1977 (9) TMI 37 - HC - Central Excise

Taxing Statute - Interpretation - Fertilizer - Valuation - Equalised freight and associate charges - Selling agent s commission

Issues Involved:
1. Exemption of Gromor NPK 14:35:14 under Notification No. 25/70.
2. Inclusion of freight charges in the assessable value for excise duty.
3. Deduction of commission paid to selling agents from the assessable value.

Detailed Analysis:

1. Exemption of Gromor NPK 14:35:14 under Notification No. 25/70:

The primary issue was whether Gromor NPK 14:35:14 qualified for exemption under Notification No. 25/70. The court emphasized the importance of interpreting taxing statutes, rules, and notifications strictly based on the language used therein. The notification in question exempted "mixed fertilisers" manufactured with the aid of power from two or more fertilisers on which excise duty had already been paid. The term "mixed fertilisers" was defined as mixtures containing more than one nutrient (nitrogen, phosphate, or potash) and explicitly excluded single nutrient fertilisers like super phosphate.

The court held that the exemption was intended to avoid double taxation on mixed fertilisers manufactured from two or more fertilisers on which duty had already been paid. The court further clarified that the exemption applied strictly to mixtures of fertilisers and not to mixtures involving other substances like sulphuric acid and ammonia, which were used in the manufacturing process of Gromor NPK 14:35:14. Thus, Gromor NPK 14:35:14 did not qualify for the exemption under Notification No. 25/70.

2. Inclusion of Freight Charges in the Assessable Value for Excise Duty:

The second issue was whether the freight charges collected by the petitioner company could be included in the assessable value of the fertiliser for the purpose of imposing duty. The court referred to Section 4 of the Central Excises and Salt Act, 1944, which determines the value for the purpose of duty as the wholesale cash price for which an article is sold at the factory gate.

The court cited the Supreme Court's ruling in A.K. Roy v. Voltas Ltd., which clarified that excise duty is levied only on the manufacturing cost and manufacturing profit, excluding post-manufacturing costs like freight charges. The court concluded that freight charges are post-manufacturing expenses and cannot be included in the assessable value of the fertilisers. Therefore, the freight and associated charges collected by the petitioner company could not be included in the assessable value for excise duty purposes.

3. Deduction of Commission Paid to Selling Agents from the Assessable Value:

The final issue was whether the commission paid to the selling agents could be deducted from the assessable value. The petitioner company argued that the commission paid to its selling agents should be deducted from the assessable value as it was remuneration for services rendered.

The court, however, held that the commission paid to selling agents was not a trade discount or an amount of duty payable at the time of removal of the article from the factory. It was a part of the wholesale cash price paid as remuneration to the selling agents and could not be abated or deducted from the assessable value. Consequently, the claim for deduction of the commission from the assessable value was rejected.

Conclusion:

The court concluded that Gromor NPK 14:35:14 was not exempt from excise duty under Notification No. 25/70. However, the freight and associated charges collected by the petitioner company could not be included in the assessable value for excise duty purposes. The commission paid to the selling agents could not be deducted from the assessable value. The writ petitions were allowed only to the extent of excluding freight and associated charges from the assessable value and dismissed in other respects. The court also refused to grant a certificate for leave to appeal to the Supreme Court and granted a stay of the judgment for two months, conditional upon the petitioner company furnishing a bank guarantee.

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