1987 (8) TMI 102 - HC - Central Excise

Issues Involved:
1. Inclusion of the value of wrapper paper in the value of core paper for excise duty.
2. Allegation of double taxation.
3. Interpretation of Section 4(4)(d)(i) of the Central Excises and Salt Act, 1944.
4. Applicability of Supreme Court precedents.
5. Administrative convenience in excise duty collection.
6. Bar of limitation under Section 11A of the Act.

Issue-Wise Analysis:

1. Inclusion of the Value of Wrapper Paper in the Value of Core Paper for Excise Duty:
The petitioner manufactures both core paper and wrapper paper, both of which are excisable commodities under Item 17 of the Central Excise Tariff. The core paper is packed in the wrapper paper before clearance. The petitioner paid duty on both papers separately. The respondents issued a show cause notice demanding additional duty, arguing that the value of the wrapper paper should be included in the value of the core paper for excise purposes as per Section 4(4)(d)(i) of the Central Excises and Salt Act, 1944.

2. Allegation of Double Taxation:
The petitioner argued that including the value of the wrapper paper in the value of the core paper for excise purposes would amount to double taxation, as the wrapper paper had already suffered duty. The court noted that the duty of excise is imposed on the manufacture or production of an article, and the point of collection can vary based on administrative convenience. The court agreed that double taxation would occur if the value of the wrapper paper, which had already suffered duty, was added to the value of the core paper.

3. Interpretation of Section 4(4)(d)(i) of the Central Excises and Salt Act, 1944:
Section 4(4)(d)(i) states that the value of excisable goods includes the cost of packing, except for durable and returnable packing. The Supreme Court in Union of India v. Bombay Tyre International Ltd. clarified that the cost of primary packing, necessary for making the article marketable, should be included in the value of the excisable article. However, the cost of secondary packing, unless necessary for marketability, should not be included. The court applied this interpretation to the present case, concluding that the wrapper paper used for primary packing should be included in the value of the core paper unless it had already suffered duty.

4. Applicability of Supreme Court Precedents:
The court referred to the Supreme Court's decision in Union of India v. Bombay Tyre International Ltd., which provided a detailed interpretation of Section 4(4)(d)(i). The principles established by the Supreme Court were applied to determine that the inclusion of the cost of primary packing in the value of the excisable article is justified, but not if it results in double taxation.

5. Administrative Convenience in Excise Duty Collection:
The court recognized that the point at which excise duty is collected can depend on administrative convenience. However, it emphasized that the wrapper paper manufactured by the same entity that manufactures the core paper should not suffer duty twice. The court suggested that the revenue authorities should notify and declare the point at which the wrapper paper should suffer excise duty to avoid double taxation.

6. Bar of Limitation under Section 11A of the Act:
The petitioner contended that the demand was barred by limitation for the period before 18-4-1977, as the show cause notice was issued on 10-10-1977. The respondents argued that the case involved suppression of facts, allowing a five-year limitation period. The court did not address this issue in detail, as it had already upheld the primary contention regarding the untenability of the demand.

Conclusion:
The court allowed the writ petition, concluding that the inclusion of the value of wrapper paper in the value of core paper, when the wrapper paper had already suffered duty, would amount to double taxation not authorized by law. The court emphasized the need for clear administrative guidelines to avoid such issues and ruled in favor of the petitioner, stating that the demand for additional duty was untenable.

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