1992 (5) TMI 19 - SC - Central Excise

Whether it be the manufacturing cost plus profit basis or the price basis the officer determines the value on the facts of the individual case without taking into account similar considerations in the case of other manufacturers? Held that - The tariff value has been notified under Section 3(2) for valid reasons and on germane grounds having a nexus to the value of the goods and the High Court erred in accepting the assessee s plea that the notifications are arbitrary, perverse and display a non-application of mind on the part of the authorities as the tariff values fixed are unrelated to the value or price or the manufacturing cost and manufacturing profit of the products . That the weighted average so fixed exceeds the manufacturing cost and profit of a particular manufacturer, can be no reason for doubting its validity. Equally, there is no acceptable logic in the High Court s suggestion that it should be fixed at the lowest of the prices at which the manufacturer is able to sell his goods in the wholesale market. To apply such a measure will restrict the fixation of the value at figures even less than those that can be arrived at under Section 4. The tariff values of sulphuric acid and chlorine were validly fixed under the impugned notifications dated 28-11-1970 and 26-7-1971. Section 3(2) of the Act as well as the notifications are declared valid and constitutional. The judgment of the High Court under appeal is set aside.

Issues Involved:
1. Vires and interpretation of Section 3(2) of the Central Excises & Salt Act, 1944.
2. Validity of the tariff values fixed for sulphuric acid and liquid chlorine.
3. Relationship between Sections 3(1), 3(2), and 4 of the Act.
4. Constitutional validity of Section 3(2) under Article 14.

Detailed Analysis:

1. Vires and Interpretation of Section 3(2) of the Central Excises & Salt Act, 1944:
The core issue in these appeals was the vires and interpretation of Section 3(2) of the Act, which allows the Central Government to fix tariff values for excisable goods. The Supreme Court clarified that Section 3(2) provides the Central Government with the authority to fix tariff values for goods, which is not restricted by the parameters of Section 4. The Court emphasized that Section 3(2) is a general provision that gives full liberty to the Central Government to determine the value in cases where the First Schedule prescribes an ad valorem levy. The Court rejected the High Court's interpretation that Section 3(2) should be read subject to Section 4.

2. Validity of the Tariff Values Fixed for Sulphuric Acid and Liquid Chlorine:
The tariff values for sulphuric acid and liquid chlorine were challenged by the assessee on the grounds that they were arbitrary and not based on the manufacturing cost and profit. The Supreme Court held that the tariff values were validly fixed under Section 3(2) for valid reasons and on germane grounds having a nexus to the 'value' of the goods. The Court noted that the tariff values were fixed on the basis of weighted average values derived from data collected on an all-India basis. The Court found no fault with the Central Government's method of fixing these values and held that the notifications were neither arbitrary nor unreasonable.

3. Relationship Between Sections 3(1), 3(2), and 4 of the Act:
The Supreme Court clarified the relationship between Sections 3(1), 3(2), and 4 of the Act. Section 3(1) is the charging section that enables the levy of excise duty on the production and manufacture of goods. Section 3(2) allows the Central Government to fix tariff values for goods where the duty is ad valorem. Section 4 outlines the procedure for determining the value of goods for the purpose of duty, but it does not control or limit the power of the Central Government under Section 3(2). The Court emphasized that Section 4 is subject to Section 3(2) and not vice versa.

4. Constitutional Validity of Section 3(2) Under Article 14:
The assessee contended that if Section 3(2) were interpreted to allow the Central Government to fix tariff values at its discretion, it would be violative of Article 14 of the Constitution. The Supreme Court rejected this contention, stating that while Section 3(2) confers broad discretion on the Central Government, this discretion must be exercised in accordance with the crucial guideline inbuilt into the statute, which is the value of the goods. The Court held that the statute intends the price to be the relevant factor for determining the value and that the value can be derived from various price points, including wholesale, retail, or average prices.

Conclusion:
The Supreme Court concluded that the tariff values of sulphuric acid and chlorine were validly fixed under the impugned notifications. Section 3(2) of the Act, as well as the notifications, were declared valid and constitutional. The judgment of the High Court was set aside, and the appeals were allowed with the parties bearing their own costs.

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