1982 (11) TMI 55 - HC - Central Excise

Issues Involved:
1. Constitutional validity of Section 4(1)(a) proviso (ii) of the Central Excises and Salt Act, 1944.
2. Inclusion of post-manufacturing expenses in the assessable value for excise duty.
3. Interpretation of "normal price" under Section 4(1) post-amendment.
4. Application of Drugs Price Control Order, 1979 in determining assessable value.

Issue-wise Detailed Analysis:

1. Constitutional Validity of Section 4(1)(a) Proviso (ii) of the Central Excises and Salt Act, 1944:
The petitioner challenged the constitutional validity of Section 4(1)(a) proviso (ii), arguing that it allows excise authorities to include post-manufacturing expenses in the assessable value, contrary to the charging Section 3, which should only include manufacturing costs and the manufacturer's profit. The respondents countered that the Act does not impose sales tax in the guise of excise duty and that Parliament has the authority to define assessable value. The court noted that the counter affidavit did not sufficiently address the petitioner's constitutional challenge.

2. Inclusion of Post-Manufacturing Expenses in the Assessable Value for Excise Duty:
The petitioner argued that excise duty should only be levied on the manufacturing cost plus manufacturer's profit, excluding post-manufacturing expenses such as distribution cost, onward freight, promotional expenses, and trade concessions. This position was supported by various Supreme Court and High Court decisions, which held that excise duty is a tax on production or manufacture and should not include post-manufacturing expenses. The court agreed with this interpretation, citing previous judgments, including the decision in Messrs. Dunlop India Ltd. v. Union of India, which confirmed that post-manufacturing expenses should be excluded from the assessable value.

3. Interpretation of "Normal Price" Under Section 4(1) Post-Amendment:
The petitioner contended that even after the amendment, Section 4(1) should be interpreted to mean that excise duty is chargeable on the wholesale price, not the retail price, which includes post-manufacturing expenses. The court agreed, stating that both before and after the amendment, Section 4 does not consider the retail price for excise duty purposes. The court emphasized that excise duty should be levied based on the price at the factory gate, excluding post-manufacturing expenses.

4. Application of Drugs Price Control Order, 1979 in Determining Assessable Value:
The petitioner argued that the prices fixed under the Drugs Price Control Order, 1979, are for retail and include post-manufacturing expenses and retailer's profit. Therefore, using these prices as the assessable value for excise duty would be unconstitutional. The court interpreted proviso (ii) to Section 4(1)(a) as referring only to the wholesale price or maximum wholesale price fixed under any statute, not the retail price. Consequently, the court held that the provision is consistent with Section 3 and the main part of Section 4(1)(a) and is valid. However, the court quashed the second respondent's order, which erroneously included post-manufacturing expenses in the assessable value, and directed a reassessment excluding these expenses.

Conclusion:
The court concluded that excise duty is a tax on manufacture and should be levied only on the manufacturing cost and manufacturer's profit, excluding post-manufacturing expenses. The court quashed the second respondent's order and directed a reassessment of the assessable value according to law, excluding post-manufacturing expenses. There was no order as to costs.

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