1980 (7) TMI 102 - HC - Central Excise

Valuation - Vegetable products (Pakav) with cotton seed oil - Determination of - Affidavit in Rejoinder - Scope

Issues Involved:
1. Quashing and setting aside of three orders (Exs. G, E, and C).
2. Method of calculating assessable value for excise duty.
3. Entitlement to rebate on cotton seed oil.
4. Interpretation of Section 4 of the Central Excises and Salt Act, 1944.
5. Validity of the method adopted by the Central Excise Department.
6. Whether the rebate is an incentive or a deduction.

Issue-wise Detailed Analysis:

1. Quashing and Setting Aside of Three Orders (Exs. G, E, and C):
The petitioners sought to quash and set aside three orders: the revisional order dated 20th December 1976 (Ex. G), the appellate order dated 14th December 1974 (Ex. E), and the order dated 7th September 1973 (Ex. C). These orders upheld the show cause notice dated 18th March 1970 (Ex. B), which claimed a short levy of Rs. 1145.10. The petitioners also sought a writ of mandamus for the withdrawal and cancellation of these orders and the refund of the said amount.

2. Method of Calculating Assessable Value for Excise Duty:
The petitioners argued that they were declaring the assessable value of the vegetable product by deducting the element of duty (5%) from the price fixed by the Vegetable Oil Products Controller. The Department, however, contended that the correct method was to deduct the duty actually payable after adjusting for the rebate on cotton seed oil content.

3. Entitlement to Rebate on Cotton Seed Oil:
The petitioners claimed they were entitled to a rebate on the use of cotton seed oil in manufacturing vegetable products, as per Notification No. 6/62-Central Excises dated 10th February 1962. They argued that the rebate should be deducted from the duty payable, not from the assessable value.

4. Interpretation of Section 4 of the Central Excises and Salt Act, 1944:
The old Section 4 applicable in this case stated that the value for duty purposes should be the "wholesale cash price" minus trade discount and the amount of duty payable at the time of removal. The Department argued that the duty payable should be the effective duty after rebate, not the gross duty before rebate.

5. Validity of the Method Adopted by the Central Excise Department:
The Department's method was to deduct the actual duty payable (after rebate) from the wholesale price to arrive at the assessable value. The petitioners contended that this method loaded the rebate amount into the manufacturing cost and profit, which they argued was not permissible.

6. Whether the Rebate is an Incentive or a Deduction:
The petitioners argued that the rebate was an incentive to encourage the use of cotton seed oil and should not be deducted from the duty payable. The Department, however, maintained that the rebate reduced the effective rate of duty and should be deducted from the duty payable to arrive at the assessable value.

Judgment Summary:

Quashing and Setting Aside Orders:
The court upheld the validity of the orders passed by the Assistant Collector, Appellate Collector, and the Government of India, rejecting the petitioners' plea to quash and set aside these orders.

Method of Calculating Assessable Value:
The court found that the Department's method of calculating the assessable value by deducting the actual duty payable (after rebate) was correct. The petitioners' method of deducting the gross duty before rebate was deemed incorrect.

Entitlement to Rebate:
The court agreed with the Department's interpretation that the rebate should be deducted from the duty payable, not from the assessable value. The rebate was not considered an incentive but a reduction in the effective duty rate.

Interpretation of Section 4:
The court interpreted Section 4 to mean that only the actual duty payable (after rebate) should be deducted from the wholesale price to determine the assessable value. The petitioners' interpretation was rejected.

Validity of Department's Method:
The court upheld the Department's method, stating that it did not load the rebate amount into the manufacturing cost and profit. The method was consistent with the provisions of the Central Excises and Salt Act, 1944.

Rebate as Incentive or Deduction:
The court rejected the petitioners' argument that the rebate was an incentive. It held that the rebate reduced the effective duty rate and should be deducted from the duty payable to determine the assessable value.

Conclusion:
The petition was dismissed, and the rule was discharged with costs. The court found that the Department's method of calculating the assessable value and the interpretation of the rebate were correct and in accordance with the law.

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