1979 (11) TMI 99 - HC - Central Excise

Valuation - Exclusion of post-manufacturing expenses and profits - Voltas and Atic cases - Effect of objects and reasons

Summary

Issues Involved:
1. Interpretation of the new Section 4 of the Central Excise and Salt Act, 1944.
2. Legislative competence of Parliament under Entry 54 of List II in the VII Schedule of the Constitution.

Detailed Analysis:

Interpretation of the New Section 4 of the Central Excise and Salt Act, 1944:
The petitioner-Company, which manufactures tyres and other rubber products, contested the Assistant Collector of Central Excise's decision to disallow deductions for post-manufacturing expenses and profits attributable to post-manufacturing operations from the value determined under the new Section 4 of the Central Excise and Salt Act, 1944. The petitioner argued that these deductions should be allowed, as they were under the old Section 4.

The court examined the old Section 4, which provided for the determination of value for duty purposes based on the "wholesale cash price" at the factory gate, excluding post-manufacturing costs and profits. The new Section 4, effective from 1st October 1975, defines "value" as the "normal price" at which goods are sold in the course of wholesale trade at the time and place of removal, where the buyer is not a related person, and the price is the sole consideration for the sale.

The court referred to several precedents, including the Supreme Court's decisions in A.K. Roy v. Voltas Ltd. and Atic Industries v. Assistant Collector, which held that excise duty should be based on manufacturing cost and profit, excluding post-manufacturing costs and profits. The court also considered decisions from various High Courts, including the Andhra Pradesh High Court in Indo-National Ltd. v. Union of India, the Madras High Court in Nagpal Petro-Chem. Ltd. v. Assistant Collector of Central Excise, and the Gujarat High Court in Cibatul Ltd. v. Union of India, which supported the exclusion of post-manufacturing costs and profits in determining the assessable value under the new Section 4.

The court concluded that the rationale of these decisions under the old Section 4 continues to apply to the new Section 4. Therefore, the "normal price" for the purpose of excise duty should not include post-manufacturing costs and profits. The impugned order dated 27th September 1975, which disallowed such deductions, was set aside.

Legislative Competence of Parliament under Entry 54 of List II in the VII Schedule of the Constitution:
The petitioner alternatively argued that Section 4 of the Act partakes the character of a sales tax, falling under Entry 54 of List II in the VII Schedule of the Constitution, and is thus ultra vires the legislative competence of Parliament.

However, the court found it unnecessary to address this alternative ground, as the primary ground of challenge regarding the interpretation of the new Section 4 was accepted.

Conclusion:
The court set aside the impugned order dated 27th September 1975 and directed the respondents to consider the petitioner's revised price lists in light of the judgment within six months and refund the amount paid under protest within three months thereafter. No order as to costs was made, and the rule was made absolute accordingly.