1982 (10) TMI 216 - HC - Central Excise

Issues Involved:
1. Deductibility of expenses for computing the value of goods under Section 4 of the Excise Act before its amendment.
2. Deductibility of expenses after the amendment of Section 4.
3. Inclusion of charges related to primary and secondary packing under amended Section 4.
4. Validity of Section 4(4)(d)(1) in relation to packing material costs.

Detailed Analysis:

I. Deductibility of Expenses Before Amendment of Section 4:
The court examined whether expenses such as publicity, storage, and sales promotion were deductible in computing the value of goods for excise duty purposes under the unamended Section 4 of the Excise Act. The court emphasized that the valuation should be based on the "wholesale price at the factory gate" without any deductions for post-manufacturing expenses. It relied heavily on the Supreme Court's decision in the Voltas Case, which clarified that the excise duty is payable on "manufacturing costs plus manufacturing profits" and not on the wholesaler's profits. The court concluded that there is no provision in Section 4 for making deductions for post-manufacturing expenses, and thus, such deductions are not justified.

II. Deductibility of Expenses After Amendment of Section 4:
The court addressed whether the amendment to Section 4 altered the position regarding the deductibility of expenses. It noted that the amended Section 4 still focuses on the "normal price at which such goods are ordinarily sold in the course of wholesale trade for delivery at the factory gate." The court found that the amendment did not change the fundamental principle that post-manufacturing expenses are not deductible. The court reiterated that the expenses for publicity, storage, and other similar categories are not deductible from the wholesale price at the factory gate, even after the amendment.

III. Inclusion of Charges Related to Primary and Secondary Packing:
The court examined whether charges related to primary and secondary packing are includible under the amended Section 4. The amended provision explicitly includes the cost of packing in the valuation of excisable goods unless the packing is of a durable nature and returnable by the buyer. The court rejected the petitioners' contention that the cost of packing should be excluded from the valuation. It held that the inclusion of packing costs is justified as the goods cannot be sold in a marketable condition without packing, making it an integral part of the manufacturing process.

IV. Validity of Section 4(4)(d)(1):
The court addressed the challenge to the vires of Section 4(4)(d)(1), which includes the cost of packing material in the valuation of excisable goods. The petitioners argued that this provision effectively imposes a sales tax, which is beyond the legislative competence of the Parliament. The court rejected this argument, stating that the levy remains an excise duty linked to the manufacture of the excisable article, not a sales tax. The court emphasized that the inclusion of packing costs in the valuation does not change the nature of the levy, which is still on the manufacture of goods.

Conclusion:
The court found no merit in the petitioners' contentions and ruled that:
1. Expenses for publicity, storage, and sales promotion are not deductible in computing the value of goods for excise duty purposes under both the unamended and amended Section 4.
2. Charges related to primary and secondary packing are includible in the valuation of excisable goods under the amended Section 4.
3. Section 4(4)(d)(1), which includes the cost of packing material in the valuation, is valid and does not constitute a sales tax.

The court dismissed the petitions, discharged the rule, and vacated the interim orders, with no order as to costs.

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