1976 (4) TMI 54 - HC - Central Excise

Valuation billing price - Scope of - Post-manufacturing Expenses - - Equalised freight - Wholesale cash price - Precedents

Summary

Issues Involved:
1. Levy of excise duty based on manufacturing costs and manufacturing profits.
2. Refund of excise duty collected on items other than manufacturing costs and manufacturing profits.
3. Interpretation of Section 4 of the Central Excises and Salt Act, 1944.
4. Applicability of billing prices for calculating ad valorem excise duty.

Detailed Analysis:

1. Levy of Excise Duty Based on Manufacturing Costs and Manufacturing Profits:

The primary issue in O.P. No. 1290 of 1973 was the respondent's request for a writ of mandamus to prevent the authorities from levying excise duty on items other than manufacturing costs and manufacturing profits. The learned Judge ruled in favor of the petitioner, stating that "the respondents will levy excise duty on items manufactured by the petitioner taking into account the manufacturing cost and the manufacturer's profit." This decision was based on the interpretation that excise duty should be calculated solely on manufacturing costs and manufacturing profits, excluding any post-manufacturing expenses such as freight, insurance, and sales promotion costs.

2. Refund of Excise Duty Collected on Items Other Than Manufacturing Costs and Manufacturing Profits:

In O.P. No. 1524 of 1973, the petitioner sought a refund of Rs. 17,58,383.91, which was collected as excise duty on items other than manufacturing costs and manufacturing profits. The learned Judge directed the authorities to reassess the liability for excise duty and the petition for refund in light of the judgment, which emphasized that excise duty should be based solely on manufacturing costs and profits. The Judge stated, "the question calls for a fresh approach" and directed that the refund issue "will be gone into afresh in the light of what has been said in this judgment."

3. Interpretation of Section 4 of the Central Excises and Salt Act, 1944:

The Advocate-General contended that the learned Judge's interpretation of Section 4 of the Act, which led to the decision that excise duty should be based only on manufacturing costs and profits, was incorrect. Section 3 of the Act, the charging section, mandates that excise duties are imposed on all excisable goods produced or manufactured in India. The court examined the wording of Section 4, which pertains to the valuation of excisable goods for the purpose of duty. The judgment referenced the Supreme Court's decision in A.K. Roy and another v. Voltas Ltd., which clarified that the "wholesale cash price" should exclude post-manufacturing costs and profits, affirming that excise duty is levied only on the manufacturing cost plus the manufacturing profit.

4. Applicability of Billing Prices for Calculating Ad Valorem Excise Duty:

The Advocate-General argued that the billing prices should be used for calculating ad valorem excise duty, as per the latter part of Section 4(a) of the Act. However, the court found that the billing prices included additional costs such as freight, insurance, and sales promotion, which are not part of the manufacturing cost and profit. The judgment emphasized that the "wholesale cash price" should be determined at the time of removal of the article from the factory, excluding any post-manufacturing expenses. The court concluded that the billing prices did not represent the manufacturing cost and profit alone and directed the authorities to eliminate these additional costs from the billing price to ascertain the correct excise duty.

Conclusion:

The court upheld the learned Judge's decision, affirming that excise duty should be calculated based on manufacturing costs and profits, excluding post-manufacturing expenses. The appeals were dismissed, and the authorities were directed to reassess both the levy and the refund of excise duty in accordance with this interpretation. The judgment reinforced the principle that excise duty is a tax on the production and manufacture of goods, as clarified by the Supreme Court in related cases.