1979 (4) TMI 173 - HC - Central Excise

Summary

Issues Involved:
1. Scope and Ambit of Section 4 of the Central Excise and Salt Act, 1944.
2. Determination of Assessable Value for Excise Duty.
3. Inclusion of Post-Manufacturing Costs and Expenses.
4. Definition and Treatment of Related Persons.
5. Inclusion of Packing Costs in Assessable Value.
6. Treatment of Trade Discounts.
7. Claims for Refund of Excess Excise Duty.

Detailed Analysis:

1. Scope and Ambit of Section 4 of the Central Excise and Salt Act, 1944
The judgment primarily revolves around the interpretation of Section 4 of the Central Excise and Salt Act, 1944, as amended by the Central Excises and Salt (Amendment) Act, 1973. This section determines the value of excisable goods for the purpose of charging excise duty. The court examined whether the amended Section 4(a) could include post-manufacturing costs and profits in the assessable value.

2. Determination of Assessable Value for Excise Duty
The court reiterated that excise duty is a tax on the manufacture or production of goods, not on their sale. The assessable value should only include manufacturing costs and manufacturing profits. The court emphasized that post-manufacturing costs and profits should be excluded from the assessable value, adhering to the principles laid down in the Voltas case and Atic Industries case.

3. Inclusion of Post-Manufacturing Costs and Expenses
The court clarified that post-manufacturing costs such as selling, distribution, administrative expenses, and profits arising from post-manufacturing operations should not be included in the assessable value. The judgment cited various cases, including the Voltas case and Atic Industries case, to support this interpretation. The court further provided a non-exhaustive list of post-manufacturing costs that should be excluded, such as advertising expenses, storage costs, insurance charges, selling profits, marketing and distribution expenses, freight charges, and interest on credit sales.

4. Definition and Treatment of Related Persons
The court addressed the issue of sales to related persons, as defined under Section 4(a) of the Act. It was held that mere relationship between the manufacturer and the wholesale dealer does not automatically make the dealer a related person unless extra commercial advantages are conferred, making them favored buyers. The court emphasized that the price charged to an independent buyer should be considered for determining the normal price, even if the sales to related persons form a significant part of the total sales.

5. Inclusion of Packing Costs in Assessable Value
The court discussed the inclusion of packing costs in the assessable value. It was held that the cost of initial or first packing, if it is of a durable nature and returnable by the buyer to the assessee, should be excluded from the assessable value. The court also noted that secondary packing costs should not be included in the assessable value unless the goods cannot be consumed or utilized without such packing.

6. Treatment of Trade Discounts
The court held that trade discounts allowed in accordance with the normal practice of the wholesale trade at the time of removal should be excluded from the assessable value. It was emphasized that the trade discount should not be refundable on any account whatsoever.

7. Claims for Refund of Excess Excise Duty
The court addressed various claims for refund of excess excise duty paid by the petitioners. It was held that the petitioners are entitled to refunds where excise duty was collected on post-manufacturing costs, expenses, and profits. The court directed the excise authorities to refund the excess amounts collected, provided the claims were not barred by limitation.

Judgment Summary:
1. W.P. No. 5948 of 1975: The court directed the respondent to fix the normal price under Section 4(a) as the price charged by the petitioner to its wholesale dealers, excluding post-manufacturing costs, expenses, and profits. The cost of Display boxes and cartons should also be excluded.

2. W.P. Nos. 819, 2194, and 1115 of 1976: The court issued a writ of mandamus directing the respondents to assess and collect excise duty after excluding post-manufacturing costs, expenses, and profits. It also directed refunds for excess duty collected before 1-10-1975, if not barred by limitation.

3. W.P. No. 1532 of 1976: The court directed the respondents to refund the excise duty collected on the cost of jute bags and quashed the demand for excise duty on jute bags for the specified period.

4. W.P. Nos. 2601 and 2602 of 1976: The court quashed the orders of the appellate authority and directed the respondents to exclude the cost of transport and secondary packing from the assessable value.

5. W.P. Nos. 217 and 218 of 1978: The court quashed the order of the Assistant Collector and directed the respondents to exclude post-manufacturing costs, expenses, and profits from the assessable value. The trade discount should be allowed irrespective of credit sales.

The court also granted leave to appeal to the Supreme Court and stayed the refund orders in certain writ petitions until the end of July 1979. The court directed the return of bank guarantees furnished by the petitioners during the pendency of the writ petitions.