1980 (3) TMI 253 - HC - Central Excise

Issues Involved:
1. Determination of 'assessable value' for purposes of levy of ad valorem duty of Central Excise.
2. Whether the sales to selling agents can be considered as wholesale cash price.
3. Entitlement to deductions from the wholesale cash price for post-manufacturing expenses.
4. Interpretation and application of the amended Section 4 of the Central Excises and Salt Act, 1944.
5. Constitutionality of the concept of 'related persons' under the amended Section 4.

Issue-Wise Detailed Analysis:

1. Determination of 'Assessable Value' for Purposes of Levy of Ad Valorem Duty of Central Excise:
The primary question in these writ petitions is the determination of the 'assessable value' of the assessee's products for the purposes of the levy of ad valorem duty of Central Excise. The relevant period is between May 15, 1971, and December 1976. The determination of assessable value needs separate consideration under the pre-amendment and post-amendment language of Section 4 of the Central Excises and Salt Act, 1944.

2. Whether the Sales to Selling Agents Can Be Considered as Wholesale Cash Price:
The respondents contended that the sales at the packing stations should be ignored, alleging that the selling agents were "favoured buyers" and transactions with them were not at arm's length. However, the court found no material to support this claim. The court determined that the sales to the selling agents at the factory gate should be considered as the wholesale cash price for the purposes of the old Section 4. The Supreme Court decisions in Voltas and Atics were cited, which held that the price at which the goods are sold on a 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.

3. Entitlement to Deductions from the Wholesale Cash Price for Post-Manufacturing Expenses:
The court discussed whether the petitioner is entitled to claim deductions from the wholesale cash price for post-manufacturing expenses such as octroi, insurance, freight, and selling expenses. The Supreme Court in Voltas pointed out that excise duty should be levied only on the amount representing manufacturing cost plus manufacturing profit, excluding post-manufacturing costs and profits. The court held that the petitioner could claim deductions for selling expenses on an equalized basis, provided these expenses were attributable to post-manufacturing activities. The court also emphasized the need to verify whether the deductions claimed were based on actuals and whether selling expenses related only to post-manufacturing activities.

4. Interpretation and Application of the Amended Section 4 of the Central Excises and Salt Act, 1944:
Post-amendment, the court noted that the amended Section 4 introduced the concept of "related persons" and excluded transactions of sale to or through them in determining the assessable value. The court held that the wholesale price taken in accordance with the Central Government's decision should be reduced by the amount of freight, octroi, insurance, selling expenses, and service charges. The court cited several decisions from various High Courts that supported the exclusion of post-manufacturing expenses from the assessable value even under the amended Section 4.

5. Constitutionality of the Concept of 'Related Persons' Under the Amended Section 4:
The court referred to decisions by the Gujarat High Court in Atic Industries and Cibatul Ltd., which declared the concept of 'related persons' under the amended Section 4 as ultra vires the legislative competence of Parliament. However, the court did not find it necessary to address the constitutionality of the amendment directly, as it was sufficient to "read down" the provisions in conformity with the Constitution. The court concluded that the interpretation of the amended section should be made in accordance with Entry 84 of the Union List, which pertains to excise duties, and not Entry 97, which pertains to the residuary powers of Parliament.

Conclusion:
The court quashed the orders passed by the Government of India on the revision petitions and directed the revisional authority to dispose of the revisions afresh in light of the judgment. The court allowed the writ petitions to the extent indicated and directed that the matter be re-heard by the Government of India and disposed of expeditiously. The court did not accede to the request for interest on refunds due to the petitioner, as there was no specific prayer for such a direction and the issue presented was not free from difficulty.

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