TaxTMI 
TaxTMI 
1980 (3) TMI 253
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....se facts in this judgment. 2. The assessee is engaged in the manufacture and sale of milk food and dairy products and sells, inter alia, the goods popularly known as Horlicks, Elaichi Horlicks and Boost. These products fall under Tariff Item No. I-B of the list set out in the First Schedule to the Central Excises and Salt Act, 1944 (`the Act') viz. "Prepared or preserved foods put up in unit containers and ordinarily intended for sale...." Excise duty is leviable on them ad valorem on the assessable value determined under Section 4 of the Act. The duty, leviable was 10% on the said value from 1-3-1969 to 28-3-1978. From 1-3-1978, a special duty of 5% was added thereto. However, with effect from 1-3-1979 the special duty was abolished but the rate of duty was raised to 15%. We are, however, concerned in these writ petitions with goods manufactured and sought to be cleared between 15th May, 1971 and December, 1976. One material fact that is of great importance in deciding the writ petitions is that Section 4 of the Act which provides for the determination of the Assessable Value was substantially and materially amended by Act 22 of 1973 (with effect from 1-10-1975). The quest....
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....ssessee's selling agents. Till 31-10-1975, the three agents distributed the goods to various wholesalers, sub-distributors and stockists, collected the sale proceeds and forwarded the same to the assessee deducting their commission. After 1-11-1975, it is claimed that they had no sub-distributors and directly sold the products to the wholesalers but otherwise the procedure was the same. The sales to the three agents were consignment sales and it is common ground that the title to the goods remained in the manufacturers (assessees) till the goods were passed on to the wholesale purchasers. This being so, the assessee had to Bear the costs of transport and insurance for conveying the packed goods to the various stations where sales were effected. It is also claimed that the assessee maintained a marketing division which looked after all aspects of sale, advertisement and incidental activities. Since the assessee remained the owner of the goods until the stockists purchased them, it is claimed that the prices at which they were sold to them had to include all the above types of expenditure incurred by the assessee. It is claimed that the assessee's endeavour was to sell its products a....
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....ing station, effective from 1-10-1975, is extracted below giving the details of prices in respect of the same commodity in respect of three far flung stations to bring out the points made by the Petitioners :- Delhi Bombay Bangalore Rs. Rs. Rs. Price at which goods are ordinarily sold in the course of wholesale trade by the related persons to dealers other than retail traders. 115.64 110.58 111.16 Deductions claimed from above price under Section 4(2), 4(4)(d) Freight 0.25 2.30 4.00 Octroi 0.43 6.66 2.22 Insurance 0.26 0.26 0.26 Service charges to distributor 4.56 4.56 4.56 Selling expenses 5.77 5.77 5.77 Excise duty 9.44 8.30 8.58 21.21 27.85 25.39 Assessable value 94.43 83.03 85.77 The highest of the sale prices was Rs. 116.56 at Cuttack and the lowest was Rs. 110.84 in U.P. for which the assessable values were claimed to be Rs. 93.65 and Rs. 90.86 respectively on a similar basis as above. 6. One head of the assessee's grievance was that the respondents would not approve o....
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....on as before. Here again he rejected the nominal sales to the agents as not reflecting the market value and selected the highest prevalent price as the basis for assessable value. He also rejected the claim for deductions for the same reasons as before. 8. The petitioner preferred two appeals to the Appellate Controller of Central Excise which were disposed of by a common order dated 15-6-1977. The appellate Controller held that as the appellants had "one uniform price for all destinations including the price at which they sell the goods to M/s G. Atherton & Co.", and as the actuals of the expenses are not known,"expenses, the deduction of which has been claimed are part and parcel of the wholesale cash price under old Section 4......" and/or the normal price under the new section......" He also rejected the sales to G. Atherton & Co. as manipulated ones, and observed that the wholesale list price cannot be said to include any post-manufacturing expenses as the goods sold by the petitioner entered the wholesale market only when they are sold by their distributor stockists to wholesale dealers and till that stage is reached, they remain the property of the petitioners. So fa....
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....evant for our present purposes). It may be mentioned here that the legislative competence in this respect was derived in so far as the imposition of excise duties was concerned from Item 45 of List I of the Seventh Schedule to the Government of India Act, 1935. Item 45, referred to above which now finds its counterpart in Item 84 in the Union Legislative list appended to the Constitution of India reads : "Duties of excise on tobacco and other goods manufactured or produced in India except..." Section 3 of the Act, which has been held to be the charging section, directs by sub-section (1) that "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 ...at the rates, set forth in the First Schedule". Under sub-section (2) of this Section the "Central Government may, by notification in the official gazette, fix, for the purpose of levying the said duties, tariff values of any articles enumerated, either specifically or under general headings in the First Schedule as chargeable with duty ad valorem and may alter any tariff values for the time being in force" Section....
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.... the goods. This fact does not appear to be disputed by the respondents but it is said that the selling agents do not have proper office, godown or marketing arrangements for the resale of the goods purchased by them and that the office premises claimed to be occupied by them in a portion of the packing station had not been specifically shown in the ground plan of the factory submitted under the rules. Shri Gulati points out that oral evidence and correspondence had been placed before the officer which showed that the packing station building at Faridabad belonged to the partners of the packing firm and that the petitioners as well as the selling agents had been allowed to use separate portions thereof free of any rent or licence fee. It was also deposed that the name plates of the petitioner as well as the selling agents were on the premises. The mere fact that, when the licence for the factory was applied for the portion of the selling agents was not earmarked would not be a ground to reject the above evidence on which there was no cross-examination by the Department. In fact while the Assistant and Appellate Controllers raise this objection, the order in revision, rightly, ignor....
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....= AIR 1973 S.C. 225 and Atics - 1978 (2) E.L.T. (J 444) - AIR 1975 SC 960. It will be necessary to refer to these two decisions later while discussing the second point of controversy but so far as the present issue is concerned, these two decisions, following the ruling of the Privy Council in the Ford Motors Co. case 1978 E.L.T. (J 265) - AIR 1938 PC 15 and overruling several High Court decisions held that the price at which the goods are sold on wholesale basis cannot be ignored merely because the percentage of such sales to the total turnover is small or because agreements with the purchasers in question stipulate for certain commercial advantages. So the fact that the selling agents also act as agents for the sale of 96% of the petitioner's goods does not detract from the weight to be attached to them as wholesale sales. The wholesale cash price obtained by an assessee can be disregarded only where the buyer is a favoured buyer (where extra commercial considerations have entered into the bargain or the term are not fair and reasonable) or the transaction is shown to be not at arms' length (again due to personal relationship or collusion or like factors). Such is not the case he....
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....ory gate, the section ensured that post-manufacture elements like interest, freight, octroi and other charges are excluded from the purview of the duty and Mathew J. who spoke for the court said : "Excise is a tax on the production and manufacture of goods [see Union of India v. Delhi Cloth and General Mills, (1963) Supp. I SCR 586 = AIR 1963 SC 791] Section 4 of the Act therefore provides that the real value should be found after deducting the selling cost and selling profits that the real value can include only the manufacturing cost and the manufacturing profit. The section makes it clear that excise is levied only on the amount representing the manufacturing cost plus the manufacturing profit and excludes post-manufacturing cost and the profit arising from post-manufacturing operation, namely, selling profit. The section postulates that the wholesale price should be taken on the basis of cash payment thus eliminating the interest involved in wholesale price which gives credit to the wholesale buyer for a period of time and that the price has to be fixed for delivery at the factory gate thereby eliminating freight, octroi and other charges involved in the transport of the art....
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....r bills were placed before the authorities. For instance, the transport charges in respect of 500 packages (i.e. 1000 units) from Faridabad to Cuttack, Patna, Madras and Vijayawada respectively are shown from the bills to be Rs. 2,950/-, Rs. 2,100/-, Rs. 4000/- and Rs. 3300/- respectively. The deductions listed in respect of freight at these places are Rs. 2.95, Rs. 2.10, Rs. 4.00 and Rs. 3.30 respectively. It does, therefore appear, that the freight are only being claimed at actuals in the above cases and this has been stated to be so in respect of all freight claimed. So far as insurance is concerned again one of cover notes produced by the petitioner shows that the insurance premium to cover risks of transport was charges at 0.325% and a bottle of Horlicks was valued at Rs. 80/- per doz. for this purpose. The insurance premium thus worked out to Rs. 0.26 per unit. Thus, it appears that all these expenses were claimed on the basis of actuals; the relevant documents were before the authorities and this was capable of simple and easy verification. The service charges and selling expenses were, however, admittedly averaged. Mr. Gulati stated that the petitioner maintained a special ....
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....for consideration here are (a) whether the petitioner is entitled to claim deduction against the factory gate sale price in respect of the expenses incurred by it "for putting the goods in the stream of trade, by creating and managing the selling force or promoting the sales of goods by known methods of advertisement and sale campaigns and (b) whether such a deduction could be claimed on an average or equalised basis. Neither Voltas nor Atics cover this situation for, in those cases, no deductions appear to have been claimed from the wholesale cash price, except trade discount. But such deductions are now claimed, relying on the principle enunciated in these decisions that excise duty can be levied only in respect of manufacturing cost and manufacturing profits and that selling cost and selling profit have to be eliminated in working out the assessable value. We think after careful consideration, that the answer to both the queries should be in the affirmative. The definition of wholesale cash price, as pointed in Voltas, is arrived at achieving this result but it does not take into account the possibility of the wholesale cash price at the factory gate including an element of post....
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....y within the meaning of Entry 45 of the Central list in the Government of India Act and is intended to be a tax on goods at the stage of manufacture or production and, therefore, as pointed out in Voltas, is a tax on the value of the goods reflecting the manufacturing cost and the manufacturing profits. It is not intended to include within the purview of the duty any selling cost and selling profit. The interpretation of the statute should, therefore, be harmonious with the scope of the legislative entry in pursuance of which it is enacted. Thus, though the language of Section 4 is somewhat wide, it should be read so as to carry out, and not militate against the basic concept of excise duty. It should be, therefore, taken as referring to the wholesale cash price at the factory gate without taking into account any part of the selling cost. The second consideration is that this is the view which appears to have found favour almost unanimously with several High Courts in the context of claims for various types of deductions such as equalised freight (although, strictly speaking, freight is an element which cannot enter into the concept of the factory gate price), advertisement expense....
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....ner company to its wholesalers a uniform price is being charged, that by itself would not be a valid ground to refuse the relief of deduction. The mere fact that the same price is charged both at the factory gate and also at the godowns of the wholesalers would not mean that the price charged at the factory gate would always be exclusive of non-manufacturing element of freight. It is quite possible that the petitioner company may have for the purpose of maintaining good relations with its wholesalers fixed a uniform price in both types of delivery, but at the same time in fixing the uniform price may have struck an average in regard to freight. It would, therefore, be a matter of investigation and ascertainment whether the wholesale price charged by the petitioner company at the factory gate included non-manufacturing element of freight." The Karnataka High Court considered the same question in I.T.C. v. Union (1976 Tax L.R. 2003) and held that the assessable value should be determined after eliminating from the wholesale cash price the expenses incurred in connection with marketing and distribution of goods, interest charged to wholesaler, freight, octroi and other transport ch....
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....nditure should be taken into consideration by the excise authorities while fixing the value of the goods for the purpose of excise duty when excise duty is leviable on an ad valorem basis." Again in para 37 it was observed after discussing Voltas and Atics : "Mr. Subrahmanya Reddy for the appellants in the writ appeals and the respondents in the writ petitions with which we are concerned in these cases has very strongly relied upon the conclusion of the Supreme Court in Atic Industries v. Asst. Collector, Central Excise (1975 Tax L.R. - 1515) (S.C.) (supra) as set out in pare 13 of the report and contended that, in the instant case, the price charged by the manufacturers to the first wholesalers be they referred as distributors or wholesalers, is the wholesale cash price and it is that wholesale cash price less trade discount and excise duty which should be the basis for imposition of excise duty in view of the language of Section 4. We are unable to accept this argument of Mr. Subrahmanya Reddy in its entirety. It is clear from the observations of Mathew, J in Voltas case (1973 Tax. L.R. 1710) (S.C.) (supra) which were approved by the Supreme Court in Atic Industries v. Assi....
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....-amendment sales, the sale price to the selling agents at the packing stations should be taken as the assessable value, after deducting therefrom the whole or such part of the selling expenses as are attributable to post-manufacturing activities. 21. We now turn to the position after the introduction of the amended Section 4, which in so far as is relevant runs as follows: "Section 4. 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 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 wholesale 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 - Provided that- (i) where in accordance with the normal practice of the wholesale trade in such goods, such goods are sold by the assessee at different prices to different classes of buyers (not being related persons) each such price ....
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....packed condition, includes the cost of such packing except the cost of the packing which is of a durable nature and is returnable by the buyer to the assessee, Explanation. - In this sub-clause "packing" means the wrapper, container, bobbin, pirn, spool, reel or wrap beam or any other thing in which or on which the excisable goods are wrapped, contained or wound : (ii) does not include the amount of the duty of excise, sales tax and other taxes, if any, payable on such goods and subject to such rules as may be made, the trade discount (such discount not being refundable on any account whatsoever) allowed in accordance with the normal practice of the wholesale trade at the time of removal in respect of such goods sold or contracted for sale; (e) ........." 22. The above amendment was effected by Act 22 of 1973 but with effect from 1-10-1975. The objects and reasons for the amendments were set out in the bill as follows:- "Section 4 of the Central Excises and Salt Act, 1944 provides for the determination of value for the purposes of charging the duty of excise under the Act. With the increase in the ad valorem levies in the Central Excise Tariff, the operation of that ....
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.... law. 24. On the above basis, there is no controversy before us that the selling agents are "related persons" within the meaning of the definition. Mr. Gulati, however, has drawn our attention to the evidence led before the authorities which remained uncontradicted, that after October, 1975 there were no sub- distributors appointed by the petitioner or the selling agents, as before. A representative of G. Atherton & Co. deposed that they "did not maintain any distribution stockists after October, 1975". There were also affidavits filed to the same effect on behalf of this company as well as Parry & Co. With the result that after October, 1975 the petitioner as well as the selling agents directly sold to wholesalers without any sub-distribution arrangements. Copies of the selling agents agreements for the period subsequent to October, 1975 were also placed before the revisional authority along with the letter dated 19-6-1978. There appears to be no contradiction of this version of the petitioner. The Department in the impugned orders have also taken into account only the prices at which the goods were sold to wholesale dealers at various stations and there is no basis for a sugge....
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....397)]. This Company was engaged in the manufacture of automobile tubes, tread rubber and other rubber products. Its products were supplied to its 32 depots at various places throughout the country and the depots in their turn sold to other dealers or consumers. There were no factory gate sales. Excise duty was sought to be levied on the value of the goods after taking into account the post-manufacturing cost and profit on such items as freight, transport, interest, travelling expenses of agents, insurance etc. The court first discussed the nature of excise duty as explained in the decisions of the Federal Court in the C.P. Motor Spirit Act case (AIR 1939 F.C.L.) = [1978 E.L.T. (J 269)] and the Supreme Court in the Sea Customs Act case (AIR 1963 SC 1760). Then setting out Entry 84 of List I and Entry 54 of List II in the Seventh Schedule to the constitution, the Court summarised the arguments for the petitioner thus : "With the lines squarely drawn between the above two legislative entries, one for the Union and the other for the States, it is contended that there must be a dividing line between the two, to define where manufacture or production ends and also begins. May be, in T....
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....ed by Section 3 of the Act. Both by reason of the legislative entry-Entry 84 of List I and by reason of the express provision of Section 3 the power is only to levy a duty of excise, as explained by the Supreme Court in Voltas case (AIR 1974 SC 225), Atic Industries's case (AIR 1975 SC 960), and Shinde Brothers's case (AIR 1967 SC 1512)- not to mention the other case referred to already. The very nature of excise duty requires a proximate connection with production or manufacture. At any rate, what has passed beyond the region of manufacture and production and entered the domain of sale, cannot pass as excise duty. It appears to us clear enough that the inclusion of post manufacturing expenses would indicate that the levy is something other than a duty of excise." It was then held, following TISCO (supra) that even under Section 4(2) the post-manufacture charges and expenses will have to be excluded. There was an attempt then on the part of the Government to sustain the levy on the price including these charges by reference to Article 243 of the Constitution read with residuary Entry No. 97 in List I of the seventh Schedule but this argument was negatived. 28. In this context....
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....bber Factory v. Assistant Collector, 1979 E.L.T. 397, the Delhi High Court in Madras Rubber Factory Ltd v. Union of India 1977 E.L.T. 173, the Patna High Court in Tata Engineering and Locomotive Co. Ltd. v. S.N. Guha Thakuria, 1977 E.L.T. 14, and the Gujarat High Court in Cibatul Ltd. v. Union of India 1979 E.L.T. 407". "6. In the circumstances looked at from any angle, the transportation cost being a post-manufacturing expense must be excluded from the assessable value and cannot be taken into account in assessing the normal price of the goods as contemplated by Section 4(1) (a)." Thus, it would appear, there is a uniform line of decisions even under the amended Section 4 that expenses of the nature claimed by the present petitioner are to be deducted in arriving at the assessable value. 29. Faced with this position, Mr. Chandrashekheran contended that, whatever may have been the justification for the above view under the old section, the same could not be extended to interpret the amended section for two reasons : (a) that the amendment was specifically made with a view to get over the difficulties created by Voltas and Atics; and (b) that the amended section, bein....
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....ory gate with the difference that this rule is modified where the wholesale transactions are put through with the help of related persons. This, as the Supreme Court pointed out in para 21 of its judgment in Voltas extracted earlier, only emphasises the basic character of excise duty and the intention to exclude post-manufacture charges from its ambit. The exclusion of transportation costs, where the value is determined with reference to the price at a place other than the place of removal-sub-section (2)-also indicates that the basic concept is still the same as before. Apart from the introduction of the concept of "related persons" to get over a situation like that in Voltas, the specific stipulations referred to in the statement of objects are those contained in clause (i) and (ii) of the proviso to Section 4 (1)(a)-which do not concern us here-and those contained in Section 4 (4)(d) to exclude from the "value" the cost of packing, trade discount as well as excise duty and other taxes payable on the goods. There is, however, nothing in Section 4 (4)(d) from which it can be implied that only these items can be deducted and no others. Even under the old Section, the explanation me....
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....n and the description of the levy throughout remains the same as before. These amendments only touch cases where ad valorem duty is levied and have no impact on cases where duty is charged on number, weight or volume which will be governed by the same considerations as before. We have also pointed out that even the language of Section 4 does not spell any indications of any radical change. The pith and substance of the legislation remains the same. An avowed attempt to remove certain difficulties in the matter of valuation cannot be equated with an attempt to restructure the whole levy. Moreover, Voltas (and even Atics) did not touch upon the question of valuation at all: they were only concerned with the concept of wholesale market. Atics and all the decisions which have been referred to above in which the problems of deducting freight, octroi, insurance and other charges from the wholesale cash price were discussed all came up subsequent to the amendment which had been effected in 1973 itself (though given effect to from 1-10-1975). In these circumstances, it is difficult to envisage this amendment as having intended to introduce any radical change in the basic nature of the levy....
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....I of the 7th Schedule. The Article and the Entry give power only with respect to a matter `not enumerated in Concurrent List' or State List. The duty is expressly termed as 'excise duty'. That seems to be clearly referable to Entry 84 of List I; and we see no case for pressing into service the residuary powers under Article 248 and Entry 97 of List I. Section 3 of the Act, again expressly refers to the duty as a duty of excise. In these circumstances we are afraid we cannot sustain the levy under the residuary powers pressed into service by the learned Central Government Pleader. We are therefore of the opinion, that the respondents were wrong in insisting on the post-manufacturing expenses and the post-manufacturing profits to be included in the reckoning for determining excise duty. In the light of the decisions noticed, this is vitiated. The learned Judge was wrong in holding otherwise." For the above reasons we are of the opinion that the interpretation of the Section has to be made in accordance with Entry 84 and not Entry 97 of the Union List. Shri Gulati contended that, if the Department's contention were accepted and the duty was leviable on the basis of the sale pric....
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....may have to be verified and the claim of service charges and selling expenses may need to be bifurcated between the manufacturing and selling operations. 34. Shri Gulati stated that all the writ petitions involve only the above contentions. While Civil Writ Petition No. 980/79 which relates to the Faridabad factory raises the question of determination of assessable value under Section 4 both before and after the amendment, C.W.P. 1169/76 and C.W.P. 876/79 pertain to the production cleared at the Bangalore packing station, before and after the amendment respectively. These writ petitions do not therefore, require any separate consideration either on facts or in law. 35. For the reasons discussed above, we direct the issue of writs of certiorari quashing the orders passed by the Government of India on the revision petitions preferred by the petitioner in regard to the three stations Faridabad, Bangalore and Calcutta the details of which are as follows : C.W.P. No. Revision Order Nos.   Date. 1.  980/79 212 to 217 of 1979   26.3.1979. 2.  876/79 210 & 211 of 1978. (sic)   26.3.1979. 3. &e....
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....f Section 4 of the Central Excises and Salt Act, 1944, there is not much scope for controversy in view of the decisions given by the Supreme Court in the cases of Voltas (AIR 1975 SC 225) and Atics (AIR 1975 SC 960). Earlier there was also the decision of the Privy Council in the Ford Motors Co. case (AIR 1938 PC 15). It is, however, with the post amendment period that some difficulty arises and the contentions raised from the side of the respondents cannot be said to be entirely devoid of force. It may, further be said that normally the Courts should be slow to interfere with findings of facts which three authorities in the course of assessment, appeal with revision, have concurrently arrived at. This may only be where the findings are perverse or not borne out by any material whatsoever on record. It is not as if the matter comes for the first time before the Court that it has to freshly adjudicate upon the same. It is the absence of evidence and not its absoluteness which may provide justification for reversal of a finding of fact concurrently given by three authorities. There were certain factors taken into account by them. One of them was that the selling agents and the packin....
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....to assume that the amendment was ineffective and the position of law continued to be the same. 3. As the objects and reasons for introducing amendment in Section 4 of the Act showed, it was motivated to render ineffective small percentages of sales at lesser value and thus getting the overall assessable value of the entire produce reduced. As such the concept of normal price at which the goods are ordinarily sold was introduced. Further the concept of related persons was brought in and sales to them were not to affect the other normal sales. Emphasis on place of removal of the goods was also laid. These objects and reasons further referred to the observations of the courts about the manufacturing cost and similar profits. It was to overcome various difficulties experienced in the working of the Section that the suitable amendments in Section 4 were introduced. 4. The principle is well recognised that in remedial legislations, even where two interpretations are possible, one that advances the remedy and suppresses the evil as the legislature envisioned, must find favour with courts, (see 1975 Taxation Law Reporter 2129). Furthermore, undue focusing of legislative perphery of o....