1979 (6) TMI 32 - HC - Central Excise

Summary

Issues Involved:
1. Levy of excise duty on post-manufacturing costs and profits.
2. Interpretation of Sections 3 and 4 of the Central Excises and Salt Act, 1944.
3. Validity of the amended Section 4 of the Central Excises and Salt Act, 1944.
4. Distinction between excise duty and sales tax.

Summary:

1. Levy of excise duty on post-manufacturing costs and profits:
The appellant, engaged in the manufacture of rubber products, contested the inclusion of post-manufacturing costs and profits in the assessable value for excise duty. The court held that excise duty, as a tax on the production or manufacture of goods, should not include post-manufacturing expenses such as freight, transportation charges, interest charges, travelling expenses of agents, and insurance. The court stated, "post-manufacturing expenses and post-manufacturing cost cannot be taken into account for purposes of excise duty."

2. Interpretation of Sections 3 and 4 of the Central Excises and Salt Act, 1944:
The court examined the provisions of Sections 3 and 4 of the Act, both before and after the amendment by Act 22 of 1973. It emphasized that Section 3 provides for the levy of excise duty on goods produced or manufactured in India, while Section 4, as amended, should be interpreted in a manner consistent with this principle. The court noted, "the very nature of excise duty requires a proximate connection with production or manufacture."

3. Validity of the amended Section 4 of the Central Excises and Salt Act, 1944:
The court addressed the argument that the amended Section 4, which allows for the inclusion of post-manufacturing expenses in the value of goods, is ultra vires. It concluded that the inclusion of such expenses would transform the levy into something other than an excise duty, thus falling outside the legislative scope of Entry 84 of List I of the Constitution. The court stated, "the inclusion of post-manufacturing expenses would indicate that the levy is something other than a duty of excise."

4. Distinction between excise duty and sales tax:
The court reiterated the established legal principle that excise duty is a tax on the manufacture or production of goods, while sales tax pertains to the sale of goods. It referenced several judicial decisions, including the Supreme Court's pronouncements in Voltas Ltd.'s case, Atic Industries's case, and Shinde Brothers's case, to support this distinction. The court observed, "selling expense or post-manufacturing expense has no connection with production or manufacture of goods but pertains to the region sale."

Conclusion:
The court allowed the appeal, quashed the impugned orders (Exts. P2, P2(a), P2(b), and P2(c)), and directed the respondents to act in accordance with the law and the observations contained in the judgment. The court concluded, "the respondents were wrong in insisting on the post-manufacturing expenses and the post-manufacturing profits to be included in the reckoning for determining excise duty."