9911796707
TMI Blog1980 (3) TMI 253X X X X Extracts X X X X X X X X Extracts X X X X ..... ;The assessee is engaged in the manufacture and sale of milk food and dairy products and sells, inter alia, the goods popularly known as Horlicks, Elaichi Horlicks and Boost. These products fall under Tariff Item No. I-B of the list set out in the First Schedule to the Central Excises and Salt Act, 1944 (`the Act') viz. "Prepared or preserved foods put up in unit containers and ordinarily intended for sale...." Excise duty is leviable on them ad valorem on the assessable value determined under Section 4 of the Act. The duty, leviable was 10% on the said value from 1-3-1969 to 28-3-1978. From 1-3-1978, a special duty of 5% was added thereto. However, with effect from 1-3-1979 the special duty was abolished but the rate of duty was raised to 15%. We are, however, concerned in these writ petitions with goods manufactured and sought to be cleared between 15th May, 1971 and December, 1976. One material fact that is of great importance in deciding the writ petitions is that Section 4 of the Act which provides for the determination of the Assessable Value was substantially and materially amended by Act 22 of 1973 (with effect from 1-10-1975). The questions at issue in these writ petitions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the three agents distributed the goods to various wholesalers, sub-distributors and stockists, collected the sale proceeds and forwarded the same to the assessee deducting their commission. After 1-11-1975, it is claimed that they had no sub-distributors and directly sold the products to the wholesalers but otherwise the procedure was the same. The sales to the three agents were consignment sales and it is common ground that the title to the goods remained in the manufacturers (assessees) till the goods were passed on to the wholesale purchasers. This being so, the assessee had to Bear the costs of transport and insurance for conveying the packed goods to the various stations where sales were effected. It is also claimed that the assessee maintained a marketing division which looked after all aspects of sale, advertisement and incidental activities. Since the assessee remained the owner of the goods until the stockists purchased them, it is claimed that the prices at which they were sold to them had to include all the above types of expenditure incurred by the assessee. It is claimed that the assessee's endeavour was to sell its products at uniform rates throughout India to the u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ners :- Delhi Bombay Bangalore Rs. Rs. Rs. Price at which goods are ordinarily sold in the course of wholesale trade by the related persons to dealers other than retail traders. 115.64 110.58 111.16 Deductions claimed from above price under Section 4(2), 4(4)(d) Freight 0.25 2.30 4.00 Octroi 0.43 6.66 2.22 Insurance 0.26 0.26 0.26 Service charges to distributor 4.56 4.56 4.56 Selling expenses 5.77 5.77 5.77 Excise duty 9.44 8.30 8.58 21.21 27.85 25.39 Assessable value 94.43 83.03 85.77 The highest of the sale prices was ₹ 116.56 at Cuttack and the lowest was ₹ 110.84 in U.P. for which the assessable values were claimed to be ₹ 93.65 and ₹ 90.86 respectively on a similar basis as above. 6. One head of the assessee's grievance was that the respondents would not approve of the price lists with such modifications as they considered necessary but kept them in abeyance permitting the petitioner to clear the goods on the basis of provisional assessments under Rule 9B and that when this was eventually done and partly confirmed on appeal and the petitioner preferred revision petitions to the Government they were again ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h were disposed of by a common order dated 15-6-1977. The appellate Controller held that as the appellants had "one uniform price for all destinations including the price at which they sell the goods to M/s G. Atherton & Co.", and as the actuals of the expenses are not known,"expenses, the deduction of which has been claimed are part and parcel of the wholesale cash price under old Section 4......" and/or the normal price under the new section......" He also rejected the sales to G. Atherton & Co. as manipulated ones, and observed that the wholesale list price cannot be said to include any post-manufacturing expenses as the goods sold by the petitioner entered the wholesale market only when they are sold by their distributor stockists to wholesale dealers and till that stage is reached, they remain the property of the petitioners. So far as the post amendment period is concerned he pointed out that the sales through the agents had to be ignored as sales through `related persons'. He confirmed the orders of the Deputy Controller. 9. Against the above consolidated order of the Appellate Controller and against four more like orders passed by him, the petitioner pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 84 in the Union Legislative list appended to the Constitution of India reads : "Duties of excise on tobacco and other goods manufactured or produced in India except..." Section 3 of the Act, which has been held to be the charging section, directs by sub-section (1) that "there shall be levied and collected in such manner as may be prescribed duties of excise on all excisable goods other than salt which are produced or manufactured in India ...at the rates, set forth in the First Schedule". Under sub-section (2) of this Section the "Central Government may, by notification in the official gazette, fix, for the purpose of levying the said duties, tariff values of any articles enumerated, either specifically or under general headings in the First Schedule as chargeable with duty ad valorem and may alter any tariff values for the time being in force" Section 4, prior to its amendment, ran thus: "Where, under this Act, any article is chargeable with duty at a rate dependent on the value of the article, such value shall be deemed to be - (a) the wholesale cash price, for which an article of the like kind and quality is sold or is capable of being sold at the time of the removal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n in the ground plan of the factory submitted under the rules. Shri Gulati points out that oral evidence and correspondence had been placed before the officer which showed that the packing station building at Faridabad belonged to the partners of the packing firm and that the petitioners as well as the selling agents had been allowed to use separate portions thereof free of any rent or licence fee. It was also deposed that the name plates of the petitioner as well as the selling agents were on the premises. The mere fact that, when the licence for the factory was applied for the portion of the selling agents was not earmarked would not be a ground to reject the above evidence on which there was no cross-examination by the Department. In fact while the Assistant and Appellate Controllers raise this objection, the order in revision, rightly, ignores it. Moreover, the oral evidence was also categorical that, apart from the consignment sales for which the agents only acted as intermediaries, there were outright sales of goods to the selling agents which, after adding their profit, they sold themselves-though such sales were only to the extent of about 4% of the total sales. It does app ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1938 PC 15 and overruling several High Court decisions held that the price at which the goods are sold on wholesale basis cannot be ignored merely because the percentage of such sales to the total turnover is small or because agreements with the purchasers in question stipulate for certain commercial advantages. So the fact that the selling agents also act as agents for the sale of 96% of the petitioner's goods does not detract from the weight to be attached to them as wholesale sales. The wholesale cash price obtained by an assessee can be disregarded only where the buyer is a favoured buyer (where extra commercial considerations have entered into the bargain or the term are not fair and reasonable) or the transaction is shown to be not at arms' length (again due to personal relationship or collusion or like factors). Such is not the case here. On behalf of the petitioner it was contended alternatively that at Faridabad there were direct sales not only to the selling agents but also to certain other wholesale purchasers like Government departments, canteen stores etc. though the quantum of such sales was not very large. It was stated that when certain local wholesale purchasers l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C 791] Section 4 of the Act therefore provides that the real value should be found after deducting the selling cost and selling profits that the real value can include only the manufacturing cost and the manufacturing profit. The section makes it clear that excise is levied only on the amount representing the manufacturing cost plus the manufacturing profit and excludes post-manufacturing cost and the profit arising from post-manufacturing operation, namely, selling profit. The section postulates that the wholesale price should be taken on the basis of cash payment thus eliminating the interest involved in wholesale price which gives credit to the wholesale buyer for a period of time and that the price has to be fixed for delivery at the factory gate thereby eliminating freight, octroi and other charges involved in the transport of the articles. As already stated it is not necessary for attracting the operation of Section 4(a) that there should be a large number of wholesale sales. The quantum of goods sold by a manufacturer on wholesale basis is entirely irrelevant. The mere fact that such sales may be few or scanty does not alter the true position". This being so, normally ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht at these places are ₹ 2.95, ₹ 2.10, ₹ 4.00 and ₹ 3.30 respectively. It does, therefore appear, that the freight are only being claimed at actuals in the above cases and this has been stated to be so in respect of all freight claimed. So far as insurance is concerned again one of cover notes produced by the petitioner shows that the insurance premium to cover risks of transport was charges at 0.325% and a bottle of Horlicks was valued at ₹ 80/- per doz. for this purpose. The insurance premium thus worked out to ₹ 0.26 per unit. Thus, it appears that all these expenses were claimed on the basis of actuals; the relevant documents were before the authorities and this was capable of simple and easy verification. The service charges and selling expenses were, however, admittedly averaged. Mr. Gulati stated that the petitioner maintained a special marketing division which met all the expenses on publicity, advertisement and sales organisations and that the selling agents, for the services rendered by them in the shape of exercising their management skills, handling the consignments, conducting the sale and undertaking the responsibility of collection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tisement and sale campaigns and (b) whether such a deduction could be claimed on an average or equalised basis. Neither Voltas nor Atics cover this situation for, in those cases, no deductions appear to have been claimed from the wholesale cash price, except trade discount. But such deductions are now claimed, relying on the principle enunciated in these decisions that excise duty can be levied only in respect of manufacturing cost and manufacturing profits and that selling cost and selling profit have to be eliminated in working out the assessable value. We think after careful consideration, that the answer to both the queries should be in the affirmative. The definition of wholesale cash price, as pointed in Voltas, is arrived at achieving this result but it does not take into account the possibility of the wholesale cash price at the factory gate including an element of post-manufacture expenses also, as is claimed in the present case. If the petitioner is in fact maintaining a marketing division and incurring expenses for marketing these goods the impact of such expenses cannot be excluded even from the sale price at the factory itself. In principle and logically speaking, ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot intended to include within the purview of the duty any selling cost and selling profit. The interpretation of the statute should, therefore, be harmonious with the scope of the legislative entry in pursuance of which it is enacted. Thus, though the language of Section 4 is somewhat wide, it should be read so as to carry out, and not militate against the basic concept of excise duty. It should be, therefore, taken as referring to the wholesale cash price at the factory gate without taking into account any part of the selling cost. The second consideration is that this is the view which appears to have found favour almost unanimously with several High Courts in the context of claims for various types of deductions such as equalised freight (although, strictly speaking, freight is an element which cannot enter into the concept of the factory gate price), advertisement expenses (to the extent referable to selling activity), marketing and distribution expenses, interest and so on. Though we are concerned here only with the question of selling expenses, the deductibility of other items like freight, octroi, insurance, service charges has to be considered in relation to period subseque ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld always be exclusive of non-manufacturing element of freight. It is quite possible that the petitioner company may have for the purpose of maintaining good relations with its wholesalers fixed a uniform price in both types of delivery, but at the same time in fixing the uniform price may have struck an average in regard to freight. It would, therefore, be a matter of investigation and ascertainment whether the wholesale price charged by the petitioner company at the factory gate included non-manufacturing element of freight." The Karnataka High Court considered the same question in I.T.C. v. Union (1976 Tax L.R. 2003) and held that the assessable value should be determined after eliminating from the wholesale cash price the expenses incurred in connection with marketing and distribution of goods, interest charged to wholesaler, freight, octroi and other transport charges and proportionate advertisement expenses. Reference was made to the decisions, of the Kerala High Court in Madras Rubber case [1976 Tax L.R. 1263 = 1977 (1) E.L.T. (J 85)], the Bombay decision earlier discussed and an unreported decision of the Andhra Pradesh High Court. The Allahabad High Court took the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the writ appeals and the respondents in the writ petitions with which we are concerned in these cases has very strongly relied upon the conclusion of the Supreme Court in Atic Industries v. Asst. Collector, Central Excise (1975 Tax L.R. - 1515) (S.C.) (supra) as set out in pare 13 of the report and contended that, in the instant case, the price charged by the manufacturers to the first wholesalers be they referred as distributors or wholesalers, is the wholesale cash price and it is that wholesale cash price less trade discount and excise duty which should be the basis for imposition of excise duty in view of the language of Section 4. We are unable to accept this argument of Mr. Subrahmanya Reddy in its entirety. It is clear from the observations of Mathew, J in Voltas case (1973 Tax. L.R. 1710) (S.C.) (supra) which were approved by the Supreme Court in Atic Industries v. Assistant Collector, Central Excise (supra) that the excise duty, which is a duty payable on manufacture or production of goods, can only be on the aggregate of manufacturing costs and manufacturing profit. As we have observed above, if there are any items of costs, which are necessarily incidental to the proces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mended Section 4, which in so far as is relevant runs as follows: "Section 4. Valuation of excisable goods for purposes of charging of duty of excise. - (1) Where under this Act, the duty of excise is chargeable on any excisable goods with reference to value, such value shall, subject to the other provisions of this section, be deemed to be - (a) the normal price thereof that is to say, the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of removal, where the buyer is not a related person and the price is the sole consideration for the sale - Provided that- (i) where in accordance with the normal practice of the wholesale trade in such goods, such goods are sold by the assessee at different prices to different classes of buyers (not being related persons) each such price shall, subject to the existence of the other circumstances specified in clause (a) be deemed to be the normal price of such goods in relation to each such class of buyers; (ii) where such goods are sold by the assessee in the course of wholesale trade for delivery at the time and place of removal at a price fixed under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wrapped, contained or wound : (ii) does not include the amount of the duty of excise, sales tax and other taxes, if any, payable on such goods and subject to such rules as may be made, the trade discount (such discount not being refundable on any account whatsoever) allowed in accordance with the normal practice of the wholesale trade at the time of removal in respect of such goods sold or contracted for sale; (e) ........." 22. The above amendment was effected by Act 22 of 1973 but with effect from 1-10-1975. The objects and reasons for the amendments were set out in the bill as follows:- "Section 4 of the Central Excises and Salt Act, 1944 provides for the determination of value for the purposes of charging the duty of excise under the Act. With the increase in the ad valorem levies in the Central Excise Tariff, the operation of that section has presented certain practical difficulties some of which got highlighted in the recent judgment of the Supreme Court (A.K. Roy and another v. Voltas Limited) in a case where a manufacturer was selling a small percentage of his production through a distributor and the rest directly to the consumers from his branch offices at a much highe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er or the selling agents, as before. A representative of G. Atherton & Co. deposed that they "did not maintain any distribution stockists after October, 1975". There were also affidavits filed to the same effect on behalf of this company as well as Parry & Co. With the result that after October, 1975 the petitioner as well as the selling agents directly sold to wholesalers without any sub-distribution arrangements. Copies of the selling agents agreements for the period subsequent to October, 1975 were also placed before the revisional authority along with the letter dated 19-6-1978. There appears to be no contradiction of this version of the petitioner. The Department in the impugned orders have also taken into account only the prices at which the goods were sold to wholesale dealers at various stations and there is no basis for a suggestion made by Mr. Chandrashekheran that actually the prices at which the goods were sold to retail trader at various places should have been taken into account by applying Section 4(1)(b) instead of Section 4(1)(a), proviso (iii). The Government of India in the revisional order has directed that the least of the wholesale prices in respect of ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... goods after taking into account the post-manufacturing cost and profit on such items as freight, transport, interest, travelling expenses of agents, insurance etc. The court first discussed the nature of excise duty as explained in the decisions of the Federal Court in the C.P. Motor Spirit Act case (AIR 1939 F.C.L.) = [1978 E.L.T. (J 269)] and the Supreme Court in the Sea Customs Act case (AIR 1963 SC 1760). Then setting out Entry 84 of List I and Entry 54 of List II in the Seventh Schedule to the constitution, the Court summarised the arguments for the petitioner thus : "With the lines squarely drawn between the above two legislative entries, one for the Union and the other for the States, it is contended that there must be a dividing line between the two, to define where manufacture or production ends and also begins. May be, in Thackeray's phrase, "thin walls do their bounds divide", but however tenuous, a line of division must be found at least by a process of judicial interpretation. The argument of counsel for the petitioner was that post-manufacturing expenses pertain to sale and not to manufacture or production, and a duty which takes into account those post-manufac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mention the other case referred to already. The very nature of excise duty requires a proximate connection with production or manufacture. At any rate, what has passed beyond the region of manufacture and production and entered the domain of sale, cannot pass as excise duty. It appears to us clear enough that the inclusion of post manufacturing expenses would indicate that the levy is something other than a duty of excise." It was then held, following TISCO (supra) that even under Section 4(2) the post-manufacture charges and expenses will have to be excluded. There was an attempt then on the part of the Government to sustain the levy on the price including these charges by reference to Article 243 of the Constitution read with residuary Entry No. 97 in List I of the seventh Schedule but this argument was negatived. 28. In this context, the decision of the Bombay High Court in Union Carbide [1979 E.L.T. (J 633)] may also be noticed. In this case the petitioner submitted a price list in respect of its Bombay sales and separate price lists in respect of sales out of Bombay, showing the same uniform price plus the actual cost of freight for each place. The department rejected the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... looked at from any angle, the transportation cost being a post-manufacturing expense must be excluded from the assessable value and cannot be taken into account in assessing the normal price of the goods as contemplated by Section 4(1) (a)." Thus, it would appear, there is a uniform line of decisions even under the amended Section 4 that expenses of the nature claimed by the present petitioner are to be deducted in arriving at the assessable value. 29. Faced with this position, Mr. Chandrashekheran contended that, whatever may have been the justification for the above view under the old section, the same could not be extended to interpret the amended section for two reasons : (a) that the amendment was specifically made with a view to get over the difficulties created by Voltas and Atics; and (b) that the amended section, being a legislation of Parliament could lawfully extend the scope of levy even beyond the purview of an excise duty, stricto sensus, in view of Entry 97 of List I in the 7th Schedule to the Constitution. 30. In regard to both the aspects urged by learned counsel, it is necessary to bear in mind the law as declared by the Supreme Court in the Voltas case, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of transportation costs, where the value is determined with reference to the price at a place other than the place of removal-sub-section (2)-also indicates that the basic concept is still the same as before. Apart from the introduction of the concept of "related persons" to get over a situation like that in Voltas, the specific stipulations referred to in the statement of objects are those contained in clause (i) and (ii) of the proviso to Section 4 (1)(a)-which do not concern us here-and those contained in Section 4 (4)(d) to exclude from the "value" the cost of packing, trade discount as well as excise duty and other taxes payable on the goods. There is, however, nothing in Section 4 (4)(d) from which it can be implied that only these items can be deducted and no others. Even under the old Section, the explanation mentioned trade discount and excise duty but this was not considered as exhaustive of the permissible deductions from the wholesale cash price. In short, there are no considerations in deciding the question on the position after amendment that were not there when the pre-amendment statute was considered and there is no reason why the position should be different. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons of any radical change. The pith and substance of the legislation remains the same. An avowed attempt to remove certain difficulties in the matter of valuation cannot be equated with an attempt to restructure the whole levy. Moreover, Voltas (and even Atics) did not touch upon the question of valuation at all: they were only concerned with the concept of wholesale market. Atics and all the decisions which have been referred to above in which the problems of deducting freight, octroi, insurance and other charges from the wholesale cash price were discussed all came up subsequent to the amendment which had been effected in 1973 itself (though given effect to from 1-10-1975). In these circumstances, it is difficult to envisage this amendment as having intended to introduce any radical change in the basic nature of the levy under the Act. In this context, the following observations of the Supreme Court in Ranganathan v. Government (1955-2 SCR 374) to which Mr. Gulati invited our attention are very apposite. "There is also a presumption against implicit alteration of law and that is enunciated by Maxwell on Interpretation of Statutes, 10th Edition, at page 81 in the following terms: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... again expressly refers to the duty as a duty of excise. In these circumstances we are afraid we cannot sustain the levy under the residuary powers pressed into service by the learned Central Government Pleader. We are therefore of the opinion, that the respondents were wrong in insisting on the post-manufacturing expenses and the post-manufacturing profits to be included in the reckoning for determining excise duty. In the light of the decisions noticed, this is vitiated. The learned Judge was wrong in holding otherwise." For the above reasons we are of the opinion that the interpretation of the Section has to be made in accordance with Entry 84 and not Entry 97 of the Union List. Shri Gulati contended that, if the Department's contention were accepted and the duty was leviable on the basis of the sale price unshorn of the post-manufacture-cost/expenses, it would really be a tax on 'sale of goods' covered by Entry 54 of List II of the Seventh Schedule to the Constitution and would not therefore be profited by Entry 97 in the Union List, which can apply only where the topic is not dealt with anywhere else specifically. In this context, he invited our attention on the followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lue under Section 4 both before and after the amendment, C.W.P. 1169/76 and C.W.P. 876/79 pertain to the production cleared at the Bangalore packing station, before and after the amendment respectively. These writ petitions do not therefore, require any separate consideration either on facts or in law. 35. For the reasons discussed above, we direct the issue of writs of certiorari quashing the orders passed by the Government of India on the revision petitions preferred by the petitioner in regard to the three stations Faridabad, Bangalore and Calcutta the details of which are as follows : C.W.P. No. Revision Order Nos. Date. 1. 980/79 212 to 217 of 1979 26.3.1979. 2. 876/79 210 & 211 of 1978. (sic) 26.3.1979. 3. 1169/76 1228 to 1230 of 1976 23.6.1976. The consequence will be that the revisional authority will have to dispose of the revisions afresh in the light of the discussion and conclusions contained in this judgment. Before doing so, however, the authority should give the petitioner an opportunity of being heard and may also obtain such details, calculations or other information which it may nee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he respondents cannot be said to be entirely devoid of force. It may, further be said that normally the Courts should be slow to interfere with findings of facts which three authorities in the course of assessment, appeal with revision, have concurrently arrived at. This may only be where the findings are perverse or not borne out by any material whatsoever on record. It is not as if the matter comes for the first time before the Court that it has to freshly adjudicate upon the same. It is the absence of evidence and not its absoluteness which may provide justification for reversal of a finding of fact concurrently given by three authorities. There were certain factors taken into account by them. One of them was that the selling agents and the packing concern had no inter se personal relations. It, therefore, appeared unusual that the packing firm would have allowed user of a part of its premises to selling agents without charging any rent or licence fee. In the ground plan submitted under the rules, no such premises in possession of the selling agents was shown. The sales to the extent of 4% which were said to have been effected from there, were not of insignificant amount but wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the concept of related persons was brought in and sales to them were not to affect the other normal sales. Emphasis on place of removal of the goods was also laid. These objects and reasons further referred to the observations of the courts about the manufacturing cost and similar profits. It was to overcome various difficulties experienced in the working of the Section that the suitable amendments in Section 4 were introduced. 4. The principle is well recognised that in remedial legislations, even where two interpretations are possible, one that advances the remedy and suppresses the evil as the legislature envisioned, must find favour with courts, (see 1975 Taxation Law Reporter 2129). Furthermore, undue focusing of legislative perphery of one entry in Union List would not essentially render the statutory provisions unconstitutional or invalid if the matter is covered by another entry of the same List. Normally nothing should prevent or restrict the simultaneous operation of two or more items of the List in the same statute, more so when operation is extended by deeming effect. In other words, incidence of two or more types of taxes can be combined and integrated to create a sin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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