1981 (5) TMI 32 - HC - Central Excise

Summary

Issues Involved:
1. Validity and levy of excise duty on metal containers used in manufacturing prepared or preserved foods.
2. Determination of assessable value for excise duty purposes.
3. Applicability of Rule 10 and Rule 10A for recovery of duties.
4. Vires of Rule 10A.

Issue-wise Detailed Analysis:

1. Validity and Levy of Excise Duty on Metal Containers:

The petitioner-Company manufactures condensed milk, which is packed in tin containers for sale, falling under Tariff Item No. 1B ("Prepared or preserved foods put up in unit containers and ordinarily intended for sale") and Tariff Item No. 46 ("Metal containers not elsewhere specified") of the Central Excises and Salt Act, 1944. Both items attract ad valorem excise duty. The petitioner argued that the tin containers, being part of the continuous manufacturing process of P.P. Foods, should not be separately subjected to excise duty. The court, however, found that the tin containers are produced in a distinct section of the factory and are subsequently used in the manufacture of P.P. Foods, thus constituting a removal for purposes of Rules 9 and 49 of the Central Excise Rules. Consequently, the levy of excise duty on the metal containers was upheld.

2. Determination of Assessable Value for Excise Duty Purposes:

The petitioner-Company submitted price lists for metal containers without including any profit margin, claiming these containers were not sold in the market. The Assistant Collector added a notional profit margin of 10% to the cost of the containers for the years in question, as the petitioner did not provide exact profit margins. The court upheld this method, noting that the value of goods for excise purposes should include both the cost of manufacture and a profit margin, as per Section 4 of the Act. The court also noted that the petitioner had not submitted price lists after 1970, leading to the discretionary addition of profit margins by the authorities, which was found to be justified.

3. Applicability of Rule 10 and Rule 10A for Recovery of Duties:

The petitioner challenged the show cause notice issued under Rules 10 and 10A for short levy of excise duty on metal containers for the period from 1-3-1970 to 31-5-1972, claiming it was void ab initio as it was issued beyond the one-year limitation period prescribed in Rule 173J. The Assistant Collector and subsequent appellate authorities held that the assessment was provisional, invoking Rule 10A, which has no limitation period. The court agreed, noting that the final determination of value was not made, thus justifying the application of Rule 10A for recovery of duty.

4. Vires of Rule 10A:

The petitioner questioned the constitutionality of Rule 10A, arguing it provided arbitrary and unbridled powers to the authorities. The court did not find merit in this argument, as it was not elaborated upon by the petitioner. Consequently, the challenge to the vires of Rule 10A was dismissed.

Conclusion:

The court dismissed both writ petitions, upholding the levy of excise duty on metal containers used in the manufacture of P.P. Foods, the method of determining assessable value including the addition of notional profit margins, and the application of Rule 10A for recovery of duties. The challenge to the constitutionality of Rule 10A was also dismissed.