TaxTMI 
TaxTMI 
1979 (4) TMI 173
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....ave any sole selling agents and sells the batteries to wholesale dealers in different parts of the country for ultimate distribution to consumers. The authorised wholesale dealers, to whom the petitioner sell dry cell batteries, are not the agents of the petitioner-company and they have no interest directly or indirectly in the business of the petitioner-company or in the business of each other. The sales are organised at arms-length and in the usual course of business with no extra commercial advantages offered to the wholesale dealers and none of the wholesale dealers can be characterised as favourite buyers. The sale by the petitioner to the wholesalers is on a principal to principal basis and is by way of outright sale. Among the authorised wholesale dealers of the petitioner, there are two absolute independent buyers, Messrs. Torma) Rameshwar Das, Bargarh, Orissa and Messrs. Modern Electric Stores, Nepal. Some of the directors or partners of the rest authorised wholesale dealers are related to some of the directors of the petitioner-company but the transactions with them are purely commercial in nature and the prices charged in respect of them are fair and reasonable, arrived ....
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....he Amending Act of 1973 and brought into force with effect from 1-10-1975. By his letter dated 3-10-1975, the 2nd respondent refused to accept the price list filed by the petitioner on the ground that there are no sales direct to independent wholesale buyers at the Factory Gate and that the goods are being sold through its Distributors and that the petitioner is not entitled to claim any deduction of the post-manufacturing expenses and, the post-manufacturing profits in view of the amended Section 4(a) of the Act. Regarding pickings, the petitioner was directed to show two values for the two different pickings of Display Boxes and Cartons in which the boxes were further packed for transport to up-country buyers. The said letter is marked as Annexure C. The petitioner sent a reply to the 2nd respondent on 20-11-1975 reiterating its earlier stand that excise duty will be leviable only on the production and manufacture of goods and that the wholesale dealers who purchased from the petitioner are not distributors and that post-manufacturing expenses and post-manufacturing profits cannot be included in the assessable value of the excisable goods. The cost of Display Boxes or of the Cart....
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....t is directly contrary to the following principles laid down by the Supreme Court in the Voltas case for determining the assessable value of the excisable goods sold by the manufacturer to the wholesale dealers for the purpose of the levy of excise duty. (a) Even if there is no market in the physical sense of the term at or near the place of manufacture where the articles of a like kind and quality are or could be sold, that would not in any way affect the existence of the market in the proper sense of the term provided the articles themselves could be sold wholesale to traders, even though the articles are sold to them on the basis of agreements which confer certain commercial advantages upon them. (b) Where the manufacturer sells the goods manufactured by him in wholesale to a wholesale dealer at arms-length and in the usual course of business, the wholesale price charged by him to the wholesale dealer would represent the value of the goods for purposes of assessment of excise duty. (c) If the post-manufacturing cost and the post-manufacturing profits are also included in the value for assessment of excise duty, it would be wholly incompatible with the nature of excise duly....
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.... as well as the post-manufacturing profits and the refusal of the 2nd respondent to accept the price list submitted by the petitioner is patently illegal and without jurisdiction. The rejection of the petitioner's request to delete the cost of the Display boxes and Cartons from the price charged to the wholesale dealers for the purpose of excise levy is also against law and is arbitrary. Packing is not a process incidental or ancillary to the completion of a manufactured product and hence the value of packing materials which are not excisable, cannot be taken into account. The dry cell batteries produced by the petitioner are sold just as batteries and are not covered by any kind of wrapper. The packing in Display boxes by the petitioner is only to enable the movement of batteries freely and conveniently and further packing in cartons" for long distance transport is also for safety in transit and handling. The petitioner, therefore, prays for a writ of certiorari or any other appropriate writ or direction or order quashing, the order dated 1-12-1975 of the 2nd respondent and directing the 2nd respondent to accept the price list submitted by the petitioner on 4-9-1975 as ef....
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.... sold through related authorised dealers. Only 4.72 per cent of its goods are sold through unrelated authorised wholesale dealers. The firm, Messrs. Tornal Rameswar Das, Bargarh, Orissa is no doubt an independent buyer, but the percentage of sales to the said firm for the year ending 30-9-1975 was only 2.89. The total percentages of sales for the year ending with 30-9-1975 to the other firm, Messrs. Modern Electric Stores, Nepal was only 61. The sales to the said firms situate outside inside "cannot be compared to sales in India. Thus by selling a small percentage of its goods to independent buyers the petitioner could get the whole range of their goods assessed on a manipulated price. One of the objects of the amendment of Section 4(a) is to safeguard against such manipulation. The sales to related persons are, therefore, assessable to excise duty under Section 4(a) of the Act. 6. In W.P. No. 819 of 1976, the petitioner is a limited company having its registered office and factory at Andhra Pradesh. The petitioner's business comprises of activities of manufacturing and also selling cigarettes. The petitioner follows a uniform pattern prevalent in the cigarette industry f....
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....es incurred and all profits attributable to such post-manufacturing operations were to be excluded from the price charged to its main dealers. Even though the respondents had no authority to levy excise duty on post-manufacturing costs, they continued to do so and the petitioner was paying the same without realising the actual legal position. The total amount thus collected is about ₹ 1,59,000/-. This sum of ₹ 1,59,000/- relates to excise duty on post-manufacturing costs, expenses and profits which the petitioner is entitled to recover from the respondents and there is a duty cast on the respondents to refund the same. After ascertaining the post-manufacturing costs and expenses on the basis of the decision in the Voltas case and also on the basis of the decision of this Court dated 19-2-1975 in W.P. No. 1748 of 1974 and batch, the petitioner filed price lists under Rule 173(c) of the Central Excise Rules excluding the post-manufacturing costs and expenses. The respondents refused to approve the price lists in spite of the decisions referred to supra on the ground that, under the amended Section 4(a) of the Act, the post-manufacturing expenses are not permissible deduct....
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....ly selling its entire products had undertaken advertisement of the petitioner's products. The dealers of the petitioner were, therefore, classified as 'related persons' for the purpose of Section 4(a) of the Act and the petitioner was advised to submit its price lists in Part IV of the proforma. 8. In W.P. No. 1115 of 1976 the petitioner is a limited company having its registered office and factory at Ajamabad, Hyderabad. In W.P. No. 2194 of 1976 the petitioner is a limited company having its factory situate at Uppal road at Hyderabad. The business of the petitioners in both the writ petitions comprises of the activities of manufacturing and also selling cigarettes, as is the case of the petitioner in W.P. No. 819 of 1976. The averments made in the two Writ Petitions are practically the same as levelled in W.P. No. 819 of 1976. In W.P. No. 1115 of 1976 a Writ, Direction or Order, particularly in the nature if Mandamus is prayed for by the petitioner directing respondents 2 and 3 to approve the first, the second and the fourth price lists submitted by the petitioner on 25-9-1975, 12-1-1976 and 3-2-1976 respectively and not to levy, collect or recover any excise duty fro....
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.... are instances where cement is sent in loose condition regularly to bulk consumers like Hyderabad Cement Products Limited. Cement is also despatched in unpacked condition in closed wagons. The petitioner also supplied cement packed in jute bags. Apart from the stockists, who purchase cement for distribution, there are other dealers who send back the empty jute bags after sale for further use. Prior to 30-9-1975, the petitioner was not including the cost of cement bags to arrive at the assessable value for the payment of excise duty and the same was being approved by the excise authorities. Even after the amended Section 4(a) came into force till 4-12-1975, the authorities of excise did not include the cost Of jute bags in the assessable value of cement packed in the same and sold. However, from 5-12-1975 to 8-1-1976, the Excise authorities made a demand in a sum of ₹ 2,08,791.05 towards excise duty on the cost of jute bags. The petitioner objected to the demand, but, however, paid the amount under protest. For the period between 1-10-1975 to 4-12-1975, a demand was subsequently made by the 3rd respondent in a sum of ₹ 3,85,835.46 towards excise duty on the cost of jute ....
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....g, the assessable value is the price at which it is sold in loose, which is normal price of the bulk cement. In Grey Portland Cement, even though the bags are durable in, nature they are not returned by the buyer to the assessee. The value for purpose of assessment, therefore, includes the packing charges when cement is sold in bags. From 1-10-1975 to 4-12-1975, the duty of packing charges was not collected as the price list was approved due to mistake. As the duty was not time barred, a demand was issued for recovery of duty on packing charges not collected from 1-10-1975 to 4-12-1975. From 5-12-1975 onwards duty on packing charges was being paid under protest. It is true that the Government of India issued the notification dated 9-1-1976 exempting payment of duty on packing charges of Grey Portland Cement and it came into force only from 9-1-1976. It cannot be applied retrospectively. The concession granted under the notification was implemented from 9-1-1976. The collection of duty from 1-10-1975 to 8-1-1976 is, therefore, in order. The Director General of Supplies and Disposals merely tendered advice in respect of levy of duty on the packing charges and his advice or opinion is....
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....oner also claimed that the cost of secondary packing in wooden boxes not included in the price of batteries, but charged separately in the invoices, should not form part of the assessable value, The 3rd respondent directed the petitioner to submit the Price List in Part I of the proforma. The petitioner complied with the direction on 1-10-1975 under protest, but brought to the notice of the 3rd respondent that Part I of the proforma was not applicable to it as the batteries are not ordinarily sold by the petitioner to buyers in the course of wholesale trade for delivery at the time and place of removal, i.e., at the factory gate and that Section 4(1)(b) is, therefore, not applicable to the petitioner. The 3rd respondent passed an order on 4-10-1975 determining the assessable values of the batteries without making any deduction for the cost of transportation. The 3rd respondent also included the cost of secondary packing in wooden boxes in the assessable value determined by him. Aggrieved by the order of the 3rd respondent, the petitioner preferred an appeal before the 2nd respondent on 23-12-1975. The petitioner made similar claims in respect of cost of transport and cost of second....
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....erabad. Neither the 2nd respondent nor the 3rd respondent disputed the correctness of the costs of transportation from the place of removal to the various places of delivery, which have been claimed by the petitioner as deduction from the price of batteries. Respondents 2 and 3 however held that as the petitioner maintains a uniform selling price throughout the country, no deduction on account of equalised freight is admissible. Section 4(a) could be invoked and applied only where the normal price is ascertainable at the place of removal in the course of wholesale trade and not otherwise. It is implicit under Section 4(2) of the Act that there could be different assessable values in respect of the same manufactured goods in different, situations on the basis of difference in transportation costs. There is no prohibition under any law for the charging of uniform selling price by manufacturers. It could not have been the intention of the legislature to extend the relief under Section 4(2) to only those manufacturers who maintain disparity in the selling price of the products in different regions of India. It is a matter of common knowledge that almost all consumer items such as cosme....
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....rtaining the assessable value. The petitioner's claim of exclusion from the assessable value the cost of secondary packing of the goods in wooden boxes is, however, conceded by the respondents. 14. The Alkali and Chemical Corporation of India Limited, Balanagar, Hyderabad is the petitioner in W.P. Nos. 217 and 218 of 1978. The petitioner is a public limited company having its factory among other places at Balanagar at Hyderabad. The petitioner's business comprises of the activities of manufacturing and selling, among other products, paints and varnishes. The petitioner sells its goods in bulk to industrial consumers and dealers in the course of wholesale trade, the price being the sole consideration for the same. The petitioner has no sole selling agents. The sales are effected through the regional offices/godowns of the petitioner at Calcutta, Delhi, Bombay, Madras, Ludhiana, Hyderabad, Ernakulam, Bangalore and other places. The sales to the dealers are by way of outright sale on a principal basis. The petitioner has no interest, direct or indirect, in their business or they in the petitioner's. The petitioner's sales to the dealers are made at arms-length in the ....
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....ny. By his letter dated 14-10-1977, the 2nd respondent made certain observations and called for clarifications with respect to the four price lists submitted by the petitioners on 6-10-1977. It is stated therein that in case the sales are through regional godowns only, proforma Part II is irrelevant and Part IV alone is relevant. The 2nd respondent also invited attention to the Collector's Trade Notice No. 22/77 (SRP No. 1/77) dated 17-1-1977 wherein it is said that the provisions of proviso (iii) to Section 4(1)(a) of the Act would be attracted when any factory places all the stocks at the disposal of what they may claim to be the sales organisations situated within the same premises or in separate premises. Wholly relying on such Trade Notice issued by the Collector, the 2nd respondent stated that 'no claim for deduction of post-manufacturing expenses or profits from the prices realised would be merited if the goods are kept at the disposal of the sales organisations for marketing by the producing factory'. The petitioner gave an elaborate reply dated 28-10-1977 clarifying the various points and stating inter alia that the regional godowns are not related persons and ....
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....sale buyers in accordance with the normal practice of the wholesale trade in respect of the goods and is not refundable on any account whatsoever. The petitioner is, therefore, entitled to exclude the said trade discount for purposes of determining assessable value. The order of the 2nd respondent is arbitrary, patently illegal, without the authority of the law and without jurisdiction. In W.P. No. 217 of 1978 the petitioner prays for issue of a Writ, Direction or Order, particularly in the nature of Certiorari. calling for the records relating to the order C. No. V/14/30/197/77 MP (I) dated 1-11-1977 of the Assistant Collector of Central Excise, I.D.O- III, Hyderabad and after declaring it as illegal, quashing and setting aside the same. The petitioner also prays for issue of a Writ, Direction or Order, particularly in the nature of mandamus directing the Assistant Collector of Central Excise, I.D.O. III, Hyderabad, to approve the assessable values as claimed by the petitioner in the 1st Price List No. 1/77-78 dated 6-10-1977 and the 3rd Price List No. 2/77-78 dated 6-10-1977 and not to levy or collect or recover any excise duty from the petitioner on the prices charged by the pet....
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....n proforma Part IV but not proforma Part II which is applicable to assesses falling under the provisions of Section 4(1)(a)(i) of the Act. As the petitioner's case falls under the third proviso to Section 4(1)(a), the proper form of the price list applicable to the petitioner's case is proforma Part IV. As per the provisions of Section 4(a), for the determination of assessable value and the normal price deductions, such as, post-manufacturing expenses and profits are not permissible. The 2nd respondent's action in disallowing the trade discount on the ground that it is not given to the buyers who purchase on credit is based on the provisions of the Central Excise Act. When the trade discount is not given to all the wholesale buyers alike, the same is not a permissible deduction. 16. On the scope of Section 4(a) of the Act, particularly with reference to the claim for exclusion of post-manufacturing costs, expenses and profits, the contentions advanced by the respondents in the counter-affidavit in W.P. No. 5948 of 1975 are reiterated by the Excise authorities in all the other Writ Petitions, where the claim is put forward. 17. In order to appreciate the rival contenti....
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.... of removal is not known and the value thereof is determined with reference to the price for delivery at a place other than the place of removal, the cost of transportation from the place of removal to the place of delivery shall be excluded from such price. (3) The provisions of this Section shall not apply in respect of any excisable goods for which a tariff value has been fixed under Sub-section (2) of Section 3. (4) For the purposes of this section, -- (a) "assessee" means the person who is liable to pay the duty of excise under this Act and includes his agent; (b) "place of removal" means -- (i) a factory or any other place or premises of production or manufacture of the excisable goods; or (ii) a warehouse or any other place or premises wherein the excisable goods have been permitted to be deposited without payment of duty, from where such goods are removed; (c) "related person" means a person who is so associated with the assessee and they have interest, directly or indirectly, in the business of each other and includes a holding company, a subsidiary company, a relative and a distributor of the assessee, and any sub-distributor of....
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....in the Federal Legislative List, i.e., List I in Schedule II to the Government of India Act, 1935, was also couched in the same language as Entry 84 in List I of Seventh Schedule to the Constitution of India. It is necessary to bear in mind the concept of 'excise duty' as interpreted and expounded in the various cases decided by the Federal Court, the Privy Council and the Supreme Court. The nature of excise duty and the distinction between excise duty and sales-tax were succinctly explained in In re : Central] Provinces and Bear Sales of Motor Spirit and Lubricants Taxation Act, 1938, AIR 1935 Federal Court 1-1939 FCR 18 Gwyer, C.J., described excise duty thus : "...its primary and fundamental meaning in English is still that of a tax on articles produced or manufactured in the taxing country and intended for home consumption." While dealing with the contention advanced on behalf of the Government of India that an excise duty which might be imposed on home-produced goods at any stage from production to consumption, the learned Chief Justice observed : "This is to confuse two things, the nature of excise duties and the extent of the federal legislative ....
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....r produced is that the right to levy it accrues by virtue of their manufacture or production. It is immaterial whether the goods are actually sold or consumed by the owner or even destroyed before they can be used. If duty is imposed on the goods manufactured or produced when they issue from the manufactory, then the duty becomes leviable independently of the purpose for which they leave it and irrespective of what happens to them later. On the other hand, a duty on the sale of goods cannot be levied merely because goods have been manufactured or produced. Nor can it be levied merely because the goods have been consumed or used or even destroyed. The right to levy the duty would not at all come into existence before the time of the sale. It cannot at all be levied unless the goods are actually sold, and may not be leviable if they are transferred in some other form. Thus, a duty on goods manufactured or produced is distinct, separate and independent from a duty on their sale and (except probably at the stage of the first sale) there seems to be no good reason why they may not co-exist without overlapping." 19. The Federal Court again in The Province of Madras v. Messrs. Boddu....
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....nection with manufacture or production. The manufacturer or producer cannot of course sell his commodity unless he has first manufactured or produced it; but he is liable, if at all, to a sales-tax because he sells and not because he manufactures or produces; and he would be free from liability if he chose to give away everything which came from his factory." 20. The Judicial Committee, in Governor-General in Council v. Province of Madras -- 1978 E.L.T. (J 280), approved the views expressed by the Federal Court in regard to excise duties. In the said case, learned Simonds, speaking for the Board, observed : "An exhaustive discussion of this subject, from which their Lordships have obtained valuable assistance, is to be found in the judgment of the Federal Court in Consistently with this decision, their Lordships are of opinion that a duty of excise is primarily a duty levied on a manufacturer or producer in respect of the commodity manufactured or produced. It is a tax on goods not on sales or the proceeds of sale of goods. Here, again, their Lordships find themselves in complete accord with the reasoning and conclusions of the Federal Court in the Boddu Paidanna case,....
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....a duty on the manufacture or production, is not lost. The method of collection does not affect the essence of the duty, but only relates to the machinery of collection for administrative convenience. Whether in a particular case tax ceases to be in essence an excise duty, and the rational connection between the duty and the person on whom it is imposed ceased to exist, is to be decided on fair construction of the provisions of a particular Act." 23. In Union of India v. Delhi Cloth and General Mills -- 1973ECR56(SC) , their Lordships of the Supreme Court observed : "The 'manufacture' which is liable to excise duty under the Central Excises and Salt Act, 1944, must therefore be the 'bringing into existence of a new substance known to the market'. The definition of 'Manufacture' in Section 2(f) does not equate mere 'processing' to 'manufacture'." 24. In In re : Sea Customs Act, 1878 -- (AIR 1963 S.C. 1760), their Lordships of the Supreme Court observed : "...taxable event in the case of duties of excise is the manufacture of goods and the duty is not directly on the goods but on the manufacture thereof. We may in this ....
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....om the factory or any other premises of manufacture or production for delivery at the place of manufacture or production. If a wholesale market did not exist for such article at such place, the wholesale cash price of the article at the nearest place when such market existed was to be taken into account. Clause (b) enacted that, where such price Was not ascertainable, the price at which an article of the like kind and quality was sold or was capable of being sold by the manufacturer or producer, or his agent, at the time of the removal of the article chargeable with duty from such factory or other premises for delivery at the place of manufacture or production or if such Article was not sold or was not capable of being sold at such place, at any other place nearest thereto. 29. It may be noted that a provision, similar to the one enacted in Section 4(a) of the Act, as it stood prior to the amendment, was embodied in the Sea Customs Act, 1878 and Section 30 providing for the procedure to determine the real value on which customs duty was levied read as follows : -- * * * The meaning of the term 'wholesale price' occurring in Section 30(a) of the Sea Customs Act came up ....
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....to authorised dealers or distributors, each of whom was sole agent for a retail seller of the vehicles in a particular district. The appellants obtained from the distributors information as to their future requirements and placed consolidated orders accordingly with the manufacturers in Canada. The retail price charged by the distributors to the public was that stated in a price list issued by the appellants and current at the time of the arrival of vehicles in India, and the price payable by the distributors to the appellants was the same price less a discount of 20 per cent. The distributors had to pay that price before obtaining delivery, which was given "free on rail''. On arrival in India, the vehicles were not completely assembled, and were so delivered to the distributors, an agreed allowance against the price being made by the appellants. On the question whether Section 30(a) or Section 30(b) of the Sea Customs Act, 1878 applied for the purpose of finding out of the real value of goods for levy of customs duty, the Privy Council held that the price charged by the appellants to the distributors excluding the assembling allowance was the "wholesale cash pric....
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....iced. The respondent in that case carried on, inter alia, the business of manufacturing air-conditioners, water coolers and their component parts. It affected direct sales to consumers at list prices and the sales so effected amounted to 90 to 95 per cent of its production during the relevant period. It also sold its articles amounting to 5 to 10 per cent of its production to its wholesale dealers from different parts of the country, in pursuance of agreements entered into with them. The agreements provided among other things that the dealers should not sell the articles sold to them except in accordance with the prices fixed by the respondent and the respondent would sell the articles to them at the list prices less 22 per cent discount. Dealers were also required under the agreements to provide service to units sold in their territory. Excise duty on the basis of ad valorem value was imposed on air-conditioners, water coolers and parts of water coolers from 1-3-1961. The respondent claimed, in accordance with Section 4(a) that the list prices after deducting the discount of 22 per cent allowed to the wholesale dealers, should be taken to be the 'wholesale cash price' for ....
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....st, it is necessary that there should be a market in the physical sense of the term where articles of a like kind or quality are or could be sold or that the articles should be sold to so-called independent buyers. Even if it is assumed that the latter part of Section 4(a) proceeds on the assumption that the former part, will apply only if there is a wholesale market at the place of manufacture for articles of a like kind and quality, the question is what exactly is the concept of wholesale market in the context. A wholesale market does not always mean that there should be an actual place where articles are sold and bought on a wholesale basis. These words can also mean the potentiality of the articles being sold on a wholesale basis. So, even if there was no market in the physical sense of the term at or near the place of manufacture where the articles of a like kind and quality are or could be sold, that would not in any way affect the existence of market in the proper sense of the term provided the articles themselves could be sold wholesale to traders, even though the articles are sold to them on the basis of agreements which confer certain commercial advantages upon them. In....
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....olesale dealers would not represent the "wholesale cash price" for the purpose of Section 4(a) of the Act, merely, because the manufacturer has entered into agreements with them stipulating for commercial advantages are correct. If a manufacturer were to enter into agreements with dealers for wholesale sales of the articles manufactured on certain terms and conditions, it would not follow from that alone that the price for those sales would not be the "wholesale cash price" for the purpose of Section 4(a) of the Act if the agreements were made at arms length and in the usual course of business. There can be no doubt that the "wholesale cash price" has to be ascertained only on the basis of transactions at arms length. If there is a special or favoured buyer to whom a specially low price is charged because of extra-commercial considerations, e.g., because he is relative of the manufacturer; the price charged for those sales would not be the "wholesale cash price" for levying excise under Section 4(a) of the Act. A sole distributor might or might not be a favoured buyer according as terms of the agreement with him are fair and reasonable and ....
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....ood prior to its amendment, again came up for consideration. In the said case, the appellants carried on business of manufacturing dye-stuffs in a factory situate in a small town called Atul in Balsar District in the State of Gujarat The dye-stuffs manufactured by the appellants were, throughout the period relevant to the appeal, sold by them in the wholesale units to two wholesale buyers, namely, ICI (India) Ltd. (hereinafter referred to as ICI), and Atul Products Ltd. (hereinafter referred to as Atul). These sales were effected in respect of agreements entered into by them with ICI and Atul. Seventy per cent of the dye-stuffs manufactured by the appellants were sold to ICI while the remaining 30 per cent to Atul. The price charged by the appellants to ICI and Atul was a uniform price described as "the basic selling price" less trade discount of 18 per cent. ICI and Atul, in their turn, resold the dye-stuffs purchased by them from the appellants to two categories of buyers. One was the category of Textile Mills and other large consumers, while the other was the category of distributors. The sales by ICI and Atul to the textile mills and other large consumers were at the ....
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....he price charged by ICI less 10 per cent trade discount and the price charged by Atul less 1/2 per cent trade discount as the assessable value because "that was the wholesale cash price at which the independent buyers could get these goods in the nearest wholesale market at the relevant time." The appellants thereupon appealed to the Supreme Court, after obtaining certificate of fitness from the High Court of Gujarat. The Supreme Court held that the assessable value of dye-stuffs manufactured by the appellants must be taken to be the price at which they were sold to the appellants by ICI and Atul less 18% trade discount, and not the price charged by ICI and Atul to their dealers. After referring to the decision in A.K. Roy v. Volta Ltd. (supra) and quoting the observations, in stenos, of Mathew J., in the said case with approval, Bhagwati J., speaking for the Court, observed : "In fact, the present case is much stronger than the Voltas" case (supra). In Voltas' case (supra), 90 to 95 per cent of the production was sold by the manufacturer in retail and only a small percentage, namely, 5 to 10 percent was sold in wholesale and yet the price charged by the m....
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....ssment' under Section 4(a) The contention, therefore, was that the price charged by ICI and Atul to the dealers less trade discount allowed to them should be taken to be the assessable value of the dye-stuffs and not the price charged by the appellants to ICI and Atul less trade discount of 18%. This contention is without force and must be rejected. It violates two basic principles underlying imposition of excise duty. Bhagwati J., proceeded to add : "The value of the goods for the purpose of excise must take into account only the manufacturing cost and the manufacturing profit and it must not be loaded with post-manufacturing cost or profit arising from post-manufacturing operation. The price charged by the manufacturer for sale of the goods in wholesale would, therefore, represent the real value of the goods for the purpose of assessment of excise duty. If the price charged by the wholesale dealer who purchases the goods from the manufacturer and sells them in wholesale to another dealer were taken as the value of the goods, it would include not only the manufacturing cost and the manufacturing profit of the manufacturer but also the wholesale dealer's selling cos....
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....rer sells the goods manufactured by him wholesale to a wholesale dealer at arms length and in the usual course of business, the wholesale cash price charged by him to the wholesale dealer less trade discount would represent the value of the goods for the purpose of assessment of excise. That would be the wholesale cash price for which the goods are sold at the factory gate within the meaning of Section 4(a). The price received by the wholesale dealer who purchases the goods from the manufacturer and in his turn sells the same in wholesale to other dealers would be irrelevant to the determination of the value and the goods would not be chargeable to excise on that basis. The condition is, therefore, inescapable that the assessable value of the dye-stuffs manufactured by the appellants must be taken to be the price at which they were sold by the appellants to ICI and Atul less 18% trade discount, and not the price charged by ICI and Atul to their dealers." 34. In an unreported judgment dated 24-9-1976 of a Division Bench of this Court consisting of Sambasiva Rao and Punnayya JJ., in Coramandel Fertilisers Limited v. Union of India and Ors. (W.P. Nos. 1400 to 1403/1976), the pet....
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....f, in certain cases, there are costs necessarily incidental to manufacturing process, they can be rightly said to form part of the manufacturing costs and thus they are also to be included in the real value including only the manufacturing costs and the manufacturing profit. If, in certain cases, there are costs necessarily incidental to manufacturing process, they can be rightly said to form part of the manufacturing costs and thus they are also to be included in the real value including only the manufacturing costs and the manufacturing profit. Anything other than the manufacturing costs and manufacturing profit is not within the purview of Section 4(a)." 36. Dealing with the contention advanced by Mr. Subrahmanya Reddy on behalf of the Union of India, based upon the conclusion of Bhagwati J., in paragraph 13 of the judgment in Atic Industries v. Asst. Collector, Central Excise (supra), that the price charged by the manufacturer to the first wholesalers, be they referred to distributors or wholesalers, was the wholesale cash price and that it was that wholesale cash price less trade discount and excise duty which should be the basis of imposition of excise duty in view of t....
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....greement was entered into at arms length is permitted, the concept of excise duty, being a duty payable on the manufacture or production of goods would be violated." 37. An unreported decision dated 8-9-1976 of a Division Bench of the Gujarat High Court consisting of J.B. Mehta, Ag. Chief Justice and M.P. Thakkar J., in Golden Tobacco Co. Ltd., Bombay v. Union of India and Anr. (Special Leave Appln. No. 858/1974) [since reported in 1977 E.L.T. (J 113) in which a contrary view was taken, was dissented from by the Division Bench. 38. We may also observe that the High Court of Kerala in Madras Rubber Factory Ltd., v. Asst, Collector of Central Excise, Kottayam and Ors. 1976 TLR 1263, the High Court of Bombay in Union of India v. Mangsinka Industries Pvt Ltd., 1976 TLR 1891, the High Court of Karnataka in Union of India v. I.T.C. Ltd., 1976 TLR 2003, the High Court of Madhya Pradesh in Universal Cables v. Union of India 1977 TLR 1825, and the High Court of Allahabad in I, T.C. Ltd. v. Union of India, 1977, 1977 TLR 2060, also took the same view as that expressed by the Division Bench in Union of India v. Vazir Sultan/Tobacco Co. Ltd. (supra). It is also noticed in I.T.C. Ltd. v.....
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....ed. Section 4(2) is residuary in character and it applies only to such cases where the price of any excisable goods at the place of removal is not known and the value thereof is determined with reference to the price for delivery at a place other than place of removal. In cases covered by Section 4(2), the cost of transportation from the place of removal to the place of delivery shall be excluded from such price. Section 4(4)(d) provides for deduction of certain items from the value arrived at under Section 4(1)(a) or Section 4(1)(b). Section 4(1)(b)(i), while providing for inclusion of the cost of packing in the value of the goods, where the goods are delivered at the time of removal in packed condition, permits deduction of the cost of the packing from the value if the packing is of a durable nature and is returnable by the buyer to the assessee. In other words, even the cost of initial or first packing, if it is of a durable nature and is returnable by the buyer to the assessee is liable to be deducted from the value of the good. It, therefore, follows that the cost of secondary packing of the goods is not liable to be included in the assessable value. Section 4(a) provides for ....
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....ve, Asstt. Collector of Central Excise and Ors. ((supra): "The wholesale dealings between the appellants and ICI and Atul were purely commercial dealings at arms length and the price charged by the appellants for sales in wholesale made to ICI and Atul lets trade discount of 18% was, therefore, clearly "wholesale cash price" within the meaning of Section 4(a) and it did not make any difference that the wholesale dealings of the appellants were confined exclusively to ICI and Atul and apart from these two, no independent buyers could purchase the dye stuffs in wholesale from the appellants...It is the first immediate contact between the manufacturer and the trade that is made decisive for determining the wholesale cash price which is to be the measure of the value of the goods for the purpose of excise." In Union of India v. Vazir Sultan Tobacco Co. Ltd., Hyderabad and Ors. (supra), it may be recalled that the very same argument was advanced before a Division Bench of this Court by the learned counsel for the Union of India and repelled. We must add that we are in complete agreement with the reasoning of the Division Bench in repelling the contention. It may b....
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.... element of sale of goods for delivery at the time and place of the removal has been preserved. The basis of excise duty, therefore, continues to be the manufacturing cost and manufacturing profit and the amendment of Section 4(a) does not and cannot, in any way, alter the basis of the levy of excise duty contained in Section 3 of the Act, remaining the same, untouched and un-amended even after the substitution of the new Section 4(a). If the 'normal price' were to be construed as to take within its ambit anything except the manufacturing cost and manufacturing profit, the impost ceases to be excise duty and the rational nexus between the duty and the person upon whom it is imposed ceases to exist, as it amounts to tax on sale, which under Entry 54 of List II of Schedule VII to the Constitution, exclusively falls within the domain the State Legislature and the Parliament has no legislative competence to make of any law with regard to it. It, therefore, follows that under the new Section 4(a) of the Act, it is not permissible to include in the assessable value any element of post-manufacturing costs or profits attributable to post-manufacturing operations. 45. Our view also....
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....d Anr. v. Ranganatha Reddy etc. [1978]1SCR641 . In the first case, the validity of the Act legislated under Entry No. 45 of List I of the Government of India Act (corresponding to Entry No. 84 in List I of the Seventh Schedule to the Constitution of India) was challenged on the ground that it impinged upon the legislative field covered by items Nos. 27, 29 and 31 of List II of the Government of India Act exclusively assigned to the Provincial Legislatures. Their Lordships of the Supreme Court observed : -- "Looking at the scheme of the Act, its object and purpose, its true nature and character and the pith and substance the conclusion is inevitable that the Act was within the legislative competence of the General Legislature and although there may be certain matters otherwise within the legislative competence of the Provincial legislature they are necessarily incidental to effective legislation by the Central Legislature. The various provisions of the Act and the Rules made thereunder were, in our opinion, essentially connected with the levying and collection of excise duty and in its true nature and character the Act remains one that falls under Item 45 of List 1 and the in....
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....stages valeat quam pereat." 49. Section 4(a) of the Act must, therefore, be construed as authorising the levy of excise duty on the manufacturing cost of the goods and manufacturing profit of the manufacturer. In other words, the normal price for the purpose of levy of duty must be free from being loaded with post-manufacturing costs, expenses and profits which are unrelated to the manufacture or production of the goods. 50. We must, however, observe that an exhaustive list or catalogue of the post-manufacturing costs, expenses or profits liable to be excluded from the 'normal price' for the purpose of imposition of excise duty, it is difficult to enumerate. In the Voltas' case, it was held that the real value should be found after deducting the selling costs and selling profits. The view was reiterated in Atic Industries' case. 51. In Madras Rubber Factory v. The Assistant Collector of Central Excise -- 1978 E.L.T. (J 595), it was held by a single Judge of the Kerala High Court that there might be post-manufacturing operations in respect of goods produced, such as freight incurred in conveying the goods to sales-depots, godown charges and other expenses. Di....
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....: "The learned single Judge was therefore justified in directing that the wholesale cash price should be determined after eliminating the expenses incurred in connection with marketing and distributing of goods, interest on the value of goods attributable to the period between the time at which the goods left the factory premises and the time at which the price was paid by he wholesaler as well as the freight, octopi and other charges involved in the transport of the articles from the factory gate to the selling points. He was also justified in directing the Excise Authorities to determine what portion of the advertisement expenses incurred by the manufacturer can be allowed to be deducted depending upon how far it can be traceable to the selling operation and not attributable to the manufacturing operation or manufacturing profit. The items referred to above are not exhaustive but only illustrative of the nature of deductions which have to be made before arriving at the assessable value for the purpose of Section 4(a), Clause (a)." 54. In I.T.C. Limited v. Union of India, 1977 E.L.T. (J 29), it was claimed by the assessee that the expenses incurred under the following....
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....otion of sales ; (e) Expenses of marketing and distribution ; (f) Freight charges ; (g) Interest on credit sales, and the like, wholly unconnected with and unrelated to the manufacture or production of the excisable goods. The instances given are only illustrative and by no means exhaustive. It is for the authorities to decide in each case whether the deductions claimed by the assessees are; in the nature of post-manufacturing costs, expenses or profits arising out of the post-manufacturing operations. In other words, the deductions claimed for being allowed, must be wholly unconnected with and unrelated to the manufacture or production of the goods. It is needless to state that the authorities should be satisfied that the post-manufacturing costs or expenses claimed by the assessees are actually incurred. 55. We may, however, observe that except in Writ Petition Nos. 1532, 2601 and 2602 of 1976, in the other six Writ Petitions the assessees question the validity or the legality of inclusion of the post-manufacturing costs, expenses and profits attributable to post-manufacturing operations, in the 'normal price' for the purpose of levy of excise duty. Our decision i....
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....ive Company Limited v. S.N. Guha Thakurta, Superintendent of Central Excise, Jamshedpur and Ors. , 1977 E.L.T. (J 14), decided by a Division Bench of the Patna High Court. In the view we have taken on the admitted facts, it is wholly unnecessary to consider the vires of the third proviso to Section 4(a) of the Act. 58. In Writ Petition No. 5948 of 1975, the petitioner-company also claims deductions of the cost of packing of its goods from the assessable value. In E.I.D. Party Limited v. Union of India, 1978 Excise Law Times (J)(18), it was held by the High Court of Madras that packing could not be regarded as a process incidental or ancillary to the completion of the manufactured product. The same view was taken by the High Court of Karnataka, Calcutta and Maharashtra. 59. Admittedly, the petitioner-company first packs its dry cell batteries in what are known as Display boxes and later in cartons. It is alleged by the petitioner that the dry cell batteries produced are sold just as batteries and are not covered by any kind of wrapper, that the packing in Display boxes by the petitioner is only to enable the movement of batteries freely and conveniently and that further packing in....
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.... shares in the petitioner-company and in the Messrs. India Tobacco Company, a major wholesale dealer of the petitioner-company and that Messrs. India Tobacco Company Limited is, therefore, 'related person' within the meaning of Section 4(a) read with its third proviso, it is, however, admitted in the counter-affidavit filed by the excise authorities that the assessable value of the goods would be the price charged by the petitioner-company to its wholesale dealers other than Messrs. India Tobacco Company Limited. In the light of the clear stand of the excise authorities expressed in no uncertain terms, the claim of the petitioner-company must be upheld. 63. In Writ Petition No. 1532 of 1976, the only question raised by the petitioner-company is the legality of levy of excise duty on the cost of jute bags in which the excisable goods manufactured by the Company were packed and sold between 1-10-1975 to 8-1-1976. Admittedly, even after the amended Section 4(a) came into force, till 4-12-1975 the excise authorities did not include the cost of jute bags in the assessable value. However, from 5-12-1975 to 8-1-1976, the excise authorities made a demand in a sum of ₹ 2,08,7....
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....that the price of the goods of the company for delivery at the place of removal is not known. It may be recalled that as laid down in the Voltas' case, even if there is no market in the physical sense of the term at or near the place of manufacture where the articles of a like kind and quality are or could be sold, that would not, in any way, affect the existence of the market in the proper sense of the term provided the articles themselves could be sold wholesale to traders. Secondly, the cost of transport of excisable goods can never be included in the assessable value of the goods as the cost is incurred subsequent to the manufacture of the goods and wholly unconnected with the manufacture of the goods. The fact that the petitioner-company charges uniform freight would not make any difference. In fact, in the unreported decision dated 24-9-1976 of a Division Bench of this Court in Writ Petition Nos. 1400 to 1403 of 1976, the claim of Coramandel Fertilisers Limited, a company incorporated under the Companies Act, 1956 with its factory situate at Visakhapatnam, for exclusion of equalised freight charged by it on its goods irrespective of places of delivery of the goods, was up....
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....aid down in the Voltas' case, a credit wholesale cannot form the basis of levy of excise duty, To quote the words of Mathew J., "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." 67. Lastly, it is complained by the company that its claim for deduction of post-manufacturing costs, expenses and profits is being negatived or not adjudicated upon on the ground that the price lists submitted by the company do not contain full particulars of the same. It may be noted that, until completion of the annual audit of the petitioner-company, the full particulars of the expenses claimed cannot be furnished. Only provisional price lists can be submitted. It is, therefore, just that the excise authorities should, in the first instance, act upon the provisional price lists reserving its right to determine the quantum of duty finally on submission of final price lists after completion of the annual audit of the petitioner-company. 68. In the result, in Writ Petition No. 5948 of 1975, a Writ of Mandamus shall issue directing the 2nd respondent th....
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....fter deducting from the price the cost of transport incurred by the petitioner for removal of its goods for the purpose of sale, to its various godowns and later to their ultimate places of delivery as also the cost of secondary packings of its goods. 72. In Writ Petition Nos. 217 and 218 of 1978, a Writ of Certiorari shall issue quashing the order dated 1-11-1977 of the 2nd respondent therein. A Writ of Mandamus shall also issue directing respondents 2 and 3 therein to assess, levy, collect or recover any excise duty from the petitioner on the price charged by the petitioner from its wholesale dealers at its Regional Offices/godowns from 1-10-1975 after deducting from the price the post-manufacturing costs and expenses inclusive of cost of transport of its goods to its Regional Offices/godowns and post-manufacturing profits and also the trade discount allowed by the petitioner in accordance with the normal practice of the wholesale trade irrespective of the fact that the facility is not extended to the sales on credit. A direction shall also issue to respondents 2 and 3 to refund to the petitioner any amounts of excise duty illegally recovered from the petitioner from 18-6-1977 b....