1979 (7) TMI 96 - HC - Central Excise

Valuation - Quantity Trade discount - Admissibility of - Assessable value - Scope of - Appeals - Assessment

Summary

Issues Involved:
1. Levy of excise duty under the Central Excise Act.
2. Inclusion of post-manufacturing expenses and profits in the excise duty assessment.
3. Validity of quantity discounts in determining the assessable price.
4. Bar of limitation in filing an appeal against the excise duty assessment.

Issue-wise Detailed Analysis:

1. Levy of Excise Duty under the Central Excise Act:
The petitioner, a Public Limited Company manufacturing electric lighting bulbs and fluorescent lighting tubes, challenged the levy of excise duty under the Central Excise Act. The company sells its products at the factory gate and at various sales depots across India, with the sale price including post-manufacturing expenses. The petitioner entered into an agreement with Cromptons for the sale of a significant portion of its products, allowing a trade discount of 35% to 40%. The petitioner also introduced a quantity discount scheme in 1970, which was accepted by Cromptons.

2. Inclusion of Post-Manufacturing Expenses and Profits:
The court referred to a previous judgment in Writ Appeal No. 302 of 1978, which examined the concept of "excise duty" and its relation to post-manufacturing expenses. The judgment stated: "The very nature of excise duty requires a proximate connection with production or manufacture. At any rate, what has passed beyond the region of manufacture and production and entered the domain of sale, cannot pass as excise duty." The court held that the inclusion of post-manufacturing expenses and profits in the excise duty assessment was incorrect, thus vitiating the assessment.

3. Validity of Quantity Discounts:
The petitioner claimed quantity discounts ranging from 25% to 40%, depending on the quantity purchased. The excise authorities disallowed these discounts, considering them as post-manufacturing expenses. The court, however, held that the list price less the discount constitutes the "wholesale cash price" which is subject to excise duty. The court rejected the contention that Cromptons were favoured buyers, stating: "There is no finding and no material to show that the agreement between the petitioner and Cromptons was not at arms length and in the usual course of business or that the trade discount was determined by any extra commercial consideration and not by business exigencies." The court concluded that the petitioner's case should be decided based on the principles laid down in previous decisions and W.A. No. 302 of 1978.

4. Bar of Limitation in Filing an Appeal:
In O.P. 5971, the petitioner faced the issue of the appeal being barred by limitation. The appellate authority dismissed the appeal on this ground, and the petitioner sought to challenge this dismissal. The court held that the Act does not confer the power to condone the delay in filing the appeal. The petitioner argued that the erroneous order lacked legal validity under Article 265 of the Constitution, which states that no tax shall be levied or collected without the authority of law. The court referred to the Supreme Court's decision in Deputy Commercial Tax Officer v. Rayalaseema Constructions, which held that an assessment based on an ultra vires provision is unlawful. However, the court distinguished this case from the present one, stating: "Ext. P1 is not nonest and having become final provides the necessary legal authority for the collection of the tax within the meaning of Article 265." Thus, the contention failed.

Conclusion:
The court allowed O.P. 3446 of 1976, quashing the orders Exts. P4, P6, and P9, and directed the respondents to levy excise duty in accordance with the law and the observations made. O.P. 5971 of 1975 was dismissed, and the parties were ordered to bear their own costs in both Original Petitions.