1984 (4) TMI 62 - HC - Central Excise

Summary

Issues Involved:

1. Maintainability of writ petitions without exhausting statutory remedies.
2. Inclusion of delivery charges in the assessable value.
3. Inclusion of transit insurance charges in the assessable value.
4. Inclusion of commission (margin) in the assessable value.
5. Applicability of the Madras High Court judgment to the present case.

Issue-wise Detailed Analysis:

1. Maintainability of writ petitions without exhausting statutory remedies:

The respondent raised a preliminary objection to the maintainability of the writ petitions on the ground that the petitioners had not exhausted the remedies available under the Act before approaching the High Court. The court noted that Chapter VI-A of the Act provides a complete machinery by way of appeals, review, and reference against impugned orders. However, the court observed that since the petitions were admitted and arguments on merits were heard extensively, it would be inappropriate to dismiss the petitions at this stage on a technical ground. The court relied on the Supreme Court's ruling in Hirdaya Narayan v. Income Tax Officer, Bareli, which stated that once a High Court entertains a petition and hears it on merits, it cannot reject it on the ground that statutory remedies were not availed. Consequently, the court overruled the respondent's objection and proceeded to decide the case on merits.

2. Inclusion of delivery charges in the assessable value:

The respondent argued that delivery charges should be included in the assessable value of the goods. The court referred to the Supreme Court decision in Bombay Tyres International, which clarified that the price at which excisable goods are ordinarily sold at the factory gate is the basis for determining the assessable value. The court noted that the wholesale price at the factory gate, as shown by the petitioners in their price lists, did not include delivery charges. The petitioners contended that delivery charges were incurred after the goods were sold at the factory gate and were recovered separately from the dealers. The court held that delivery charges do not form part of the assessable value as they are distinct from transport charges and are incurred after the sale at the factory gate. Therefore, the respondent's inclusion of delivery charges in the assessable value was unsustainable.

3. Inclusion of transit insurance charges in the assessable value:

Similar to delivery charges, the respondent argued that transit insurance charges should be included in the assessable value. The court again referred to the Supreme Court decision in Bombay Tyres International, which stated that the cost of transportation, including transit insurance, from the factory gate to the place of delivery should be excluded from the assessable value. The court noted that the petitioners initially paid for transit insurance and later recovered it from the dealers. Since the wholesale price at the factory gate was known, the court held that transit insurance charges could not be included in the assessable value. The respondent's inclusion of transit insurance charges was, therefore, incorrect.

4. Inclusion of commission (margin) in the assessable value:

The petitioners argued that the commission (margin) allowed to their main dealers did not form part of the wholesale price and was retained by the dealers as their selling profit. The court referred to the Madras High Court judgment, which held that the relationship between the petitioners and their main dealers was that of seller and buyer, not principal and agent. The court noted that the agreements between the petitioners and their main dealers were the same for all factories, including Bhandara. The court held that the commission retained by the dealers could not be included in the assessable value as it was not part of the price declared by the petitioners at the factory gate. The respondent's inclusion of commission in the assessable value was unjustified.

5. Applicability of the Madras High Court judgment to the present case:

The petitioners contended that the Madras High Court judgment, which was confirmed by the Supreme Court, was binding on the respondent. The respondent argued that the judgment did not consider whether the main dealers were related persons under the Act. The court examined the Madras High Court judgment and found that it had dealt with the relationship between the petitioners and their main dealers and concluded that they were not related persons. The court held that the respondent was bound to follow the Madras High Court judgment, which was confirmed by the Supreme Court. The respondent's failure to do so was incorrect.

Conclusion:

The court allowed all four petitions and quashed the impugned orders. It held that delivery charges, transit insurance charges, and commission (margin) could not be included in the assessable value. The court emphasized that the wholesale price at the factory gate was the basis for determining the assessable value and that the respondent's inclusion of these items was unsustainable. The court also held that the Madras High Court judgment was binding on the respondent. Rule made absolute in all four cases with no order as to costs.