1980 (6) TMI 30 - HC - Central Excise

Summary

Issues Involved:
1. Deduction of post-manufacturing costs and profits for excise duty valuation.
2. Interpretation of amended Section 4 of the Central Excises and Salt Act, 1944.
3. Consistency with the charging provision in Section 3 of the Act.
4. Judicial precedents on the inclusion of post-manufacturing costs in excise duty valuation.

Issue-wise Detailed Analysis:

1. Deduction of Post-Manufacturing Costs and Profits for Excise Duty Valuation:
The petitioners, manufacturers of coated abrasives, challenged the rejection of their claim for deduction of post-manufacturing costs and profits from the sale price of their products for excise duty purposes. The key contention was whether such deductions are permissible under the amended Section 4 of the Central Excises and Salt Act, 1944. The petitioners argued that excise duty should be levied only on manufacturing costs and profits, excluding post-manufacturing expenses like sales office expenses, claims, discounts, commission, freight, transport, insurance charges, interest on borrowings, sales-tax, advertisement, publicity expenses, and administrative expenses.

2. Interpretation of Amended Section 4 of the Central Excises and Salt Act, 1944:
The core issue was the interpretation of the amended Section 4, which introduced the concept of "normal price" for excise duty valuation. The relevant part of Section 4(1)(a) defines "normal price" as the price at which goods are ordinarily sold by the assessee in the wholesale trade. The petitioners argued that this should not include post-manufacturing costs. The respondents contended that all expenses incurred to make the goods marketable, including post-manufacturing costs, should be included in the excise duty valuation.

3. Consistency with the Charging Provision in Section 3 of the Act:
The court emphasized that Section 3, the charging provision, remained unchanged and continued to define excise duty as a tax on the production and manufacture of goods. The court referred to the Supreme Court's decision in A.K. Roy v. Voltas Ltd., which established that excise duty should be levied only on manufacturing costs and profits, excluding post-manufacturing expenses. The court held that the amended Section 4, being a machinery provision, should be interpreted to align with the basic concept of excise duty as defined in Section 3.

4. Judicial Precedents on the Inclusion of Post-Manufacturing Costs in Excise Duty Valuation:
The court reviewed several judicial precedents, including decisions from the Andhra Pradesh, Kerala, Delhi, and Madras High Courts, which consistently held that post-manufacturing expenses should not be included in the assessable value for excise duty. The court concurred with these decisions, emphasizing the need for uniformity in the interpretation of an All India statute. The court concluded that the respondents were required to assess which costs claimed by the petitioners were genuinely post-manufacturing costs and exclude them from the excise duty valuation.

Conclusion:
The court quashed the orders rejecting the petitioners' claims for deduction of post-manufacturing costs and profits from the excise duty valuation. The petitioners were granted the liberty to approach the appropriate authorities to reassess their claims in light of the court's observations. The petitioners were also entitled to a refund of any excess excise duty paid, with the bank guarantee discharged.