1976 (9) TMI 171 - HC - Central Excise

Summary

Issues Involved:
1. Levy of excise duty on component parts of electric bulbs and fluorescent tubes.
2. Basis for assessment of excise duty under Section 4 of the Central Excises and Salt Act, 1944.
3. Special relationship between the manufacturer and the purchaser.
4. Demand for differential duty for past years.
5. Inclusion of packing charges in the assessable value.

Detailed Analysis:

1. Levy of Excise Duty on Component Parts:
The case involves the levy of excise duty on glass shells and tubes, which are component parts of electric bulbs and fluorescent tubes, manufactured by Hind Lamps Limited. These components were subjected to excise duty under Item 23A of the First Schedule to the Central Excises and Salt Act, 1944, since March 1961.

2. Basis for Assessment of Excise Duty Under Section 4:
The primary issue is the proper basis of assessment under Section 4 of the Act. Initially, the company supplied its price list to the Superintendent, who approved these prices for excise duty assessment. However, from July 1965, the excise authorities rejected the company's wholesale prices to Unipro as the basis for assessment, instead adopting the prices charged by Unipro to independent purchasers.

The court referred to the Supreme Court's decision in A.K. Roy and another v. Voltas Limited, which clarified that the "wholesale cash price" should be the price at the factory gate, representing the manufacturing cost plus manufacturing profit, excluding post-manufacturing costs and selling profits. The court emphasized that excise duty should be levied on the amount representing the manufacturing cost plus the manufacturing profit, not on post-manufacturing elements.

3. Special Relationship Between Manufacturer and Purchaser:
The excise authorities argued that the sales to Unipro were not at arm's length due to a special relationship, as Bajaj Electricals Limited, a partner in Unipro, also held a significant share in the company. However, the court found no evidence that the prices charged to Unipro were influenced by extra-commercial considerations or were anything but fair and reasonable. The court held that the price at the factory gate should be the basis of assessment unless it is shown that the price was concessional or specially low due to a secret arrangement.

4. Demand for Differential Duty for Past Years:
In June 1966, the Superintendent claimed differential duty for the period from March 1, 1961, to May 3, 1965, based on the new assessment basis. The Central Government, while dismissing the company's revision, provided relief by waiving or modifying the demands as per the limitation prescribed under Rule 10 of the Central Excise Rules, 1944.

5. Inclusion of Packing Charges in the Assessable Value:
The company did not contest the inclusion of 1/10th of the packing charges in the assessable value before the excise authorities, leading to acquiescence. Therefore, the court did not address this issue further.

Conclusion:
The court concluded that the excise authorities' basis for assessment, using the prices charged by Unipro to independent purchasers, was incorrect. The correct basis should be the price charged by the company to Unipro at the factory gate, representing the manufacturing cost plus manufacturing profit. The court quashed the orders of the excise authorities and directed them to refund the excess duty collected and forbade them from recovering the excess duty claimed. The respondents were also ordered to pay costs to the company.