding voting stock or shares of both of them; o 5.one of them directly or indirectly controls the other; o 6.both of them are directly or indirectly controlled by a third person; o 7.together they directly or indirectly control a third person; or o 8.they are members of the same family.

Section 2(41) of the Customs Act, 1962 defines Value in relation to any goods to mean the value thereof determined in accordance with Section 14 (1). Section 14 (1) in turn, states that when a duty of customs is chargeable on any goods by reference to their value, the value of such goods shall be deemed to be:- "The price at which such or like goods are ordinarily sold, or offered for sale, for delivery at the time and place of importation or exportation, as the case may be, in the course of international trade, where the seller and the buyer have no interest in the business of each other and the price is the sole consideration for the sale or offer for sale". The provisions Section 14 (1) apply for the valuation of both imported goods and export goods. However, a common valuation law at international level applies only to imported goods and its basic principles are laid down in Article VII of General Agreement on Tariffs and Trade (GATT), 1948, currently administered by the World Trade organization, WTO. The Indian valuation law under Section 14(1) of the Indian Customs Act is based on the principles of Article VII of the GATT. The Agreement on Customs Valuation (ACV), which came into force on 1st January 1981, lays down well defined methods of valuation to be strictly followed so as to ensure uniformity and certainty in valuation approach and to avoid arbitrariness. Section 14 - (1) For the purposes of the Customs Tariff Act, 1975 , or any other law for the time being in force, the value of the imported goods and export goods shall be the transaction value of such goods, that is to say, the price actually paid or payable for the goods when sold for export to India for delivery at the time and place of importation or as the case may be , for export from India for delivery at the time and place of exportation, where the buyer and seller of goods are not related and price is the sole consideration for the sale subject to conditions as may be specified in the rules made in this behalf Provided that such transaction value shall include, in addition to the price, any amount paid or payable for costs and services, including commissions and brokerage, engineering, design work, royalties and licence fees, costs of transportation to the place of importation, insurance, loading, unloading and handling charges to the extent and in the manner specified in the rules in this behalf Provided further that the rules in this behalf may provide for: The circumstances in which the buyer and seller are deemed to be related The manner of determination of value when there is no sale or the buyer and seller are related or price is not the sole consideration for sale or in any other case, the manner and acceptance or rejection of value declared by the importer or exporter , where the proper officer has reason to doubt the truth and accuracy of of such value, and determination of value for the purpose of this section. Provided also that such price shall be calculated with reference to the rate of exchanges as in force on the date on which a bill of entry is presented under section 46, or a shipping bill or bill of export, as the case may be, is presented under section 50; Explanation - For the purposes of this section- (a) "rate of exchange" means the rate of exchange- (i) determined by the Board , or (ii) ascertained in such manner as the Board may direct, for the conversion of Indian currency into foreign currency of foreign currency into Indian currency; (b) foreign currency" and "Indian

India is presently following the provisions of the WTO Agreement on Customs Valuation (ACV) for determination of value on imported goods where Customs duty is levied with reference to value (ad-valorem rates). However, this does not apply to cases where tariff values have been fixed . India is a founding Member of the GATT (presently WTO) and was actively involved in the GATT negotiations (Tokyo Round, 197379), which developed the Agreement on Customs Valuation (ACV). India implemented the ACV in August 1988. Legal provisions

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currency" have the meanings respectively assigned to them in the Foreign Exchange Management Act, 1999 . The Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 lays down the methods of valuation based on the ACV. Transaction value, which is the price paid or payable for the imported goods, is the primary basis for valuation. If the transaction value method is not applicable in a specific case, the other methods of valuation prescribed in the Rules (based on ACV) have to be followed in a hierarchical order, subject to certain exceptions . Under the Customs Act, 1962, the Central Government has also been empowered to fix Tariff Values under provisions of Section 14(2) for any product. If Tariff Value is fixed for any goods, then ad-valorem duties are to be calculated with reference to such Tariff Value. The tariff values may be fixed for any class of imported or export goods having regard to the trend of value of such or like goods and the same has to be notified in the official gazette. This measure is resorted to only in rare cases where the price fluctuations in the market are rampant having significant economic impact. The Customs Valuation Rules, 1988, lays down methods for the valuation of imported goods. The primary basis for valuation is the "Transaction Value". In certain situations, the Customs authorities could reject the declared value (transaction value method), if the truth or accuracy of the declaration is reasonably suspected . In all such cases where the transaction value method is not applied, goods shall be valued by applying the subsequent methods in a strictly hierarchical. In order to enable the Customs to determine the value by application of the most appropriate method, the importer is required to truthfully declare the full particulars concerning the goods under import. These include full description and specifications of the goods, basis of valuation applied, relationship with the supplier, conditions and restrictions if any attached with the sale, elements of cost not included in the invoice price, royalty and license fee payable in relation to the imported goods, etc. These details are to be declared in a special Valuation Declaration Format designed for the purpose. Transaction Value method: Rule 3(i) of the Customs Valuation Rules, 1988 states that the value of imported goods shall be the transaction value. Rule 4(i) thereof defines transaction value as the price actually paid or payable for the goods when sold for export to India.The price actually paid or payable should be adjusted to include all the costs and services (dutiable valuation factors) specified in Rule 9 (1). In short, the transaction value should be determined by suitably adjusting the declared value so as to include all payments made as a condition of sale of the imported goods by the buyer to the seller or by the buyer to a third party to satisfy an obligation of the seller. Since the assessment is on CIF basis, the invoice value should be suitably adjusted to include the freight, insurance and handling charges as applicable under Rule 9 (2). Valuation factors: Valuation Factors are the various elements (dutiable factors), which should be added while determining the Customs value. The factors should be added to the extent they are not already included in the price actually paid or payable (invoice value). These dutiable factors are:

Commissions and brokerage, except buying commissions; The cost of containers which are treated as being one for Customs purposes with the goods in question; The cost of packing whether for labor or materials; The value of the following goods and services where supplied directly or indirectly by the buyer free of charge or at reduced cost for use in connection with the production and sale for export of the imported goods, to the extent that such value has not been included in the price actually paid or payable:material, components, parts and similar items incorporated in the imported goods; tools, dies, moulds and similar items used in the production of the imported goods; materials consumed in the imported goods; engineering, developing, artwork, design work, and plans and sketches undertaken elsewhere than in the importing country and necessary for the production of imported goods; Royalties and license fees related to goods being valued that the buyer must pay either directly or indirectly, as a condition of sale of the goods being valued, to the extent that such royalties and fees are not included in the price actually paid or payable; Advance payments; Freight charges up to the place of importation; Loading, unloading and handling charges associated with transporting the goods; Insurance.

Non-dutiable Factors: The following charges are not to be added for the purposes of determining the Customs value provided they are clearly distinguishable and separately declared in the commercial invoice: Buying commission: Interest charges for deferred payment; Post-importation charges (e.g. inland transportation charges, installation or erection charges, etc.); Duties and taxes payable in India.

Conditions required to be satisfied for application of Transaction Value method . The sale is in the ordinary course of trade under fully competitive conditions; The sale does not involve any abnormal discount or reduction from the ordinary competitive price; The sale does not involve special discounts limited to exclusive agents; There are no restrictions concerning the disposition or use of the goods by the buyer . The sale or price is not subject to some condition or consideration; No part of the proceeds of the goods (by resale, disposal or use) after importation accrues to the seller; Buyer and seller are not related, and if related, the relationship should not have influenced the price.

Non applicability of TV method.

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Transaction value method does not apply in following situations . If there is no sale for export to India in respect of any importation, such as gifts.

Where valuation fraud (under valuation, wrong description, misdeclaration of quantity, grade, specifications, etc) are shown to have taken place.

Related Party transactions The transaction value method cannot be applied in cases where the buyer and seller are related and the relationship has influenced the price. In such cases the burden of proof shifts to the importer, who should satisfy the Customs that the declared price closely approximates to the test values. If the importer fails to discharge this responsibility, the declared value could be rejected and valuation done under any of the subsequent methods applied in hierarchical order.

works prices. The Committee added an element to the ex- works prices for constituting a fund for modernisation, research and development with the object of ensuring the production of iron and steel in the desired categories and grades by the main steel plants. Pursuant to the orders of the committee , the steel companies started adding element to their ex-works price for the fund. However while declaring value of their goods, the steel companies did not add these ex-works elements for the purpose of asessment of excise duty. The revenue claimed that excise is payable even on this component as total value of goods is relevant for assessment of excise duty an whatever is added to ex- works prices will the value for calculation of excise duties. The questions for consideration. (i) Whether the elements required to be added by the members steel plants, as per the decision of the Committee , are admissible deductions under Section 4(4)(d)(ii) of the Central Excise Act i.e. whether they fall within the definition of the term "other taxes" and (ii) whether such addition, which is a compulsory impost, can be considered and be price on which excise duty is payable by the parties. Contention of TISCO (i) Iron or Steel Companies have to compulsory add this element to the ex-works price and as such it is a compulsory exaction. Such compulsory exaction is in the nature of "tax" and is covered by the words "other taxes" in Section 4(4)(d)(ii) of the Central Excise Act Reasoning of the Court: Section 4 of the Central Excise Act states that where the duty of excise is chargeable on any excisable goods with reference to value, such value shall, subject to the other provisions of this section, be deemed to be (a) the normal price thereof, that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale: (d) "value" in relation to any excisable goods,(ii) does not include the amount of the duty of excise, sales tax and other taxes, if any, paid or payable on such goods Thus excise duty is chargeable on the value of the goods. The value is the normal price i.e. the price at which such goods are ordinarily sold by the assessee to a buyer, where the buyer is not a related person and the price is the sole consideration for sale. From the price at which the assessee sells to the buyer the only deductions permissible are those under sub-clause 4(d)(ii) i.e. excise, sales tax and other taxes. It is clear that extra elements added to ex- works price of steel is not an excise duty or a sales tax. The only question is whether it would fall within the meaning of the term "other taxes". Case laws In D. G. Gose and Co. v. State of Kerala (1980) 2 SCC 410. the question was regarding the validity of tax imposed by the Kerala State on buildings by virtue of the Kerala Building Tax Act. The

Other valuation methods: (1) Transaction Value of Identical goods. This is based on the previously determined transaction value of identical goods, imported at or about the same time; (2)Transaction Value of Similar goods . This is based on the transaction value of similar goods imported at or about the same time; (3)Deductive Value Method . This is calculated based on the selling price of imported goods or identical/similar goods in India after deducting selling expenses, margin of profit, duties and taxes; (4)Computed Value Method . The computed value is arrived at from the cost of materials used in production of imported goods, cost of fabrication or other processing charges at the country of production, profit and general expenses, and other dutiable factors . (5) Valuation Under Rule 10 A Rule 10 A provides a unique procedure for rejection of transaction value method in cases of suspected valuation fraud. The Authority for this Rule from a decision by the WTO Valuation Committee . This applies to cases where there is reason to doubt the truth or accuracy of the value declared by the importer, but there is no evidence with the Customs to establish fraud. Rule 10 A came as a results of Uruguay Round negotiations (which led to the establishment of World Trade Organization (WTO) in 1994) based on an Indian proposal. The Indian proposal was to provide adequate flexibility in the Valuation Agreement to deal with cases of suspected fraud, particularly those where the declared value was far below a series of contemporaneous transactions. In such cases the Customs could ask the importer to produce additional information and evidence to justify the declared value. If the information/ documents produced are not adequate to dispel the doubt regarding the truth or accuracy of the declaration or if the importer fails to produce any supporting evidence, the Customs could reject the declared value. An appealable order should be issued in such cases after giving the importer a reasonable opportunity to be heard. The goods should then be valued by applying any of the subsequent methods as laid down in the Valuation Rules. In short, Rule 10 A provides only an authority to reject the declared value and is not a method of valuation by itself. The Tata Iron & Steel Co. vs CCE.AIR 2003 SC 144 Facts : Under the Essential Commodities Act the Government of India set up a Joint Plant Committee (JPA) and a Steel Priority Committee (SPC) for determining , prices (base prices as well as extras) from time to time of all categories of iron or steel as ex-

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validity of this Act was challenged, inter alia, on the ground that this was the tax on the capital value and assessee of an individual or a Company and therefore fell within the scope of Entry 86 of the Union List and not under Entry 49 of the State List. Therefore the State did not have the statutory authority to impose such a tax. The Court held as follows: " The word 'tax' in its widest sense includes all money raised by taxation. It therefore includes taxes levied by the Central and the State legislatures, and also those known as 'rates", or other charges, levied by local authorities under statutory powers. Taxation" has therefore been defined in clause (28) of Article 366 of the Constitution to include "the imposition of any tax or impost, whether general or local or special", and it has been directed that "tax" shall be "construed accordingly". Thus it is to be seen that even though the term "tax" has been given a wide interpretation to include all monies raised, the levy still has to be by the Central or State legislatures or by some statutory authority. In CCE v. Kisan Sahkari Chinni Mills Ltd. 2001 (132) ELT 523 (S.C.)- State of Uttar Pradesh enacted a legislation called Uttar Pradesh Sheera Niyantaran Adhiniyam . This Act regulated storage, gradation, price, supply and distribution, in Uttar Pradesh, of molasses produced by the sugar factories. The Act provided that sugar factories would be liable to pay to the State Government administrative charges . These administrative charges were based on the quantity of molasses sold and supplied by the sugar factories. The Act enabled the factories to recover these charges from the person to whom the molasses were sold. The question before the Court was whether this compulsory exaction fell within the term "other taxes" in Section 4(4)(d)(ii) of the Central Excise Act. It was held as follows: "Under Section 4(4)(d)(ii) of the Central Excise Act what is to be excluded from the assessable value is the amount of duty of excise, sales tax and "other taxes". Taxes, as such, are not defined in the Central Excise Act. If the expression "tax" is to be understood in the absence of any definition, it would certainly cover any levy. Since the imposition was under a statute enacted by the State of Uttar Pradesh the levy was by the State. It was thus held that that levy fell within the definition of the term "other taxes". In the present case there is no backing of any statutory provision for the creation of these funds. Further the levy was only on main steel plants and the fund was created for the utilization by these member steel plants only. Also to be noted that even though the Essential Commodities Act empowers regulation of price, it does not empower imposition of any taxes. The addition of an element to the ex- works price has no statutory backing or force. It is not by the Central Government or the State Government or any local authority. It is a levy by a Committee majority of whose members are representatives of the steel plants. The purpose of creating funds is for the benefit of these member steel plants. Such a levy, even though, it may be compulsory can never be "tax". In C.I.T. v. Tollygunge Club Ltd. (1977) 2 SCC 790- the question was whether a surcharge collected by the assessee Club from all race goers but which had been earmarked for charity could be deemed to be an income of the assessee and therefore includible in the taxable income of the assessee. It was held that income tax was a tax on income. It was held that "income" is what reaches the assessee and that it is that income which is intended to be charged to tax under the Income Tax Act. Every receipt by the assessee is not necessarily income in his hands. The surcharge collected by the assessee was for the purposes of being paid over to local charities. This surcharge was clearly impressed with an obligation in the nature of trust for being applied for the benefit of charities. Therefore it was held that this surcharge was diverted before it

reached the hands of the assessee and did not become part of the income of the assessee and such a surcharge would therefore not be regarded as income assessable to tax. In C.I.T. v. Bijli Cotton Mills (1979) 1 SCC 496- The que stion was whether certain amounts realized by the assessee on account of Charity in addition to the price from his customers could be stated to be income in the hands of the assessee which were assessable to income tax. It was held that the amount was being collected for purposes of giving to charities and were held by the assessee under an obligation to spend them for charitable purposes. Therefore it did not form income of the assessee. These amounts were not part of the price of the goods but were payments for specific purpose of being spent on charitable purposes. It was submitted by TISCO that all the abovementioned cases clearly show that when there is a compulsory impost or exaction, the assessee has to collect but the assessee cannot retain for himself and he has to pass on the same, then such a compulsory exaction cannot be included in the value for purposes of assessing excise duty. Such imposts cannot be deemed to be price. What was being levied was an element to the ex-works price and the price for purpose of assessment of duty remained the ex-works price. The Companies sold to the customers at the ex-works price. The additional amount was merely collected by the Companies for and on behalf of JPC and the companies did not retain this amount. Therefore this element could not be considered to be price. Therefore the price which the buyer pays is the price on which excise duty is leviable. From the price that the buyer pays, the only deductions allowed are taxes paid or payable on such goods. The levy in the present case is not a "tax" and does not fall within the meaning of the term "other taxes". This element cannot be deducted from the assessable value of the goods. Countering this the revenue submitted that the principles under the Income Tax Act cannot be made applicable to the Central Excise Act. Under the Income Tax Act what is taxable is the actual income received by the assessee for his own benefit. Under the Central Excise Act excise duty is chargeable on the value of the goods. This value is the price at which the goods are ordinarily sold by the assessee to the buyer. The element which has been added is an "element of price". This element could only have been added as price because the JPC is established by virtue of the order based on the Essential Commodities Act and under that Act there was no power to make any levy or impose any tax on a purchaser. The addition being an element of price it has to be included in the assessable value for purposes of excise duty. Decision of the Court. Principles on which "income" is to be determined under the Income Tax Act cannot apply when determining "value" for purposes of Excise Duty. Under the Income Tax Act, tax is payable on income which reaches the assessee. On the other hand, Section 4 of the Excise Act shows that excise is payable on the price at which goods are ordinarily sold to the buyer. Thus the principles on which Bijli Cottons Mills' case and Tollygunge Club's case were decided would not be appropriate and would not apply for deciding "value" for the purposes of the Excise Act. In Hindustan Sugar Mills v. State of Rajasthan. (1978) 4 SCC 271- The question was whether the assessee was liable to pay Sales Tax on the amount of railway freight collected by them from the purchaser. It was held that the assessee was bound to pay Sales Tax on such amounts.

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In E.I.D. Parry (I) Ltd. v. Asst. Commissioner of Commercial Taxes (2000) 2 SCC 321- it was held that the purchase price is the total amount of consideration for the purchase of goods. This would include price and also other amounts payable by the purchaser. These cases have been decided under the Sales Tax Act,but the principles for computing value for purposes of Sales Tax are similar to those of computing value for purposes of Excise Duty. It is these principles which would apply. What has been added is an "element of price". The JPC could not have made any compulsory exaction from the purchaser. They could only regulate prices by adding elements to the ex-works price. In other words the ex-works price could be increased by adding an element to it. Thus what was being added was to the price. Another aspect to be kept in mind is ultimate beneficiaries of these amounts are the steel plants themselves. Therefore while assessing excise duty,such levy cannot be exempted as taxes .In this view of the matter the appeal of TISCO is dismissed. Burn Standard Company Ltd. vs Union Of India 1991 SCR (2) 960 Facts:- Appellant Burn Standard Company Limited, manufactured wagons for supply primarily to the Railway Board. The wagons are manufactured in accordance with the specifications, terms and conditions contained in the agreements entered between the appellant and the Railway Board from time to time. The Railway Board supplies wheel- sets, axle boxes and various other finished components of wagons to the appellant which are termed as "free supply items". These items are not manufactured by the appellant. The readymade "free supply items" are made available to the appellant by the Railway Board without charging any price. There items are fitted in the wagons manufactured by the appellant and are ultimately supplied to the Railway Board. The invoice-value of the wagon charged by the appellant from the Railway Board does not include the value of the "free supply items". The central excise authorities issued various show cause notices in respect of different transactions calling upon the appellant to show cause as to why the excise duty be not computed and charged on the value of the completed wagon including that of the "Free supply items". The appellant challenged the show cause notices by way of writ petition before the Calcutta High Court. The Court allowed the writ petition and quashed the demand raised by the central excise authorities. The Court came to the conclusion that the excise duty could only be charged on the basis of the invoice-value under the contract based on the following reasoning: "There is no dispute that certain items of finished components are supplied by the Railway Board to the petitioner. The value of these items is not taken into consideration in fixing the price of the wagons sold by the petitioner to the Railway Board. The price of the completed wagons is calculated on the basis of the manufacturing cost of the petitioner including the price of components acquired by the petitioner for which the petitioner has actually to pay the price. But the components which are supplied free of cost by the Railway Board do not enter into the pricing mechanism of the petitioner at all. Therefore, the excise value of the wagons manufactured by the petitioner cannot be calculated after adding back the price of the components supplied free of cost by the Railway Board." However on appeal by the Union of India, a Division Bench of the High Court set aside judgment of the single judge and allowed the appeal in the following words: "Admittedly, in this case, the cost of wagon as a whole has not been mentioned in the agreement . But normal price should include cost of construction and furthermore,

whenthe sale means actual price of the goods viz. wagon as a whole, so the value of a wagon as a whole, will form part of the relevant and necessary assessable value under section 4 of the Excise Act, as the manufacturing cost of a complete wagon cannot be conceived of without taking into account or consideration the cost of free supply items ...... Therefore the valuation cost of the free supply items should be included in the manufacturing cost of wagons. Section 4(1)(a) of the Excise Act applies in this case and as such, the valuation of excisable goods will be charged or will take place when manufacture takes place. While determining the valuation of wagons for charging the duty, the Revenue Authorities had acted duly and with justification, in adding the cost of free supply items under the provisions of the Act , the more so when, under the agreement in this case, the said petitioners were and are required to manufacture and supply completed wagons, in which the free supply items were and are required to be fixed at the time of manufacture. There cannot be any doubt that without fixing the free supply items, the production and manufacture of a wagon would not be effectively completed. The manufacture of a complete wagon thus takes place as soon as or as and when the free supply items are fitted and fixed by the said petitioners and with such manufacture, the process of manufacture would be complete under section 2(f) of the Excise Act and the liability to duty will also be attracted. We hold that the value of the manufactured goods must be determined at the factory gate i.e. at the stage when the manufactured goods here in this case wagons, leave the factory." The Burn standard Company has come in appeal against the judgment of the high court. On the basis of above facts, the question for determination is whether the excise duty under Section 3 and 4 of the Central Excises and Salt Act, is to be charged on the invoice-value of the wagon or on the value of completed wagon including that of the "free supply items". Relevant statutory Provisions: Section 3 of the Central Excise Act states that: Duties specified in the First Schedule to be levied(1) There shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in (India) Section 4 states that: Valuation of excisable goods for purposes of charging of duty of excise.(1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value shall, subject to the other provisions of this section, be deemed to be(a) the price at which such goods are ordinarily sold by the assessee to a buyer in the course of trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale: Reasoning of the Court Section 3 of the Act provides for levy of the duty of excise. It is a levy on goods produced or manufactured in India. Section 4 of the Act lays down the measure by reference to which the duty of excise is to be assessed. The duty of excise is linked and chargeable with reference to the value of the excisable goods and the value is further defined in express terms by the said section. In every case the fundamental crite rion for computing the value of an excisable article is the normal price at which the excisable article is sold or is capable of being sold by the manufacturer. It is not disputed that the appellants are manufacturers of wagons. What comes down from the assembly-line of the appellant's factory is a complete wagon and as

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such the appellant being manufacturer of wagons, is liable to pay duty of excise on the value of a complete wagon. The "free supply items" like wheel-sets etc. in the process of manufacturing become part of the complete wagon and loose their identity. It hardly matters how and in what manner the components of the wagon are procured by the manufacturer, so long as the appellant is manufacturing and producing the goods called "wagons" it is liable to pay duty of excise on the normal value of the wagon. For the purpose of excise duty , ownership of the goods is irrelevant. In Empire Industries Limited and Others v. Union of India and Others, [1985] 3 S.C.C. 314 while interpreting Sections 3 and 4 of the Act , the supreme Court held that: "The fact that the petitioners are not the owners of the end product is irrelevant. Taxable event is manufacture-not ownership. In Ujagar Prints and Others v. Union of India and Others, [1989] 3 S.C.C. 488, it was held that : "Duties of excise are imposed on the production or manufacture of goods and are levied upon the manufacturer or the producer in respect of the commodity taxed. The question whether the producer or the manufacturer is or is not the owner of the goods is not determinative of the liability." In the present case , though the ownership of free articles rests with the railway board but the Burn Standard Company which uses these free supplies in manufacture of wagons becomes liable to pay excise duty on total value of the wagon . The position of law is clear in this regard that the excise duty is a duty on manufacture . The fact that wagons are manufactured by the company with inputs of free supplies from the railways , the total values of wagon is value on which tax will be calculated. The reasoning and the findings reached by the Division Bench of the High Court therefore is correct. Appeal dismissed. ASSOCIATED CEMENT COMPANIES LTD. Versus COMMISSIONER OF CUSTOMS 2001 (128) ELT 21 (S.C) Case Notes :Goods (Customs) - Drawings and designs - All tangible movable articles are goods for charge of customs duties under Section 12 read with Section 2(22)(e) of Customs Act, 1962, irrespective of what the articles may be or may contain - It may be that what the importer wanted and paid for was technical advice or information technology, an intangible asset, but the moment the information or advice was put on a media, whether paper or cassettes or diskettes or any other thing, that what is supplied becomes chattel Drawings, designs, manuals and technical material are goods liable to customs duty Valuation (Customs) - Drawings, designs and technical material Intellectual property when put on a media is to be regarded as an article on the total transaction value of which customs duty is payable - There is no scope for splitting the engineering drawing or the encyclopaedia into intellectual input on the one hand and the paper on which it is scribed on the other - The concept of transaction value is quite different from classic concept of price of goods and is based on GATT protocol and WTO agreement introduced through Customs Valuation (Determination of Price of Imported Goods) Rules, 1988 framed under Section 14 of Customs Act, 1962. Facts Leela Ventures are engaged in the business of setting up, operating and maintaining Hotels and Resorts. For designing the Hotels and Resorts, it engaged a foreign company M/s. Wimberly Allison Tong & Goo, USA (WAT for short) for providing

architectural services including design development drawings. In terms of the said agreements entered into with WAT, the appellants received drawings and diskettes through couriers . The drawings so received were part of technical collaboration and/or technical know-how and were accompanied by an airway bill and an invoice issued by the consignor. The courier, in all the cases, declared the drawings with various descriptions such as drawings, architectural designs etc. The value of these drawings and designs was declared at a nominal value of one dollar. According to Leela Ventures one dollar was the correct value because drawings by themselves have no value, since if the drawings are lost they could be replaced and the loss would merely be of the cost of paper. The value, declared by the courier was bona fide and was based on the invoice carried by it. As per the appellants, the declaration by the courier was in accordance with the accepted practice at that time. At the time of the imports these designs and the diskettes were cleared at the nominal value declared. The other appellants in these appeals are also public corporations engaged in the manufacture of excisable goods. Like Leela Ventures the other appellants also entered into technical collaboration with leading manufacturers in their own fields abroad. The agreements provided for exchange of technology in the form of supply of know-how, drawings and designs on media training by personnel staff and similar other activities. As a part of fulfilment of the contracts, the contracting parties abroad, from time to time, sent drawings, designs, etc. In one case these drawings etc. were imported by hand . In all other cases the drawings etc. were imported through Professional Courier or by post parcels. In each case only a nominal value was declared at the time of its importation. According to the Revenue , intelligence gathered by the Directorate of Revenue Intelligence and Special Valuation Branch, revealed that the appellants had imported drawings, designs and plans through couriers on remitting the consideration for the same but these had been cleared without proper declaration and without payment of correct amount of duty. In view of the omission on the part of the appellants to declare the correct transaction value, show cause notices were issued asking the appellants as to why: the sum remitted or declared during investigation as consideration for drawings, designs and plans supplied by their collaborators should not be taken as transaction value under Section 14 of the Customs Act read with the Customs Valuation Rules, 1988 as the basis for assessment of goods to customs duty; The appellants sent their replies, submitting that what was imported were not goods . The revenue not being satisfied by their replies insisted on payment of duty assessed thereon and the same was paid under protest by the appellants. Against this the appellants have come to the SC . In their appeals, the appellants urged the following contentions . (i)Excise duty cannot be levied on the value of ideas as they are not goods; (ii)Even if what was imported were goods, the valuation of the same has to be nominal; (iv) the imports through the courier could not be governed by Heading No. 98 of the Customs Tariff Act. Issue for consideration. (i) Whether drawings, diskettes, manual, etc., imported are goods on which excise duty could be levied.

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Contention of the Appellants.

(a) The transaction between the appellants and their respective foreign collaborators was one for transfer of technology. This knowledge or know-how though valuable was intangible. The technology when transmitted to India on some media does not get converted from an intangible thing to tangible thing or chattel. Media is only vehicle for transmission and is wholly incidental to the main transaction. By way of analogy it was submitted that legal opinions or judgments of Courts when communicated on legal briefs or as certified copies do not constitute transfer of goods by the counsel to his clients or by a Court to a litigant. Reasoning of the Court. Section 2(22) of the Customs Act defines goods as follows : Goods includes- (a) vessels, aircrafts and vehicles; (b) stores; (c) baggage; (d) currency and negotiable instruments; and (e) any other kind of movable property. The Central Govt. has framed Customs Valuation (Determination of Price of Imported Goods) Rules, 1988. Under these rules the valuation of imported goods is done. Rule 3. Determination of the method of valuation. For the purpose of these rules,the value of imported goods shall be the transaction value; Rule 4. Transaction value. - (1) The transaction value of imported goods shall be the price actually paid or payable for the goods when sold for export to India, adjusted in accordance with the provisions of these Rules. Customs Tariff Act provides for the rates at which the customs duty is levied under the Customs Act, 1962. Chapter 98 of Customs Tariff Act , inter alia, applies to passengers baggage which states that on all dutiable articles, imported by a passenger or a member of a crew in his baggage, customs duty will be paid at the standard rate of duty. According to Section 12 of the Customs Act, duty is payable on goods imported into India. The word goods has been defined in Section 2(22) of the Customs Act and it includes in sub-clause (c) baggage and sub-clause (e) any other kind of movable property. It is clear from mere reading of the said provision that any movable article brought into India by a passenger as part of his baggage can make him liable to pay customs duty as per the Customs Tariff Act. An item which does not fall within subclause (a), (b), (c) or (d) of Section 2(22) will be regarded as coming under Section 2(22) (e) Even though the definition of the goods purports to be an exclusive one, in effect it is so worded that all tangible movable articles will be the goods for the purposes of the Act by residuary clause 2(22)(e). Whether movable article comes as a part of a baggage, or is imported into the country by any other manner, for the purpose of the Customs Act, the provision of Section 12 would be attracted. Any media whether in the form of books or computer disks or cassettes which contain information technology or ideas would necessarily be regarded as goods under the aforesaid provisions of the Customs Act. These items are movable goods and would be covered by Section 2(22)(e) of the Customs Act. The rate at which the customs duty is to be imposed has to be such as may be specified in the Customs Tariff Act. This is stipulated by Section 12 of the Customs Act. Thus the two Acts have to be read in conjunction with each other. Chapter 49 of the Customs Tariff Act relates to printed books, newspapers, pictures and other products of the printing industry; manuscripts, typescripts and plans. According to Chapter Note , the term printed also means reproduced by

means of a duplicating machine, produced under the control of a computer, embossed, photographed, photocopied, or typewritten. Drawings, plans, manuals, etc., specified in Chapter 49 of the Tariff Act are thus statutorily regarded as goods attracting a specified rate of customs duty on their import into India. There is no challenge to any of the statutory provisions and reading the two Acts together there can be no manner of doubt that what has been imported into India by the appellants, through the courier or otherwise, from their technical collaborators were goods even though the tangible articles so imported contained information or knowledge for use by the appellants. In view of the clear provisions of the Customs Act and the Tariff Act, whenever any goods or movables or tangible articles are imported into this country customs duty is payable. For the purpose of attracting levy it would be immaterial as to what are the types of goods imported or what is contained in them or recorded thereon. The contents will be relevant for the purpose of valuation. Furthermore the provisions of the Customs Act and the Tariff Act are clear and unambiguous. Any movable articles, irrespective of what they may be or may contain would be goods as defined in Section 2(22) of the Customs Act. It is true that what the appellants had wanted was technical advice or information technology. Payment was to be made for this intangible asset. But the moment the information or advice is put on a media, whether paper or diskettes or any other thing, that what is supplied becomes chattel. It is in respect of the drawings, designs, etc., which are received that payment is made to the foreign collaborators. It is these papers or diskettes, etc., containing the technological advice, which are paid for and used. The foreign collaborators part with them in lieu of money. It is, therefore, sold by them as chattel for use by the Indian importer. The drawings, designs, manuals, etc., so received are goods on which customs duty could be levied. VALUATION In support of the contention that even if what was imported were goods on which customs duty was payable the value thereof should be nominal, it was contended that the levy could only be on the media on which transfer was made and not on the whole of the intellectual content. In the present cases only the media on which the know-how was transmitted could be subjected to duty and its value was only nominal. Chapter 49 of the Customs Tariff Act also includes items which have substantial intellectual value as opposed to the value of the paper on which it is put. Newspapers, periodicals, journals, dictionaries, etc., are to be found in Chapter 49 wherein maps, plans and other similar items are also included. It is clear that intellectual property when put on a media would be regarded as an article on the total value of which customs duty is payable. To put it differently, the legislative intent can easily be gathered by reference to the Customs Valuation Rules and the specific entries in the Customs Tariff Act. The value of an encyclopaedia or a dictionary or a magazine is not only the value of the paper. The value of the paper is in fact negligible as compared to the value or price of an encyclopaedia. Therefore, the intellectual input in such items greatly enhance the value of the papers and ink in the aforesaid examples. This means that the charge of a duty is on the final product whether it be the encyclopaedia or the engineering or architectural drawings or any manual. Similar would be the position in the case of a programme of any kind loaded on a disc or a floppy. For example in the case of music the value of a popular music cassette is several times more than the value of the blank cassette. However, if a prerecorded music cassette or a popular film or a musical score is

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imported into India duty will necessarily have to be charged on the value of the final product. In State Bank of India v. Collector of Customs, Bombay [2000 (115) E.L.T. 597 (S.C.)- the Bank had, under an agreement with the foreign company, imported a computer software and manuals, the total value of which was US $ 4,084,475. The bank filed an application for refund of customs duty on the ground that the basic cost of software was US $ 401,047. While the rest of the amount of US $ 3,683,428 was payable only as a licence fee for its right to use the software for the bank countrywide. The claim for the refund of the customs duty paid on the aforesaid amount of US $ 3,683,428 was rejected by the Supreme Court. It was held that , on a correct interpretation of Section 14 read with the Custom Valuation Rules , duty was payable on the transaction value determined therein. In determining the transaction value there has to be added to the price actually paid or payable for the imported goods, royalties and the licence fee for which the buyer is required to pay, directly or indirectly as a condition of sale of goods to the extent that such royalties and fees are not included in the price actually paid or payable. It is misconception to contend that what is being taxed is intellectual input. What is being taxed under the Customs Act read with Customs Tariff Act and the Customs Valuation Rules is not the input alone but goods whose value has been enhanced by the said inputs. It will be appropriate to note that the Customs Valuation Rules, 1988 are framed keeping in view the GATT protocol and the WTO agreement. The shift from the concept of price of goods, as was classically understood, is clearly discernible in the new principles. Transaction value may be entirely different from the classic concept of price of goods. Full meaning has to be given to the rules and the transaction value may include many items which may not classically have been understood to be part of the sale price. The concept that it is only chattel sold as chattel, which can be regarded as goods has no role to play in the present statutory scheme as the word goods as defined under the Customs Act , has an inclusive definition taking within its ambit all kinds of property. The list of goods as prescribed by the law are different items mentioned in various chapters under the Customs Tariff Act. Some of these items are clearly items containing intellectual property like designs, plans, etc. Relying on the judgment in Advent Systems Limited v. Unisys Corporation - 925 F 2d 670 (3d Cir 1991) where it was contended before the Court in United States that software referred to in the agreement between the parties was a product and not a good but intellectual property outside the ambit of Uniform Commercial Code. In the said Code, goods were defined as all things (including specially manufactured goods) which are movable at the time of the identification for sale. Holding that computer software was a goods the court held as follows : Computer programs are the product of an intellectual process, but once implanted in a medium are widely distributed to computer owners. An analogy can be drawn to a compact disc recording of an orchestral rendition. The music is produced by the artistry of musicians and in itself is not a goods, but when transferred to a laser-readable disc becomes a readily merchantable commodity, Similarly, when a professor delivers a lecture, it is not a goods, but, when transcribed as a book, it becomes a goods. Holding that computer software was a goods the court held as follows : Computer programs are the product of an intellectual process, but once implanted in a medium are widely

distributed to computer owners. An analogy can be drawn to a compact disc recording of an orchestral rendition. The music is produced by the artistry of musicians and in itself is not a goods, but when transferred to a laser-readable disc becomes a readily merchantable commodity, Similarly, when a professor delivers a lecture, it is not a goods, but, when transcribed as a book, it becomes a goods. That a computer program may be copyrightable as intellectual property does not alter the fact that once in the form of a floppy disc or other medium, the program is tangible, moveable and available in the marketplace. The fact that some programs may be tailored for specific purposes need not alter their status as goods because the Code definition, includes specially manufactured goods. Therefore, the value of the goods imported would depend upon the quality of the same and would be represented by the transaction value in respect of the goods imported.

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