1982 (10) TMI 37 - HC - Central Excise

Issues Involved:
1. Deductibility of certain expenses in the computation of the value of goods for excise duty purposes under Section 4 of the Excise Act before its amendment.
2. Deductibility of the same expenses after the amendment of Section 4.
3. Includibility of charges related to primary and secondary packing under the amended Section 4.
4. The constitutionality and interpretation of Section 4(4)(d)(1) regarding the inclusion of packing costs.

Detailed Analysis:

I. Deductibility of Expenses Before Amendment:
The court examined whether expenses such as publicity, storage, and promotion of sales are deductible in computing the value of goods for excise duty under Section 4 of the Excise Act before its amendment by Act 22 of 1979. The court concluded that the scheme of Section 4 clearly indicates that the value should be the "wholesale price at the factory gate." This value is deemed to be the price at which goods are ordinarily sold by the assessee to a buyer in wholesale trade at the time and place of removal. The court emphasized that there is no warrant for making any deduction from this deemed value for expenses like advertisement, publicity, or storage. The court further clarified that the Supreme Court's decision in Voltas' Case does not support the petitioners' claim for such deductions. The phrase "manufacturing cost plus manufacturing profit" used in Voltas' Case was intended to emphasize that the price charged by the wholesaler to the retailer cannot be the basis for computation, as it would include the wholesaler's profit, which is not relevant for excise duty purposes.

II. Deductibility of Expenses After Amendment:
The court addressed whether the amendment of Section 4 by Act 22 of 1979 altered the position regarding the deductibility of expenses such as publicity, storage, etc. The court held that the amendment did not change the basic principle that the value for excise duty purposes is the "wholesale price at the factory gate." The amended Section 4 specifies that the value should be the "normal price" at which goods are ordinarily sold in the course of wholesale trade for delivery at the time and place of removal. The court concluded that there is no scope for deducting expenses like storage or publicity from this wholesale price, even after the amendment.

III. Includibility of Packing Charges:
The court examined whether charges related to primary and secondary packing are includible in the computation of the value of goods for excise duty under the amended Section 4. The court noted that the amended Section 4 explicitly includes the cost of packing in the value of excisable goods when delivered in a packed condition. The court rejected the petitioners' argument that packing costs should be excluded, emphasizing that the provision clearly states that the cost of packing is includible unless the packing is of a durable nature and returnable by the buyer to the assessee. The court also dismissed the argument that including packing costs would convert the excise duty into a sales tax, explaining that the levy remains on the manufacture of the excisable article, not on the sale of the packing material.

IV. Constitutionality and Interpretation of Section 4(4)(d)(1):
The court addressed the petitioners' challenge to the constitutionality of Section 4(4)(d)(1), which includes the cost of packing in the value of excisable goods. The court held that the provision is not ultra vires, as the inclusion of packing costs does not transform the excise duty into a sales tax. The court explained that the taxing event is the manufacture of the excisable article, and the inclusion of packing costs in the value is merely a method of enhancing the burden of the levy. The court also rejected the argument that Section 4(4)(d)(1) should be read down to exclude packing costs, stating that the provision clearly includes these costs, and the court cannot rewrite the legislation.

Conclusion:
The court rejected all the contentions raised by the petitioners, holding that expenses such as publicity, storage, and promotion of sales are not deductible in computing the value of goods for excise duty, both before and after the amendment of Section 4. Charges related to primary and secondary packing are includible in the value of excisable goods under the amended Section 4. The court also upheld the constitutionality of Section 4(4)(d)(1), which includes the cost of packing in the value of excisable goods. The petitions were dismissed, and the rules were discharged with no order regarding costs.

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