TaxTMI 
TaxTMI 
1992 (5) TMI 19
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....nding of the issue raised. They read thus: "3. 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 and a duty on salt manufactured in, or imported by land into, any part of India as, and at the rates, set forth in the First Schedule. (1A) x x x x (2) 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. 4. Determination of value for the purpose of duty: Where, under this Act, any article is chargeable w....
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....The Century Spinning and Manufacturing Co. Ltd. (the respondent, hereinafter referred to as 'the assessee') challenged the fixation of the tariff values of sulphuric acid and liquid chlorine at the amounts referred to earlier. Its contention, developed in three steps, was this : (a) that an excise duty being a duty on manufacture or production, its levy can be based on the cost of production or manufacture together with any margin of profit the manufacturer may be able to make when he sells the goods in a wholesale market at or near the factory gate; (b) the tariff value fixed under Section 3(2) can also be only on this basis and cannot be based on the sale price of the goods, much less on a weighted average sale price as in the present case; (c) if Section 3(2) were to be interpreted differently in a wide manner, as empowering the Central Government to fix tariff values wholly at its discretion - unfettered by the formula indicated in (a) above - at any figure it chooses, the sub-section should be struck down as violative of Article 14 as there are no guidelines indicated in the statute for fixation of such tariff value. 5. The Bombay High Court, in its judgment [reported as Ce....
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....us 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 hereby eliminating freight, octroi and other charges involved in the transport of the articles. As already stated it is not necessary for attracting the operation of Section 4(a) that there should be a large number of wholesale sales. The quantum of goods sold by a manufacturer on whole-sale basis is entirely irrelevant. The mere fact that such sales may be few or scanty does not alter the true position." (Emphasis added) This Court adopted the above passage and further elucidated it in the latter case. There, the court was concerned with an attempt of the Revenue to levy duty, not on the basis of the wholesale sale price, but on the basis of the price at which the wholesale purchaser sold the goods to distributors and large consumers. In this context the court observed that if excise were levied on the basis of second or subsequent wholesale price, it would load the price with a post manufacturing element, namely, the selling cost and selling profit of the wholesale dealer. That would be plainl....
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.... of goods, it is open to Parliament to adopt any basis for determining the value of an excisable article, that the measure for assessing the levy need not correspond completely to the nature of the levy, and no fault can be found with the measure so long as it bears a nexus with the charge." and the court expressed its conclusion in the following words: "It is apparent, therefore, that when enacting a measure to serve as a standard for assessing the levy the Legislature need not contour it along lines which spell out the character of the levy itself. Viewed from this standpoint, it is not possible to accept the contention that because the levy of excise is a levy on goods manufactured or produced the value of an excisable article must be limited to the manufacturing cost plus the manufacturing profit. We are of opinion that a broader based standard of reference may be adopted for the purpose of determining the measure of the levy. Any standard which maintains a nexus with the essential character of the levy can be regarded as a valid basis for assessing the measure of the levy. In our opinion the original Section 4 and the new Section 4 of the Central Excises and Salt Act sat....
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....ected by the manufacturer but to those pertaining to the subsequent sale transactions effected by the wholesale buyers in favour of other dealers." 8. If we look now at the judgment under appeal in the light of the above clarifications, it becomes clear that it does not state the correct law. Its basic premise is based on a wrong interpretation of Section 3(1) and Section 4. It observes : "Section 3(1) of the Central Excises and Salt Act, 1944, provides that there shall be levied and collected duties of excise on all excisable goods which are produced or manufactured in India at the rates set forth in the First Schedule. The charging section, therefore, enables levy of excise duty on production and manufacture of goods. It is, therefore, clear that the levy of excise must have relation to the production or the manufacturing cost of the goods produced by a manufacturer. Any levy of excise which takes into account the factors which are not connected with the production cost and profit on goods by the manufacturer would not be legal." It is true that the sub-section (1) of Section 3 makes a reference to the First Schedule. But, as already pointed out, the First Schedule speci....
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....nation of value outlined in Section 4 is only one of the modes available to the Central Government which comes into operation only where the value of any item of goods is not otherwise specified in notifications issued under Section 3(2); and that even where the value is to be determined under Section 4, it can have any nexus with the wholesale price and is not limited to the manufacturing cost and profit. In our opinion, the High Court has erred in reading Sections 3(1) and (2) as being subject to the parameters of Section 4. It is clear that Section 3(1) read with the Schedule is very wide and unrestricted in its language and permits the levy of duty on any basis that has a nexus with manufacture or production as explained in Bombay Tyres. Section 3(2) comes into operation only in cases of goods where an ad valorem duty is set forth in the Schedule but, subject only to this restriction, this sub-section too does not carry any limitations as to the manner in which the value is to be fixed, much less any limitation that the value should be determined in the same manner as under Section 4. Even Section 4 does not restrict the levy to manufacturing cost and profit but, this apart, th....
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....of duty is to be fixed ad valorem i.e. on the basis of the value of the goods. It cannot be disputed that the normal indication of the value of the goods will be its price and, that the statute intends price to be the relevant factor is clear from the language of Section 4 under which the statute itself fixes the value for the majority of cases. But where one had got bogged down, possibly due to certain earlier observations of this Court in a different context, was in thinking that the value of goods can only comprise of manufacturing cost and profit. Actually it has been made to depend on the wholesale price of the manufacturer concerned under Section 4 (old and new). But this need not be the sole criterion. The value may be derived with reference to the wholesale price, the retail price or the average price at which the goods are sold by the manufacturer concerned or even by the price at which the goods are sold by any particular person or place or the average price which the goods command in the whole country or any part thereof. It can be fixed at the lowest of such prices, at the highest of such prices or at some average (mean, media mode etc.) of such prices as the Government....
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....orkable method for determining the assessable value which would be fair and acceptable to all the manufacturing units throughout the country. It has been contended that by its very nature, such an average value is bound to be higher or lower or even at par with the selling prices of the various manufacturers, but this cannot be helped if a uniform tariff rate is to be fixed. It is further stated in the affidavit that since 1962, notifications were issued by the Central Government fixing the values of chlorine and other products in gaseous form. Representations were also made by certain manufacturers and by the Western U.P. Chambers of Commerce and Industries for fixation of tariff values. The various Collectorates were asked to furnish particulars regarding the assessable value of the various gases manufactured in their Collectorates, and after the data was collected from them, tariff values were fixed for various gases including chlorine. It was pointed out that even in the case of chlorine, there has been a considerable fluctuations in its price. This contention was sought to be demonstrated by reference to the information regarding the manufacturing cost and manufacturing profit....
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....plication of that section would lead to difficulties and harassments. The criticism that the tariff value has been manipulated to enhance the rate of duty has also no force. The Central Government has the undoubted power to enhance the rates and the validity of a notification having such an effect is not open to challenge even if it is done under the "guise" of fixing a tariff value. But, as already pointed out by us, there is no such guise or facade in this case and the tariff value has been fixed on the basis of relevant criteria having a nexus to the value of the goods. 12. We have so far avoided any reference to Section 3(3), inserted in 1978, and Section 4(3), inserted with effect from 1-10-1975, as these amendments came into effect later than the period with which we are concerned and we wished to look at the provisions of the statute as they stood before these amendments. In the light of our interpretation outlined above, it will be seen that these amendments are clarificatory in nature. The generality of Section 3(2) is unrestricted and Section 3(3) only explains a few possible ways in which that power can be, and could always have been, exercised. Likewise, the scheme o....